Odd Lots - This Is the Perfect Storm That Caused Grain Prices To Soar

Episode Date: November 11, 2021

Inflation is running at its fastest pace in over 30 years. And one upward contributor to it is higher food prices. There are all kinds of things going on within food, but over the last year we've seen strong price increases in wheat, corn, and soy, which feed into higher prices for meat and dairy. There is a lot going on here. There is high demand globally. There are unusual weather conditions all around the world. There's surging fertilizer costs, and much more. On this episode, we speak with Angie Setzer, a consultant at ConsusROI (which advises farmers and investors in the agriculture space), who explains the perfect storm causing this persistent surge.See omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLotts on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. So Tracy, obviously we've been talking about inflation a lot lately, but I think there's like one category of inflation or one category of goods inflation that really sort of. of like hits people or resonates with people emotionally more than others. It's mayonnaise, obviously. So I wrote that article about mayonnaise specifically, but it has to be food inflation. Like, this is the one thing that sort of strikes fear into everyone's hearts.

And it's probably where people or where you start thinking about inflation expectations the most. It's people who are actually going to the grocery store who are looking at the price of coffee or a banana or something like that. And they can see on a day-to-day basis whether or not it's going up. Yeah, exactly. So it's like we can talk about like CPI and aggregate. And oh, a big portion of that is say like used cars. But how often do you buy a used car for most people? That's like a pretty rare purchase.

So you don't like see it in your face. You see it in the grocery store. Everyone sees it who goes shopping, whether it's the price of milk, whether it's the price of vegetables, the price of meat. But for the most part, many of these items have gone up significantly in the last year. And, of course, the thought of like, okay, the rising costs like literally feed your family is a pretty big deal. Like, it's about as sort of, you know, if you're thinking about like, well, what forms your view of inflation that, that in probably gasoline prices for people who don't live in a big

city are probably like, they're the two big ones. Food and gas. But food, I mean, there's something about it. It's almost like it's tied to modern civilization. as well, right? Because you're not supposed to think about how the supermarket works. You're not supposed to think about how, you know, the food, the vegetables, the meat or whatever get from the farm to your table. You're not supposed to think about supply chains. But when you start thinking about them, it's usually in a really negative and worrying way. And that's when things kind of start

to fall apart. So I don't know. I feel like the modern supermarket is sort of at the heart of the way we live nowadays. So when things go badly there, people start to freak out. It kind of feels like a big theme of a lot of our episodes lately is like, we wish we didn't have to talk about these things and it's a bad sign that we are. But anyway, so food inflation, not great. And food prices have gone up considerably over the last year. And there are varied reasons for this. But one thing that we've really seen over the last year, and we did one episode on it in the early 2021 with Scott Irwin over at the University of Illinois, is grains. And, of course, grains are consumed by humans, but they're also consumed by animals,

so that higher grain prices feeds into higher meat and dairy prices and so forth. And one of the interesting things about grains, I think, historically, are soft commodities in general, agricultural commodities, is that they often seem like of the commodity complex, more disconnected sometimes from the macros. So you can, like, grains may be affected by drought or other conditions, whereas something like, you know, Copper might just be like a reflection or oil might be reflection of the macro economy, boom or bust, grains and other soft commodities. They might have more idiosyncratic factors like what was the weather in Brazil like or what was the weather in Iowa like. And so it's kind of like a, it's a niche that sort of, I think a lot of people don't spend a lot, if you're not in it, don't spend a lot of time like sort of think about specifically.

Yeah, I think that's right. I mean, I think rarely does the price of wheat go up because GDP is at like four. or 5% or something like that. Yeah, exactly. So a recovery could obviously increase the price of gasoline or copper, but usually we don't really associate the price of like, yeah, wheat or corn with the cycle. That being said, right now we are seeing this boom in grains, particularly wheat. So wheat, corn and soy, or as they call them in the industry, beans,

they're all up a lot from last year. Corn and beans have actually come off their highs a little bit. They're not up, but wheat is very high. So there is a lot of, to get into it. There's a lot of stuff going on in this space. I'm very excited that we are going to be talking about wheat, corn and beans. That sounds great. I mean, this kind of falls into our category of getting really, really micro and niche this year.

But also, it's kind of a weird one because on the one hand, these are all individual markets. But on the other hand, they do have one or two things in common. You know, one thing is the weather, which you already mentioned, and that's played into a lot of the issues that we've seen recently. And the other is fertilizer. And I know that I don't know much about fertilizer, but the one thing I do know about it, only because I lived in Abu Dhabi for a while. But most people think of it as like cow poop, you know, just the stuff that you get from somewhere organic material that you put on your farmland and things grow. But it's actually the product of a really intense chemical process. And it feels to me like the weird thing about fertilizer is, it's this big chemical process with an actual supply chain.

But at the same time, it doesn't really have the same infrastructure as other commodities like oil and gas. And I think this is probably a year when we've really felt that. So that's the one thing I know about fertilizers. And I'm interested to talk more about it. And because fertilizer is connected to energy and because energy is connected to everything else, This is the one way very clearly in which the macro cycle impacting grains. All right. Let's get to it.

I am very excited about our guest. We're going to be speaking about all things. Grains with Angie Setzer. She is a co-founder of Consist ROI, which is a new company that consults on all kinds of things, grains for farmers, investors, and so on. Previous to that, she was the vice president of grain at a citizen's elevator in Michigan for 10 years. So a true grain veteran.

Angie, thank you so much for coming on Nodlots. Thanks for having me. I'm excited to be here. Can I ask a really embarrassing question to start? Of course. The more embarrassing, the better. Let's break that ice. So I lived in Illinois for a while, the south of Chicago.

