00:00:00 On farm economics. It's no secret we're heading into a downturn. What can you do about it? 00:00:04 And what can you do with companies that maybe can help you through this downturn? That's the discussion in this episode of Cutting the Curve. 00:00:11 Welcome to Extreme ags Cutting the Curve podcast, where real farmers share real insights and real results to help you improve your farming operation. 00:00:21 And now, here's your host, Damien Mason. Hey there. Welcome to another fantastic episode of Extreme Acts Cutting the Curve. 00:00:27 I've got a great one for you today because let's face it, on farm economics, it's a reality. We've just come off of three amazing years, 00:00:33 21, 22, 23 record on farm income record net farm income, and we're talking about a pretty big downturn, 00:00:40 40% roughly across the board, off of the 2022 high. Any business that takes 40% of revenue off of the table is gonna have to make some adjustments. 00:00:50 What adjustments are you making? What adjustments are the guys extreme ag making? And more importantly, can companies help you through this 00:00:56 that are your business partners? That's the topic today. Matt Miles, one of the founders of, uh, extreme Ag. 00:01:02 I'm wearing the Miles farm hat here, and Steve Acker from Concept Agritech we're talking about on-Farm Economics. 00:01:08 Matt said, Hey, I didn't come in here with a whole big, uh, uh, uh, pages of, pages of, uh, numbers, 00:01:13 but I can tell you exactly what's happening. You had a big meeting yesterday. The governor of Arkansas 00:01:17 and the Secretary of Agriculture of Arkansas were at your farm. Let's just lead off with that. What was the topic? 00:01:22 I assume the reality of farm economics? Well, yes, for sure. Uh, uh, governor Sanders at reached out to me a couple 00:01:30 of weeks ago and said, Hey, we're we're going. We, we see there's a problem. And, and she 00:01:36 and Senator Bozeman, uh, US Senator Bozeman, he's, he's in the, you know, does all the ag stuff with, with the Senate. 00:01:43 And they just wanted to sit down and have a round table discussion with farmers about what was going on. 00:01:47 And, you know, I told 'em, I said, you may, you know, you may hear a lot more than you want to hear. And they said, no, we're prepared. 00:01:53 You know, we know there's something going on. Um, I think there's finally a spark to the, to, you know, to the administration. 00:02:02 I say to the administration, to some, some of the administration that, of what's going on. And that's the scary part, 00:02:09 is the other part of the administration. I don't know that they even care, or if they do care, I don't know 00:02:14 that they even understand what's going on. But these rural areas, you know, have, have recognized this. You know, and if you think about the United States in 00:02:22 general, it's, it's majority rural, you know, big cities. But then when, when you get outside of Chicago, Mr. 00:02:28 Steve, it's all farm ground, you know, and same thing about anywhere you go. So I, I think there's finally a little bit of spark 00:02:35 that they're realizing because it's not just gonna be the farmer. It's gonna domino down 00:02:40 to everyone in these rural communities, school, everything else. We talk a lot about, uh, Steve Acker, the, the rural 00:02:48 Urban Chasm. Uh, last I looked, it's around 17% of the entire US population lives in rural, but that encompasses more than 90% 00:03:01 of the geography of the United States. So it's like 90 plus percent of the geography of the United States only inhabits 15 00:03:08 to 17% of the population. And agriculture is critically important in much, and almost most of those areas, you're a big city guy, 00:03:17 meaning you, uh, you have agricultural ties, you work for an agricultural company, but you spent 20 years with the CME in Chicago, uh, 00:03:25 you've got a little different appreciation for it now when you're on the floor. It's all just about moving, moving products and, 00:03:30 and, yeah, buy, buy, put, put, sell. Now it's a different thing. You're working for an ag company, you're kind 00:03:35 of out here running, you're working for a rural Missouri based company. What are you seeing? Uh, I, I love it. And, and 00:03:42 just, I mean, the, the people, the people's been the best part of it. Um, you know, just getting to, to, to be 00:03:47 around a different group of people. But, uh, yeah, I mean, it's, it's, it's, it's phenomenal to see as, as I drive from Chicago down to, to Missouri, uh, 00:03:56 you know, just the farmland. Uh, it was even interesting, you know, we, we saw a lot of growth in, in, in April and, uh, March and April, 00:04:04 and then the rains came in. I think we had 23, 20 20 through the Midwest. There was 23 to 25 days of rain. 00:04:11 Um, and you could pick a state in the Midwest. And, uh, I remember driving to Nashville for a hockey tournament for my kid, 00:04:17 and we were driving off the interstate on back roads, looking at all the farmland, looking at different, you know, areas where they planted. 