I lived in the Midwest. There were a lot of cornfields and other farms around me and stuff. You used to work for a citizen's elevator. Can you just tell me, how does a grain elevator work again? I drove by them on the way to school all the time as a kid. from like age two to 12. And I actually don't know really like why, what the, how elevators work. Well, that means they're working right, right?

Like that's, if you have no idea, you never had to learn. So you never had to worry about it. But yeah, I mean, a grain elevator really, the entire beginning of the industry was we had this massive amount of harvest that came off one time of year, right? Like, so the farmers spent all year long producing this crop. And it had to go somewhere. And traditionally the, the demand sector, obviously, is, set up to handle all of the harvest coming off. It needs to be kind of rationed out throughout the

year, if you will. And so that was why a grain elevator started, is we needed to have a place locally for the farmers to be able to harvest their crops, bring them in. And then it was the elevator's job to kind of work throughout the year to kind of put the grain out into the demand structure, whether that was export, whether that was feeding animals or, you know, now in the last 15 years or so, renewable fuels or ethanol, biodiesel, whatever. And so at grain elevator's job really is just to help facilitate the harvest, take the grains in at harvest time. My job as the vice president of grain at the elevator was to hedge that, use the futures

market to kind of offset my futures risk, and then trade the spreads in the market structure that carry. We say carry or inversions in grain as opposed to, you know, those fancy fund contango and backwardation. Like, we're just very simple, I guess. But, you know, to monitor what the spreads are doing and trade the basis, which is the difference between the cash price and futures, you know, as responsible for being in charge with trading what the elevator is handling. You know, I was a basis trader is what that was called. But like I said, my job was to take in the grain at harvest time, help facilitate that harvest for my customers and then spend the

rest of the year kind of putting it out into the market structure, depending on, you know, where the demand was most present and where the market opportunities were the best. And then hopefully you get it empty or get everything kind of put away to do it all over again the following year. So I have another really basic question, but, you know, Joe laid out the sort of trio of cash grains, so corn, soybeans, and wheat. What is it that those three have in common? Like, what makes them a unified market or like, why do we talk about them as? a trio and then secondly are most people in this space would they be involved in all three of those at any one time or would you specialize in one market in

particular it really depends I think the reason that we talk about them as a trio is because they are the most actively traded they were the cornerstone to a certain extent of the Chicago Board of Trade and so we see this sort of they're the I don't know the top three produced crops I guess you could say, and the ones with the bulk of the demand and supply structure around the world. And so I feel like they just kind of all get lumped in with one another. They tend to trade within a certain level of a ratio, especially corn and wheat. And really, it depends on where you're located. You know, for instance, an elevator in Iowa where they do not grow, hardly any wheat. They grow some,

but not a lot out there. You know, they're not going to focus on weed at all. Whereas someone in our neck of the woods and my neck of the woods in Michigan, you know, wheat is one of the top three in the rotation, and therefore you need to have an understanding of how that wheat market works. There are people that are specialized traders. You know, I have friends that their one and only job is to trade wheat in the Pacific Northwest. And so they trade white wheat, soft white wheat. I mean, wheat is one of those things where we say wheat as though it's under this big umbrella, but there's five different classes of wheat. And so, yeah, there are. are some specialized traders. You know, some folks you start to talk about wheat and they completely

glaze over. Others, you start to talk about wheat and they get all excited like, oh, did you see what's going on with, you know, VSR, which is a variable storage rate that CME introduced a few years back and, you know, some of these other things. And so it really just depends on where the person's located and what their specific job is as to whether or not they're really kind of specialized. but I would say from an overall standpoint that why they kind of just get lumped in together is that they are the most actively traded. And I think they're the market that you see the majority of that outside interest in. And they just kind of have somehow become, you know, by proxy, they're representatives of all things egg, even though there's a whole slew of other crops that people handle cotton, sorghum, you know, potatoes, vegetables, all of these other things.

But corn, wheat, and beans tend to be the end all and be all. of agriculture. And honestly, how? I'm not sure. But I think most of that is simply because of the CBOT and where that started. So I want to get into soon like what's going on in the market. But one other sort of, I don't know if it's a market structure question is, how much fungibility is there in farmland that allows farmers to say switch up space in a

given year reallocating between one grain versus another, depending on conditions? let's say the price of soy, or in this case these days, wheat prices are very high. To what degree can a typical farmer pivot and reallocate acreage to one of the other? Much of that just depends on the crop and what's going on from a weather situation. Let's say winter wheat right now, so specifically Chicago and Kansas City, wheat are your weeds that are planted in the fall. And so right now for us, for instance, in Michigan, the weather has been less than ideal throughout much of October. We had one of the top 15 wettest octobers on record.

And that really doesn't necessarily facilitate getting that wheat crop planted. You can't really get a wheat crop mudded in. And now we're expecting snow this weekend and some of those things. So I may have had some customers that were intending on increasing their wheat acres due to the high costs or high value of wheat for next year. And we're flirting with $8 wheat on July 22 for Chicago. And so they would have had this desire perhaps to increase their wheat acres by 10, 15, 20 percent, something of that nature. But if they weren't able to get it planted prior to the start of October when the weather

really went sideways on us, they're not going to. You know, the same could be said for corn in the spring. If we miss that window of opportunity for planting or something of that nature, then they may be forced into planting soybeans. You know, for now, I would say, though, that it's kind of a toss-up for most growers going into the new crop year, going into next spring. You know, whereas if they are able to get the crop off, they're looking at different opportunities when it comes to, you know, returns on investment and some of these other things,

they may be able to switch up their rotation. But for most farmers, what they will tell you is that it's very rotationally driven. It's best for the soil to kind of keep in mind soil, weed control, pest control, all of these things to kind of say, okay, well, we grew corn last year. We're probably going to switch to beans this year. In Michigan here, like I said, we have a three crop rotation. And so a lot of times you'll see corn, the following year, beans, and then wheat planted in the fall after that bean crop, and then corn again the following year. And so for a lot of those folks out there, they'll stick to that rotation. But if Mother Nature says something different, like what we saw in 2019, where we just literally

could not get the crop planted until the middle of June, for a lot of folks at that point, they may have switched over into soybeans or something different. And so for the most part, there are a lot of ways that farmers can kind of change their mind or maybe reevaluate what they intend to plant. But for the most part, they tend to keep it in line with what their local market structure asks for, with what their soil is asking for, and what they've done from a traditional standpoint, maybe for the last several years. The news doesn't stop on the weekends.

Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world.

That on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television. Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. So why don't we go ahead and talk about what's going on in prices?

So a big run-up in wheat. Soybeans have dropped from a pretty big spike over the past year or so. And corn doing relatively better than soy, but not that great. What exactly is going on? A ton of things. It's amazing, you know, what's taken place here and thinking back over to the last 14, 15 months. And so that's one of the biggest things I'd say is you almost have to start from the beginning, right? the September 2020. So a year ago, September, we saw these massive ending stock estimates from the USDA.

We thought we were going to be flirting with a three billion bushel carry out. And so to put that in the perspective for corn, you know, a tight or a pipeline minimum where we say that we're at the low end of supplies is around a billion bushel. And so last September, we were expecting three times what would be a minimum pipeline amount. It was burdensome was the words being used quite. often. And the same could be said for soybeans. We were expecting close to a billion bushel worth of carryout and in steps, China. And all of a sudden, we get this conversation of China stockpiling, cheap prices, trade war, phase one, and all of these things. And so China steps in and just starts buying in a way that we had never seen before. Honestly, I mean, it was like someone

had flipped a switch. It didn't matter what prices were doing. It didn't matter what it would cost to get there, they were just told to buy and they were buying. And so that started really kind of the sudden turn. And we had what you would call a bullish response to a bearish report. And that was the first sign that things were probably going to be quite different. And, you know, around about a year ago, I remember it right around Thanksgiving time was when we started to talk about the inflation, you know, and what was going to happen from an inflation trade standpoint. And suddenly the macro side of everything came back into focus, which was the first time we had seen any sort of macro conversation. I'd say 2018, we'd probably flirted with it for a minute. But really, you know, we're talking 2008,

2009 type inflationary conversations, obviously when you look at inflation data. And so we had this sort of combination of significant increases in demand via China. And then suddenly the USDA was like, oops, we overestimated last year's crop pretty substantially. And we started to see this reduction in overall supply. And so you could say that it was a perfect storm of bullishness. I mean, it just, you had the inflation, really putting the gas to the fire, and then you had these supply and demand. So like, as you were saying at the start of the show, you know, we tend to just focus on what's weather doing? You know, what are we going to use for exports? And most of the time, folks don't even care what's going on in grains because we just kind of trade back.

and forth, maybe get some seasonal rallies here or there. But from an overall standpoint, we never have to worry about running out or any of this. Well, China, like I said, stepped in and bought well beyond what you would traditionally see them take in from a corn standpoint, especially. Soybeans were a bit of a surprise, but then you saw them really come in and buy that corn. But in addition to that, then you had these Brazilian issues. You started with a low or a slow start to monsoonal moisture in Brazil, so they were unable to really get the crop planted until around January when traditionally you like to see the bulk of the crop planted October November. That had major implications on the U.S. export window. An export window traditionally closes for soybeans

around the first part of January into February. Last year, or at the start of this year, we were exporting beans to China into March because Brazil's crop wasn't ready to make its way into the export pipeline. That slow start to their soybean crop hurt or slowed their ability to get their corn crop planted. It put that corn crop. into that important window of production falling right when the dry period starts. So the monsoonal moisture in Brazil tends to shut off last part of April into May. So that's when the majority of the corn crop was trying to mature. We had this amazing, if you can call it, that drought in Brazil take place

and really just take their second crop corn production expectations from around 120 million metric ton down to 85. So we had just this wild series of events that made it feel as though we were never going to see corn and soybeans go down again, only to actually have a pretty reasonable production season in the U.S. We actually are looking at probably having a record large soybean crop. We're going to be flirting with record yield in corn. And so that's helped kind of stabilize some of that supply and taken some of that story away.

But poor wheat is still on that track. Wheat didn't get the memo that we were supposed to calm down because wheat had production shortages. had this massive drought in the Canadian prairies and in the northern portion of the U.S. where spring wheat is grown. So production there was off substantially. And then, of course, we have this fall weather here where we could be looking at another reduction in production, specifically in the soft red wheat area, the Chicago wheat area. And then there's questions as to what the heck is going on in Russia. The Russia's obviously continuing to limit what they're exporting. You're seeing some continued food inflation stories. The industry itself is changing there. What you used to see was

the farmer having to force supplies into the market structure as they were harvesting, similar what we had talked about earlier with the U.S. elevator. Now they're building space. They're keeping the crops closer to home. They're finding that that gives them some power. And so that's really changing what we're seeing from the overall global supply and demand situation. And there's a million different little stories that you could point to in any one day

that would be either bullish or bearish price. And right now with that inflation under-tow that we're seeing, or that inflationary support, it's keeping prices supported even if the fundamental story, especially for like soybeans, isn't as bullish as what it was six months ago. That was great.