00:04:24 So they have that appreciation, um, you know, for the commodity itself versus just, you know, an electronic tick 00:04:31 or a chart in the background, uh, to see the production, to see the work that goes into it, 00:04:35 to see the true challenges that the farmer, uh, has to deal with. I, I mean, I always joke, you know, 00:04:41 from a finance background, it's like, you know, agriculture makes the airline business look easy. Like it is just, it's, you know, one season, uh, 00:04:48 high fixed cost debt, and you're waiting on revenue, uh, you know, from the, the, the quality of the product and the yield to the price 00:04:55 and your margins are, are variable throughout the year. I mean, what a challenge. It's, uh, it's, well, It's, it's always been a high capital, uh, investment, 00:05:05 low margin business. And the difference is many businesses are that way. Commodity production are, are oligopolies to the point 00:05:15 where there's only a few players, you know, copper free Port McMoRan or something. You start naming these Yeah. 00:05:20 You know, these huge, huge entities. They generally have investments. They have invest, they're publicly traded, whatever. 00:05:28 So everyone seems to understand that we're gonna have, you know, billions of dollars invested to make a, a couple's pennies, you know, that kind of thing. 00:05:36 The difference on the agricultural side is that it's, it's not huge oligopolies players. It's guys like Matt Miles. 00:05:43 So you're playing with, uh, a lot of money that generally, uh, makes very, very small returns. 00:05:49 So in your discussion yesterday, uh, Matt, uh, granted that's nice to have a senator, a secretary of agriculture, a governor there, but it doesn't change the economics. 00:06:01 What, when you look down the road, 2024 is the first year of a downturn coming off of three record years. 00:06:09 You're holding up probably a little better in the south than some regions. 00:06:13 My understanding is the west specialty crop is getting hit harder because they're oversupplied, uh, and they even have more capital deployed. 00:06:23 What's the, what's the, what's the takeaway from yesterday and when you're talking about Arkansas 00:06:28 agriculture economics? Well, the biggest takeaway, you know, of course they, they've extended a farm bill, right? 00:06:36 So we hadn't had a farm bill since 2018, and it was based on 2018 economy. Right? Uh, everyone knows what's happened since 2018 00:06:45 between Covid and, you know, everything else. So the whole dynamics of the agriculture industry is a total different, you know, 00:06:52 species than it was then. Well, they're, they keep kicking this can down the road with an outdated farm bill. 00:06:59 So the big issue up until this year has been, Hey, we've gotta have a, a farm bill that's secure, you know, and then gives us some type of Yep. 00:07:09 Light at the end of the tunnel. Sure. Well, during all this extending the farm bill deal, I mean, everyone's seen what commodity prices have done. 00:07:17 You know, they're down, what, 30, 40%? Some of them, uh, you know, from what they were, well, you still got these high inputs 00:07:24 and then now you've got low prices. And, and there's always a fallacy. They love to pick on farmers', record, record income, 00:07:30 record net income. A lot of the guys that will go out this year were not, they, they wasn't making that record net income, you know? 00:07:38 I mean, prices were decent, but inputs were so high and through the covid year supply that, that, it looks like that was a really great time. 00:07:47 You know, my best year, believe it or not, was 2012. 'cause that's when the drought was in the Midwest. Yeah. And it sucks as a farmer to have 00:07:54 to almost wish someone does bad. The only way you're gonna be successful is someone else in the country does bad. 00:08:00 Right. You know, you're talking about of the row crop side, you know, veterans gonna take me any, um, 00:08:07 the big deal right now is immediate help, you know, some kind of ad hoc payment that, you know, if, if we get a hurricane come in, 00:08:13 they're gonna have some ad hoc payments to, you know, to help rebuild, you know, from the hurricane, whether it's crops, whether it's houses, whatever. 