And I think that was like this sort of like perfect storm of all the things you describe, the planting conditions and the Chinese buying and the issues in Brazil, the issues in Canada. And you really see how it all comes together. I want to drill down a little bit more. And I think you're sort of,

drove home a little bit what we were talking about in the beginning, which is that normally we don't think of grains as being part of the macro cycle, the same way we do with other commodities, but this time we're getting both at once. We're getting these sort of unusual things with the conditions globally and the macro consideration. So I want to get into some of the macro. One thing I'm just curious about is like farm labor. How challenged are, we talk about it with all different industries. We hear about all the time. How challenging. our farmers right now from a hiring perspective and how much our labor market's putting stress on farmers? They're definitely. I mean, that tends to be a common issue that we have in agriculture,

even before this whole entire conversation about employment and, you know, and struggles with finding folks. We always tend to. I mean, let's be honest, like agriculture is not the most glamorous industry to work in, especially when it comes to corn, soybeans, wheat, some of those things. You know, the majority of the year, you don't necessarily need to work in exceptional. amount of hours if you're just, you know, row cropping. But then those two or three months out of the year, these folks are working almost 24 hours a day, seven days a week. And no one who doesn't have a solid investment or, you know, as I like to put it mud in their blood, you know what I mean? They're not passionate about the agriculture side of things. You know, no one's going to be excited about doing

that. And so one of the things that we're somewhat fortunate in in my portion of agriculture, Sure, this isn't the same for vegetable producers and folks with a labor-intensive crop. But in corn, soybeans, and wheat, technology and the expansion of technology and the expansion of equipment, the bigger the equipment, the easier it is for one guy or gal to harvest. You know, we've expanded the size of grain carts in the field to where, you know, the combine can put a thousand bushels of corn on a cart before it has to go to the semi. You know, one of the biggest things that we're really struggling with, and I think everyone can agree throughout this the industry you know one of the things that we're really struggling with

when it comes down to it is is truckers and and truck labor there being able to move it from point A to point B you know and as a result a lot of the customers that I'm working with we may be evaluating or reevaluating you know where we would traditionally send soybeans into the export hub that is Toledo at the fall we may instead take a lesser price to go into the the bean crusher to the north or something of that nature where you know you can make three trips a day versus trying to make one, just simply because you don't have the amount of truckers that you used to. And so it's been one of those things. I think the biggest sector that will continue to be impacted on the employment side,

especially will be those elevators, those commercial setups, just simply because it's hard to find someone that is willing to work the long hours that are needed to run that elevator and to work with the several different farmers that come in. And it's not the most glamorous job at all. but it's definitely an important one. But at the same time, even with costs going up and all of these other things, the elevator or the commercial, unless they're an end user, unless they're an ethanol plant or an exporter or something of that nature,

they're getting squeezed as well because their margins aren't getting that much better or good enough to where they can really kind of incentivize with higher pay to their employees. And so that's where you're starting to see some of that real squeeze come in is the groups that are trying to facilitate that harvest, you know, i.e. those commercial elevators, or those that are trying to move the bushels, you know, like truckers or someone of that nature. Well, so this is something that I want to ask you, but what exactly are the input costs that go into farming these types of grains? So, you know, you just discuss labor. I imagine equipment is a big part of it. We talked a bit about fertilizer at the intro, but like what are actually the things that go?

into producing these different types of grains and how have those various components been impacting the price recently? There's a ton of input costs that you could take into consideration or you have to take into consideration. You know, I think the biggest one for a lot of folks is land. And we've seen land values obviously going up. The old line, they're not making any more of it is definitely true, right? And so you've seen land costs go up exponentially.

We're starting to see urban sprawl. impact that, you know, in my neck of the woods, they live just outside of the Lansing area, and the amount of farm fields that have went into subdivisions over the last five years is relatively astounding. And with prices, lower, margins tight, a farmer can't necessarily compete with a developer when it comes to purchasing some of these land pieces that come up for sale. So I'd say land costs, obviously there is the cost of living that a farmer has to take into consideration if they are a full-time farmer, health care, you know, the cell phone, the new pickup, all of these things, you know, kind of come into play. And then when it comes to actually producing the crop,

you're obviously looking at fertilizer, chemicals, seed, you know, your equipment costs continue to grow exponentially. You know, all of these things kind of come into play. And so there's always been that old line that the, you know, the farmer buys retail and sells wholesale. And we're definitely seeing that at this point is everything that that we need to produce the crop has gone up and value. And obviously the futures values and the price that the farmer is getting for selling his or her crop has gone up as well. But they're definitely not matching one to one.

You know, there was a sweet spot there probably sometime in March maybe that we had hit where the price going up had matched the cost of inputs going up. And now we're starting to see inputs stay elevated while values come down a bit. And so, yeah, I mean, there's, you name it, the farmer, it probably touches it in some way, shape, or form in order to have that business and bring the crop to the pipeline. So one of the things that's very timely right now, we're recording this Monday, November 8th, it'll be out in a couple of days. We don't know what's going to change by then, but there's a significant strike at deer impairing production. And I have to assume, and I don't know anything specifically about this, my gut is because of everything. these days that tractors and parts for repairing tractors were not in abundant supply even before the

strike because I'm just sort of assuming that every part of the supply chain is stressed. How much anxiety is this causing, is the strike causing farmers and worries about production of new farming equipment? It's definitely something that's on the radar. I think as we, I think the anxiety was much higher at the start of harvest because there were some true concerns over what would happen if you had a break down and kneaded apart and you were unable to get it. You know, as we're wrapping up harvest here, we're expected to be around 90% complete on soybean harvest and 87% complete on corn. So we're into that final stretch.

And so much of that anxiety has kind of started to back off a little bit. I mean, at the start of harvest, there were some real concerns. I had growers that were needing to drive, you know, five, six, seven, eight hours to grab a part at a dealership that maybe wasn't local in the state or anywhere to be found in the state. You know, and so there was some real concern over what happens if I suffer a catastrophic breakdown, you know, what am I going to do? How are they going to make sure that I'm able to get back and rolling again? Because that's the biggest thing. We get a tiny window of opportunity to get the crop off. And if you're unable to do so, unable to get that crop off because of a piece of equipment or a lack of a part or something of that nature, you know, that's something that keeps you up at night, just that concern. And so having made it to the bulk of the tail end of heart, without much in the way of absolute shutdowns, you know, across the industry, we're breathing a little easier.

But it's definitely something that's going to cause great concern. You've seen an exponential increase in used equipment costs and other things. And so that's going to make some folks think twice before perhaps. I think we're getting to that tipping point when I say that folks think twice before trading in an old piece of equipment for a new one or something of that nature. I think you're going to start to see some of the same things that. you're seeing in the auto industry, you know, kind of start to take place a little bit when it comes to equipment. You know, most farmers right now have the bulk of their equipment needs

covered. Would they like to upgrade potentially? Sure. But are they going to think twice about it, you know, before they just dive in head first and make a purchase that they may not need to be making? You know, yes, they're going to start to really kind of reevaluate some of the demand that they have surrounding these pieces of equipment. And so I think you'll see eventually, a point where we hit a bit in the way of an impasse, but, you know, we'll see what happens. If the supply chain can kind of get back up and running, you know, then they won't. I've seen a lot of folks talking about switching away from deer into other types of equipment, but the supply chain disruption is across everything.

And so it's not just a deer thing. It's not just a case thing. It's not just a New Holland thing, you know, and I think the farmers are aware of that. It goes back to the housing industry, you know, like a lot of folks would love to maybe move to a new house and maybe they can sell their house for an exceptional profit and they're well ahead, but they can't find a new house. And so it's the same thing, you know, in equipment is you could get rid of whatever piece of equipment that you have, but can you replace it. And if you can, what does that replacement cost look like? And so there's a lot of tough decisions kind of being made

or folks are thinking twice about maybe making some of these changes that they would have made otherwise because of the disruption that we're seeing and the cost increases. And so it's not a a requirement to upgrade to a new combine every year. And so these guys will probably sit tight for a little bit and see what happens. But it definitely remains concerning, you know, just as in any other portion of, you know, the demand structure out there. Like if I go to the store tomorrow, is there going to be toilet paper? You know, and it's the same, except for now it's, if I need a new belt to keep my piece of equipment running, will it be there? And so I think you are seeing some additional, you know, purchases instead of that, well, I can go to.

the store tomorrow and it'll be there. You're seeing the same in agriculture to where I'm going to make sure that I have it on hand, so I don't have to worry about that. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now. And we don't wait an hour to publish breaking news.

When news breaks, we'll have an episode up in your podcast feed within minutes, so you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. So just before we move off deer and equipment, you know, we're talking about the strike and maybe farmers wanting to have more parts or equipment on hand. One other longer standing issue that regarding deer, I know, and I've seen read some articles about this, is right to repair. and this idea that like tractors and combines, like cars, are getting more and more high-tech and there are more pieces of software

than they are just pieces of metal and parts put together. And that this is a sort of anxiety, that there becomes a sort of lock-in where the farmer becomes very dependent on the vendor or on the equipment manufacturer. How much is this something that people talk about and trying to, whether through law or something else, trying to change it such that the only,

owner of the piece of equipment is not as perpetually dependent on the manufacturer for permanent ability to repair their own goods. It's a huge deal. I mean, it's definitely something that folks are cognizant of and they're fighting every day. You know, to a certain extent, I would say, you know, those of us in agriculture are just kind of so used to being like, well, it is what it is. You know, and so they aren't necessarily standing up or fighting, you know, they're maybe relying on other people to kind of fight the good fight, and then they're standing in the background saying, yeah, what he said, you know, to a certain extent, but it's definitely something that's huge and something that we need to be aware of and paying attention to. And, you know, it plays a role.

You know, and it's a beautiful thing. You know, technology has made it to where we don't have some of those concerns over employees and things of that nature, because we're able to kind of do more with less people. But it's definitely concerning when, you know, you do have growers that are ready to start planting the crop and maybe because this piece of equipment is not properly communicating with this piece of equipment, they're shut down for sometimes days at a time. And honestly, a lot of the folks that are tasked with fixing these things locally may not have the level of education or understanding of what they're working with in order to do so quickly, you know, in a time that they need to. And so it's definitely something that is a major factor and is only

going to continue to be a factor in the industry as we kind of continue to, you know, add in that technology. And we say it's for our own good in a lot of ways that it definitely is. But it still can cause some of these pretty major issues that can slow up production or slow up harvest or whatever. And it's something that we hope to see remedied in a cooperative manner. Like, we understand the reason behind it in some circumstances. But at the same time, you know, there really should be some ways that we can kind of bypass or make sure that it doesn't shut folks down for days at a time, you know, in those instances that that takes place. I have a related question, but just going back to the input costs that we were discussing,

if everything is going up, then, you know, presumably the farmers can pass some of the costs on to customers, but is there anything they can do to try to offset those expenses to reduce their own costs. Like, are there different production techniques to be more efficient? Presumably, you can, you know, try to rotate into crops with a higher yield or a better return and things like that. Is there anything that you're seeing now that people are trying to do? Yeah. Yeah. I mean, I think you're seeing some real growth in the understanding of agronomic influences in producing a crop. We've seen some folks over the last few years, you know, when you talk about fertilizers and, you know, kind of some of that input side of things. You've got, you know,

and P and K that, you know, really kind of are important components. You know what I mean? You've got your nitrogen and your phosphates and your potassium and you have all these different things. And so P and and K are your phosphates and potassium. And over the last few years, they've been relatively cheap, comparatively speaking. We've had reasonable supply and we've had the ability to kind of use them and and really invest in increasing these yields via these inputs and these components. And so some growers are telling me this year they're spending some extra money on soil sampling, perhaps they're going even further into the soil sampling than what they would traditionally do, going more into a grid sort of standpoint to where they're seeing every portion of the field