00:08:20 I mean, there's, you know, going to loss of life, you know, there's nothing like that. But this is a disaster too. I mean, it really is. 00:08:28 It's hard to compare it with losing your home. Yeah. Maybe, or your life. But it's a disaster too. And, and there's gonna have to be some immediate help. 00:08:36 If I told you the amount of acres that's available to rent for me next year, it almost make you wanna puke. 00:08:42 And that's, and then there's two sides to that. So there's the guy with low amount of equity that was already maybe in trouble 00:08:50 or just barely getting by in the last three years, and then he gets slapped in the face. Or there's the 65-year-old farmer that says, you know, 00:08:58 why should I continue to fight this? I'm 65 years old. I'm in, I'm very financially secure. Lemme get out of it now. 00:09:04 So those two are, are converging on each other. And then there's some of us in the middle that's gotta try to figure out, and we can't absorb, you know, 00:09:12 what's happened in the last 10 years is, is the smaller farmers have went out. Yeah. You know, the, the unprofitable operations, 00:09:21 the bigger the other farmers have had to swallow that up, you know, 'cause the, to be farmed, 00:09:25 or we don't, are we, we starve to death. Well, now most of the farmers that's in business today have about taking all the acres they can take. 00:09:34 Mm-Hmm. Especially when you go to your bank at, and, and interest is 7%. You say, Hey, I wanna run another 7,000 acres that, 00:09:41 you know, what are they gonna say? So, yeah. Yeah. Almost By the way, you said, you said, uh, you, 00:09:48 you said the word unprofitable and small. We're not in any way saying that small equals unprofitable. But what you're talking about is generally in your 00:09:56 situation, if acres come available, because somebody's in a, uh, against the financial ropes, a larger operation absorbs those acres. 00:10:04 Whether they buy or rent those acres or whatever, is kind of to your point, I just wanna make sure that the listener doesn't think 00:10:09 that unprofitable and small go hand hand, because that's not necessarily the case. Um, 00:10:14 I'm gonna, a small farmer right now is in better shape than a big farmer. Uh, what I'm saying is some 00:10:19 of 'em are just tired of fighting a fight. Well, they're small. There's gonna be a lot of big farmers go out, go out of business too. Sure. 00:10:25 Well, you also pointed out about the 65, 70-year-old. It's something that if you've been around this game, Steve, and I wanna get to you because you're an economics guy. 00:10:35 I have seen this enough times in my life. The person that hangs on too long, you, you, you know, you wanna to go and tell 'em in the year 2011, 12, 00:10:42 when things were, uh, you know, amazing. Like, you think about getting out. Yeah. But things are too good. I'm like, 00:10:47 that's why you should get out. And then they hang around and play the game for three more years into losing. 00:10:53 It's like, well, you must have loved it enough that you just gave away $1 million of equity. Well, I didn't know. I'm like, well, a lot 00:11:02 of people would've said, it's time to get out. It was a real time to get out. Anyway. Economics, from your perspective, Steve, you're, you're, uh, 00:11:09 you're an economically minded guy and this is kind of a different, uh, tra like I said, you're not on the trading floor. 00:11:13 It's a different thing out here. What are you seeing? Well, I, I, from economic side, I mean, it's, it is my, it is my daily crossword puzzle. 00:11:20 So I love that one. You know, just following up on a few things, Matt said, um, you know, it was really interesting. 00:11:26 It's going back to 2022, where, you know, you had the, the crop prices explode after Russia invaded Ukraine. You know, crops are a function 00:11:34 of the inputs that go into them. And if the inputs are going higher, then, you know, it's like building a house. 00:11:39 If, if, if lumber goes higher, the price of the house is gonna go higher. You know, if, if steel a car goes, you know, 00:11:45 steel prices go up, they have to pass that through. Uh, what's really interesting there is like, in that, in, in what everybody thought, you know, 00:11:52 the farmer was just making tons of money because of higher, you know, higher revenue. And that's the, the flaw 00:11:58 of focusing on revenue is the focus, the focus should always be on profits, revenue in that time period. 00:12:03 Margins, you know, margins didn't really expand that much. There was some operating leverage involved 00:12:08 where you would see greater profitability through higher prices. But, you know, that's where like, I think the myth of the, 00:12:15 the farmer being profitable in 2022 because of the spike in input prices. You know, that is the challenge of farming. 00:12:21 That is managing the volatility of farming. And what's really interesting, like, um, um, there, there's a philosophy in economics called 00:12:27 inner market analysis. And it's a study of where, uh, interest rates, commod interest rates, currencies, commodities 00:12:34 and equities, the movement, the relationship with them all together. Uh, and also getting, try not to get too economic of, 00:12:42 you know, what the US dollar means to commodities. Uh, and what we saw in the last couple years of raising interest rates to battle inflation, uh, 00:12:50 for the last two years, the correlation, if we look at grain prices coming down, interest rates were going up, the US dollar was stronger. 00:12:57 So post Brent Woods and World War after World War ii, the US dollar became the reserve currency. 00:13:02 Uh, commodities are priced in dollars. So therefore when the dollar is stronger, commodity prices come down as interest rates. 