to see where they may have the ability to skip some of these inputs, P&K specifically, they can't necessarily avoid using nitrogen. but some of these cost savings that they're seeing elsewhere, they're going to spend on utilizing some other forms of nitrogen or having access to it. One of the things that we've seen that's very different than what we saw in 2008 and 2009 is a lot of growers now have the ability to store

these inputs that they may need well ahead of what traditionally would be the spring season. And so for a lot of folks, they may have actually purchased and took possession you know, late summer on some of their fertilizers and some of the other things that they may need in order to produce the crop. And so that helps them to avoid some of these pinches that we're seeing that took place, you know, after the big hurricane hit the Gulf and after China decided they were going to restrict, you know, phosphate exports and Russia stepped in. And, you know, some of these other things that have taken place that have happened and really ramped up prices here over the last couple, three months. Some of these guys haven't necessarily seen that big brunt.

You know, in addition to that, we have some regenerative forms in agriculture where we are using continuous cover and some of these other things that we're doing that are actually helping the soil produce their own, its own nitrogen or helping it to better handle, you know, if we run into drought situations or some of these other things. And so from an overall standpoint, you know, it's easy to think that, oh, well, the farmer goes out and he just sticks the crop in. And if it rains, then we have a crop. And if it doesn't, then, oh, no. But the reality is that these guys and guys and gals are investing heavily into all forms of technology, you know, when it comes to crop production and are looking at, you know, variable rate technology where the soil dictates what they apply and some of these other things that are really kind of helping them to, you know, potentially reduce their demand when the costs increase enough to where it's harmful to margin, you know, to kind of stay. as is or to do everything as they've always done. And so that's one of the things that we aren't talking about much, you know, is the fact that the farmer is so used to being somewhat flexible

in what he or she does when it comes to their production techniques, that they're looking at every single way that they can in order to kind of reduce some of those costs, reduce maybe some of the demand on the input side, and really work to continue to facilitate producing, you know, large crops via the technology that they're able to use. You know, we touched on this at the beginning, but, you know, I'm thinking about you in your, you know, your day-to-day job advising farmers and helping them to anticipate things. Let's talk a little bit more about fertilizer, because, again, fertilizer prices, as we know, highly a function of energy prices.

It makes it a very macro story. Fertilizer prices are through the roof. And so when farmers are thinking about margins, obviously fertilizer is important. What are you telling clients about fertilizer and how are they impacting margins? What are you anticipating them to do? And what are the knock-on effects to actual growing from this recent search? Yeah. Well, I mean, I'm letting the farmer talk to me on what he or she is seeing when it comes to inputs

because they are such an, it is such an individualized approach. You know, different farmers, you know, there isn't an all-encompassing sort of prescription when it comes to growing your crop. So different soil types and different farm types and different crops kind of utilize different inputs, especially when it comes to fertilizer and things of that nature. And so the conversations that we've been having have been more on, what are you seeing from a cost standpoint? Have you booked it? Did you not book it? Are you looking at booking next year?

You know, what are your thoughts on that? And I would say the majority of the growers that I work with have in some way, shape, or form spoken for, booked, taken possession of, are looking at, have. those fertilizer costs locked in. And so we take a look at, okay, based on your general production history, what you typically can intend to produce on that crop, based on your costs, where you've seen increases, you know, seed costs are up about 5%, you know, fertilizers where that huge increase is coming from.

And I would say that there's a huge push of a story that farmers aren't going to produce or we're going to reduce production because of these costs. And I would say all of the growers that I have talked to that have actually sat down and looked through a return on investment projection or looked through a cost analysis on what they're seeing from an increase versus a year ago and what they're expecting to produce and where the current crop prices are and all of these things, they're still capable of booking a relatively reasonable margin. In some cases, especially for the growers who

may have booked their inputs early, let's say August time frame or something of that nature, and are looking at 550 December 22 futures, they're actually looking at the potential of having a better margin on new crop than where they were at a year ago when looking ahead. And so we're just having a conversation about taking a realistic approach to what you need to utilize from an input standpoint,

making sure that the biggest question that we have or the biggest concern that we have is whether or not we'll be able to get our hands on the inputs, the fertilizer and things of that nature. And so luckily for us, we still have four months to kind of hope and pray, because I think that's the point we're at in this supply chain disruption now, is just simply hoping and praying that it corrects itself at some point. But we do have some time, for those that haven't taken it in or taken actual possession, we do have some time to hopefully see some of that production catch up and folks to kind of get their wits about them in the industry.

You know, one of the things that we are seeing is if you look at a fertilizer chart from 08 into 09, you know, we saw this peak sort of happen in November. and it was a straight fall, free fall from there. Now, with everything that's happening macro and everything that's happening with China, Russia, you know, we fought the fertilizer industry in the U.S. fought against imports on one of the larger suppliers of fertilizer. And so that kind of restricted some of that supply, you know,

coming in and things of that nature. We don't anticipate this sort of free fall, you know, obviously. And a lot of that's going to depend on what happens from a macro standpoint, If the global economy starts to cool and maybe retract, then obviously everything changes in energies and everything changes value-wise. But for the most part, one of the things that is unfortunate when it comes to corn, soybeans and wheat production is there's never been in a history of the world a time where the market stopped and said to the farmer, Mr. Farmer, are you making money here? It really doesn't care. And so one of the things that we really have to keep in mind is farming is from a supply standpoint is not as elastic as other industries.