00:13:10 Short-term rates, the Fed raised interest rates to battle inflation, interest rates went up, commodity prices came down. 00:13:16 That's extremely difficult. You know, where we are in the cycle, you know, part of me is like, well, you know, we have the dollar weakening, 00:13:22 we have the Asian markets coming back. Um, we have interest rates lowering, uh, the yield curve is flattening. 00:13:29 All those impacts are usually positive to the commodity sector. Uh, 'cause we see the dollar pulling back. 00:13:34 Uh, so that's where, you know, somewhere in here, what's interesting with all the bad news, there's a bottom that comes somewhere. 00:13:39 You know, that's where, and you know, I think we'll probably get into this later. It's like when there's not enough profit 00:13:45 to produce people pull back production, if supply goes down, demand, you know, you know, 00:13:50 if there's less supply, there's higher prices. You know, are we looking at seeing anything there, um, that, you know, we might be bottoming in the grains. 00:13:58 Uh, but to move to what Matt was saying, I think, you know, what's interesting is the interest rates within the business 00:14:05 and how that, how that ate into the profitability. And this would be a great question for Matt as a producer to, to really kind of talk about that. 00:14:13 That when your profit margins are low, what you're referring to is, you know, large revenue, low profit margins. 00:14:18 When companies have that such as, you know, like a copper company like Freeport McMoRan, where they have, you know, they have such, 00:14:25 they control their industry. Farmers don't have the ability to change prices and you can't pass through the higher interest rates. 00:14:32 That's why in this cycle, agriculture gets hit because you have prices going down because interest rates are going up. 00:14:38 And when your margins are slim, interest rates eat into your net income in a leveraged business. 00:14:44 So that's where, you know, hopefully there's some hope coming as interest rates come down, dollar comes down 00:14:48 to commodities, you know, hopefully commodities. Find a bottom here. We've been talking about the inflationary pressures. 00:14:54 You know, you, you go into a community like Chicago, you know, you, your politicians here are talking about like, hey, how the prices are are so high at the stores 00:15:03 and the inflationary pressures are, you know, part of everybody's grocery bill. But then you go to the farming 00:15:07 where we had deflationary pressures, prices are coming down and they're getting squeezed. 00:15:12 So it's, it's when you see two worlds come together that are disagreeing like that, something is about to change. 00:15:18 So, you know, that's, that from an economic view, didn't mean to get too into the economic side. Yeah. You got, you got a little professorial there, Steve. 00:15:24 You did get a little profit. Um, let's go with, and by the way, then he said this would be a good question for Matt. 00:15:30 Did you not get the memo? I'm the question asker around here anyway. Alright. Right. Hey, let's go with the, one of his points. 00:15:37 And he made a lot there. And he, and he also gave a lot of contemplation, economic contemplation. 00:15:43 Let's go with the one, the big one that's staring every farmer in the face, the ones that are listening to this episode. 00:15:48 Interest rates. Yes. Um, okay. Sometimes we compare bad turns in the ag economy to the bad eighties. 00:15:56 And you know, Steve, you were a baby in the eighties. The Matt and I are old enough to remember the eighties farm crisis. 00:16:03 Yeah. We're not there. I Do. I yeah. You know, we're not there for a lot of reasons. And one of them is we're not obligating 18% interest rates. 00:16:10 That was a reality. Right. Younger, younger people in ag, you know, to say they don't get it. 00:16:16 You know, Matt's son Lane is a good kid. He's got, he's a 30-year-old man. He's been back at a farm for eight years now. 00:16:21 Farming, he doesn't understand 18% interest rates. 'cause he's never had to pay them. Yeah. And it's not any way a cutting on in, on him. 00:16:27 It's not any way bashing. We're not there. But also we did a doubling of interest rates. Yes. You know, and that's what a lot of people, 00:16:37 I just had this discussion with a, a banker and somebody might say, well, my operating loan went from 4% to 8%. 00:16:44 That's a 4% increase. No, that's a 100 Hundred percent. Yes. If you, if in, if money was fertilizer 00:16:53 and it went from, uh, you know, $10 to $20, that's a doubling interest rate going from 4% to 8%. It's not a 4% increase. 00:17:00 It's a 100% increase because it's a doubling of the interest rate. And money is an input. 00:17:06 So Matt, when you look at the interest obligation, that's the reason that you're talking about some of these farms that are gonna come available. 00:17:13 They can't get the operating mon, they could get the operating money. They can't obligate it. You're a former banker. 00:17:18 You worked as two years an ag lender when you were starting out. Am I right? Yes. That's, it's gonna be the operating loans 00:17:24 that keep these guys from being able to farm. Correct. Yeah. That, but it's a double edged. I mean, you're getting hit from both sides. 00:17:30 You know, you've got, and, and, and I almost disagree and, and I was a kid in the eighties, 00:17:35 but I almost disagree with this not being as bad as the eighties because inputs are three to four times higher than they were in the eighties. 00:17:42 I mean, a tractor's, you know, a a, a new John Deere tractor, just an average tractor eight, our tractor is $400,000 now, you know, in 1980 yes. 00:17:51 Interest rates were 18%. But when you go back and equate all that to today's economy, I don't know that it's any, was any 00:17:59 worse then than it is now. And interest is just another shot, another bullet we're taking, 00:18:04 you know, in, in this whole thing. But it's, it's, it's a big deal. Like you said, it's a hundred percent increase. 00:18:11 You know, our tractors went from, you know, costing us about $40, 40, probably $60 an hour to operate with interest to today they're 84. 00:18:20 You know, I mean, and you just keep taking that on. The sad part is, you know, I get really p****d off because they're going up on this. 00:18:28 You just say they're going up on this cotton picker. Okay, well, their bolts are higher, their metal's higher. All the sheet metal, they build the cabinets. 00:18:36 Everything that they're touching is also went up that high percentage. Mm-Hmm. Plus they've got a, you know, 00:18:43 they've got interest too. It, it is just a, it's a perfect storm of a disaster. So Steve, let's just go with, okay, 00:18:50 there's really three in words to begin with in, in interest rates, inflation and inputs and Yeah. And there are really, and 00:18:57 and cost of inputs to, to Matt's point. Yeah. You know, and we, I'd have to get the, uh, my actuarial chart out here, 00:19:04 but does a $400,000 tractor now, is that the same as what we paid $40,000 for in 1984? I don't know. I mean, I, to, you know, it is, 00:19:13 but interest rates, inflation and inputs, they all three are contributing to what's gonna end up being a real, real tough time 00:19:20 for farm economics. I think interest rates is the, the worst one. But Matt points out maybe it's inflation. 00:19:27 Yeah. Well, what's interesting in, in that, and I'll just touch on the interest rates because you were talking about, you know, 00:19:33 your operating line going from four to eight, that's a hundred percent increase in, in your interest, uh, in, in your interest expense. 00:19:40 Well, what's interesting with that is, like you, a four, you know, four, 400 basis point increase 00:19:45 or, you know, interest rates going up 4% is that hits your bottom line. If you're borrowing the same amount of capital. 00:19:51 If your net income, if your net profit margins are 10%, well now you just lost 4%. That's a 40% decline in your profitability, 00:20:01 uh, because of interest. And then think of agriculture as well, is when interest rates are going up, 00:20:05 commodity prices are going down. So you're being squeezed on your revenue and you're being squeezed on your net profit margins. 00:20:11 That's, that's what we see. But now to move to, you know, the comment about the inflationary, uh, 00:20:16 the inflationary aspects of equipment and everything we've seen there, what's been interesting in my lifetime of seeing it and, 00:20:23 and, and I remember the eighties and, and just gotta touch on that, I, I, what I appreciated so much about the eighties is, you know, is, 00:20:29 is Reagan came in the office, Vaughn's peaked, you know, he, he put an into, uh, um, inflation. 00:20:36 What was that? Was the last bear market we saw in bonds. Like, I was like five years old at the time. 00:20:41 You know, it's, it's, and that's where it's, nobody has seen rising interest rates. We went through, through, you know, late nineties led 00:20:48 to a deflationary cycle of basically free money trying to create inflation. And now we got it, and now nobody knows what to do with it. 00:20:56 Mm-Hmm. Uh, but when you look at the equipment in the tractor, um, for example, I got a, I got a ride a cotton picker. 00:21:02 There was a great guy in Arkansas and, and, you know, not making it to the south that much got a ride on it. 00:21:08 It was, it was incredible to see the technology and the productivity that could come out of that machine versus, you know, I asked a lot of questions 00:21:14 of like, how has technology progressed? How has this machine added to your productivity within farming? 