You can't just, you know, let the ground go fallow for two months and then plant to crop in August or something of that nature. You know what I mean? Like we're kind of locked in. You have to do it. You're going to do it. And you're going to figure out how to make it work. Now, Mother Nature tends to have the final say in some of these other factors at play, obviously. play a role. But from an overall standpoint for the growers that I'm talking to right now, the majority of them are keeping in line with what would be their normal rotation. Maybe they've made some changes. They're going to grow soybeans instead of corn on some ground that, you know, is less productive when it comes to corn and maybe it needs more fertilizers or something of that nature. But from an overall standpoint, talking with the folks that I'm talking to, they're just going to kind of keep on and a farmer is an eternal optimist.

he or she wouldn't be in the industry if they weren't overly optimistic about potential and things of that nature. And so for the majority of the folks that I talk to, they're just going to stay the course and do everything they can to produce a good, high-quality crop. And when all of a sudden done, they hope that they make money doing it. So I was going to ask you what it would take to bring the market into equilibrium. But then I realized, like, what actually is equilibrium in this context. Like what would you or the average farmer consider to be like a market that is roughly in balance? It would be, you know, similar to the production cost we saw a year ago with around a 425 to 450 futures value in corn specifically. You know, that's kind of a sweet spot. Everyone was

really excited when we saw the turnaround from, you know, that $3 COVID low to, you know, breaking above $4 and actually sustaining the move towards 450. It was as we saw the market start to move towards five and then six and then closer to seven, you know, speaking corn prices specifically where folks started to say, oh, no, now we're, now we're really working our way towards unintended consequences. And so most folks that I talked to would tell you, could you give us last year's cost of production with like a 425 to 450 futures price and that would be a nice sweet spot? And, you know, we might get to see it. It might happen for like a day as things pass and we go back the other way. You know, and that's just something that we've grown accustomed to in the industry is that there

there really isn't equilibrium. And if it's there, it doesn't last long. I'm starting to realize, like, there's not many, like, agriculture tourists. Like, I can, like, sort of, like, pretend maybe, like, in a week, like, oh, I say something smart about supply and demand on copper. I really feel like it would take me a year or years before I could even pretend to say something smart about grains because they're just, as you say, so many moving parts and the idea of equilibrium is almost like a nonsensical idea when there are just so many different variables. And I'm really starting to appreciate in this conversation why it feels like the grains conversation is so separated from other markets. I want to ask you, though, you know,

you're talking about like the higher fertilizer prices. You don't really expect them to have a big supply impact on grains because, again, they're going to find a way to make it work. So far, there still is room for margin, maybe it'll come down, et cetera. What about then for the consumer of grains? And I'm thinking, you know, obviously people are concerned about meat prices. And so obviously a big consumer of corn and soy. I don't know if animals eat wheat, but corn and soy. Oh, they do.

They do. If corn prices get too expensive and wheat's cheap, you'll see it flip-flop. But right now, obviously, that's not happening. It's the opposite. I didn't, interesting. So what happened? Well, how are they? How are the end buyers of the grains reacting?

And I know that it's sort of like they have their carriage costs and dairy cows. You know, they have to, I read something that because they have to feed them for a lot longer, they might allocate away from dairy. But what is the ramification of these elevated prices on the meat farmers? Yeah, I would say the biggest thing that you see or what the biggest ramification will be. And this is kind of a dual component or I'll give you a dual answer to it. But, you know, one of the lines in the industry has always been you feed cheap corn with a scoop shovel. You feed expensive corn with a teaspoon. And so one of the things that you're going to see is some folks will start to really kind of move away from feeding a lot of corn.

Now, obviously, you have to feed your animal. And so that's their number one, you know, animal stewardship and making sure that they have a healthy, high-quality product to offer into the global pipeline is the most important. and, you know, not to use too many cliches, but a lot of times cattle producers will tell you that every year is a million-dollar year it's just a matter of if it's a red or a black one. Can I just say, by the way, we could do a whole episode on farmer cliches,

and I think Tracy and I would really, really, I've enjoyed all of these ones because the more the more than mirror, I enjoy all, anyway, keep going. There's a million of them. That's just, we all have something that we can say. But really, when it comes down to it, is, you know, as a cattle feeder, as a hog feeder, as a poultry feeder, whatever that may be, you know, a dairy farmer, they will do whatever it takes in order to keep their animals healthy,

happy, and well-fed. But they will look at alternatives. They will look at ways that we can up or, you know, kind of change the ration of what they're feeding. And that a ration is obviously the components of what they feed, whether that's distillers grain, which is a byproduct of ethanol. All right. Well, ethanol production right now, because of the, the end. energy markets. Ethanol production has set a record in the last two weeks. We are producing a huge

amount of ethanol. And so as a result, every time we produce a gallon of ethanol, we're producing several pounds of distillers grain, which is a high energy cattle feed. And so we are kind of, maybe we're increasing the amount of corn we're using for ethanol in the short term, but we're offsetting those corn needs by producing a larger amount of distillers that can be sold into the countryside and fed. And so there's going to be a lot of, sort of give and take and trying to find, you know, what's a cheap source of energy? What is a cheap source of protein? We're also crushing a lot of soybeans due to renewable diesel and the increase in soil oil demand and vegetable oils from around the world. And so as a result, when you crush

soybeans, you also produce several pounds of soybean meal, which is a high protein feed source for the animals. And so we are seeing some give and take and some, you know, sort of ebbs and flows of the overall supply versus demand structure in the market, obviously high feed costs will spill over into production and the desire to expand production. And one of the industries that will see that happen the most in is going to be beef simply because it takes about 18 months to get an animal from birth to ready to be harvested, so to speak, and ready to move into the grocery store near you. You know what I mean? And so it takes an exceptional amount of time. So if you see high feed costs start to discourage folks from breeding cattle in order to feed or fatten to put into the pipeline, which we've seen.

We saw, you know, a year and a half ago, you know, sort of this move that instead of retaining heifers and breeding them to have more beef cattle, we moved them into the pipeline because it wasn't cost effective to continue to feed them or to put more mouths, you know, on the in the feedlot. And so as a result, we're seeing that in higher beef costs. We've seen cash cattle work their way up towards 130, which is, is considerably high. It was only a year ago that we were below a dollar a pound. And so you've seen some of that happen. Hogs have seen a huge burst to the upside because of what we thought would be some continued Chinese demand. Again, that hogs have kind of been the canary in the coal mine to a certain extent because that huge increase in Chinese demand because of the loss of the Chinese herd. and then since the recovery that happened a year ago,

you know, it's kind of hurt the hog values. Now, hogs are a six to eight month to a year. They're much quicker sort of turn them off, you know, turn them on, shut them off, sort of market structure. Same can be said for poultry. And so you'll see the high feed costs try to carry over into the value of meat at the grocery store. But again, just going back to like crop production, you know,

Honestly, no one stops and asks the cattle feeder what it costs to produce that head of beef. We don't really notice that there's been an issue or that there's been, you know, this high feed cost kind of carried over until it gets harder to find the beef at the grocery store. It costs you, you know, $8 a pound for a steak or something of that nature. And so we'll see it, but it's not necessarily something that you'll see the feeder maintain a solid level of margin or anything of that nature. they just have to kind of absorb it and hope, again, just like the row crop producer, that when they get to the end of everything, that they were able to eke out some sort of profit. Angie, there was so much we just learned from you in the last hour. Your Twitter bio says you're a cash grain super nerd, and you totally lived up to the hype

of your self-description. That was fantastic. I learned a ton and really appreciate you coming on odd lots. Thank you so much for having me. I had a blast. This was fun. Absolutely. That was great, Andrew. Thanks, Angie. That's really good. Okay. The number of moving parts in like the grain conversation, it really sort of blows my mind.

Yeah. I mean, not only are you talking about different types of grains, but like each one of them seems to be affected by different things, like even a different type of fertilizer. And then a different type of weather pattern. And then, you know, different types of grains feed into different types of, well, feedstock for cows and chickens and pigs and things like that. There's a lot going on. But Angie was really great at breaking down like all these different things at the same time. No, it's great. You know, it's something I thought about another thing that sort of makes the grain market interesting is I guess the seasonality of plantings is probably like another.

You know, there's not oil season, right? I mean, I don't know, maybe there is a little bit of seasonality in some places where, like, industrial. commodities, but by and large, you know, it's like if there's oil somewhere, you're taking it out of the ground 24-7 any time a year, or if there's copper somewhere, you're taking it out of the ground all that time. I do think, like, with grains, it's obvious, like, you could have, like, high fertilizer costs right now, but if, like, the growing season was a couple of months ago, then maybe it doesn't have a big effect. I would say, like, this doesn't feel like an area for, like, macro tourists to, like, start trading grain. Like, I would advise people,

to like be really careful if say like you're like, oh, I want to start trading corn or whatever because like the number of like variables that like go into, well, yeah, this time of year is not when the, you know, the conditions, but you know, three weeks ago or the weather, like at the beginning of October, whatever it is, would it seem like to make it really intimidating for an outsider. Well, even the professionals, I mean,

struggle to forecast a lot of these things, right? And Angie mentioned the, what was it, the agricultural department, like, underestimating or, I can't remember now. Was it underestimating or overestimating the initial corn harvest last year? Oh, overestimating. And then it came in smaller than expected. So, like, even the people who do this every day, day in and day out, can get things very wrong, much like financial journalists. It really makes me appreciate that we have food. I mean, obviously, like, because all of these things go into it.

And granted, there is food inflation right now. There are not widespread food shortages. But given the complexity of all of this, I am grateful once again for the farmers of America. Well, it kind of reminds me, like, just in the intro of supermarkets being like the foundation of modern society, there's just such an enormous mismatch between like the day to day, immediately. that a supermarket demands versus these sort of like eternal seasonal nature of actually growing food and the idea that you have to plan everything out. You have to wait for the right season to actually plant things. And then of course you have to wait for them to grow until you can harvest them or slaughter them if they're animals. It just seems like such a mismatch between the time it takes to actually

do that and the time frame that people demand that their vegetables or their meat or whatever actually shows up on the shelves in their local grocery store. I like that Angie said that one of the perhaps solutions for high fertilizer costs is prayer. That like, you know, there's only so much like, you know, it's like a little, you know, it's one thing to say like, okay, the price rations, the market or whatever. But, you know, there hasn't actually been, I guess, a real physical shortage. We're a farmer who needs fertilizer, like, can't get it, at least according to, at least that was my takeaway from Angie's. But that couldn't theoretically happen at some point. And she's like, yeah, maybe we just have to like pray that sometime in the next three or four months, the market

sort of balances out. But maybe so. Maybe that'll be one, maybe that'll be one solution to the, to the issue. Well, it would certainly be a sort of like time honored technique, I guess, praying to the gods for a good harvest. Okay. Yeah, that's exactly right. Farmers have been doing that for a long time, I think. Yeah, all right. This is getting weird. Shall we leave it here? Let's leave it there. All right. This has been another episode of the Odd Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at The Stallwork. Follow our guest, Angie Setzer. She is at Goddess of Grain. Follow our producer, Laura Carlson.

She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. This is Tom Keane, inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open.

We cover stocks, bonds, commodities, even crypto. all the information you need to excel. And I'm Alexis Christophorus. Bloomberg Surveillance also brings you the analysis behind the headlines. We do that through conversations with the smartest names in economics, finance, investment, and international relations. We do all this live each and every weekday that bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch.

And on the West Coast, listen as soon as you. as you wake up. That's the Bloomberg Surveillance podcast with Tom Keene, Paul Sweeney, and me, Alexis Christophores. Subscribe today, wherever you get your podcasts. Bloomberg's Surveillance Essential Listening, each and every business day.