00:21:20 And so that's where some of those prices make might make sense. If a machine at a higher value can do more, you know, 00:21:26 the inflationary pressures of that machine add to your productivity, it could be worth it. And I think that's what we've seen in farming 00:21:33 and the technology that've come in, come in. Um, but yeah, that was, it was, it was a great story. I I was, I was right in cotton picker 00:21:39 and I was like, Hey, I'm from Chicago, do you mind if I get the tourist stuff out of the way? I just took a video, uh, was so cool to experience. 00:21:46 But, um, but yeah, I mean that, that's, that's one aspect on, you know, the productivity battling inflation with that too, 00:21:53 but also the, the impact of interest on net all. So Let's go with that because All right, Matt, the answer of course that Steve points out has always been 00:22:01 economically Yeah. Costs are up. Yeah. Even on a, um, on a real dollar basis at $400,000 tractor versus in 1984, 00:22:12 you could have bought a 40,000 tractor, let's say. I don't think it's quite that, but, um, it might have been more than that, 00:22:18 but the productivity gains make up for the inflation, or, or we should say surpass the, the productivity gain is greater than the inflation gain. 00:22:29 And that's been the argument. Yeah. I'm not sure. I think you're gonna, you're gonna say, yeah, that was true to a point. 00:22:38 Not now I think is what you're gonna tell me. Like, yeah, I, I can't, and then I want you to tell me 00:22:43 what your adjustment is gonna be because million dollar cotton picker, yeah. The productivity is there, but when cotton's that 69 cents 00:22:51 or whatever the hell it is right now, probably not too far from that. I can't do, I can't be productive enough. 00:22:57 Yeah. Well, and, and, and, and to Mr. Steve's point, you know, I see exactly what, what he's saying. 00:23:04 You know, I, I operate a cotton picker myself and the things that that picker will do today at 900,000 is a lot different than the basket picker. 00:23:11 Or even, you know, you can go back further than that. Uh, the technology side, we're able to do, you know, we're actually not able to harvest any more acres with 00:23:22 that picker than we were say, one from 10 years ago. But there's a lot of productivity, fuel savings, different things like that that go along with it. 00:23:29 I'm, I'm, I'm actually talking about just basically round belt picker, the same first round bell picker 00:23:35 that come out 10 years ago, will harvest the same w within a high percentage of the same amount of acres. But also see what Mr. 00:23:42 Steve's saying, you know, I bought, I bought a brand new 8, 8 8 series tractor in 2000 was 102,000 today. 00:23:52 That same tractor is between three and 400,000. Yep. Yes. It, it's, it's a, it's a more productive, 00:23:58 and I've got technology that goes with it, but is it four times the productivity, you know, the productivity is lagging behind the increase in cost, 00:24:06 I guess, if that makes any sense. Yeah. Yeah. We're having to absorb this land. Any farm, any farmer that's in business today is a great 00:24:15 farmer, or he wouldn't still be here. I will say that. But he's had to absorb and do things differently. 00:24:20 And now we're at a point where you've gotta have that type of equipment to be able to get over 00:24:25 that many acres in the narrow windows we have to get things done, if that makes sense. It does make sense. Does. 00:24:31 So the point, the point there, Steve, is like I said, I, I was guessing that that was gonna be Matt's point. 00:24:36 Generally huge increases in prices. We always chalked it up to productivity made up more than the rise in the cost. 00:24:46 And now we can say maybe not so much anymore. So I want to get to on farm economics adjustments that can be made because we are probably here for a while, 00:24:57 unless to Matt's point, a bunch of these acres somehow end up not being farmed next year, which then would correct the supply issue 00:25:03 'cause we're oversupplied and demand remaining constant price would go up. I think that everybody on this call is gonna say, yeah, 00:25:10 those acres are gonna get farmed because it usually never happens that things get so bad that acres don't get farmed even in the eighties. 00:25:17 The exception of CRP every got. Yeah. Uh, well, I mean, just to touch on that too, what what's really interesting is, is the production in, 00:25:27 in economic terms, uh, if you, if you can cover your variable price, fixed costs are viewed as kind of a sunk cost. 00:25:34 You know, they're gonna be there, like you, you owe the, the payments on the tractor, 00:25:37 you owe the payments on the land, they're gonna be there. And that's where if you can't cover the variable costs that, 00:25:43 Hey, I'm gonna put extra capital into this business and that doesn't cover it, that's when you stop to produce. I don't think we're there yet, because 00:25:50 technology is the driver. And, and that's, you know, it's interesting, you know, this, this is what I love about working with the farmers. 00:25:58 And instead of just being in the markets, because you get, you get to see the narrative behind what's driving the markets. 00:26:04 And you know, where we're at right now, where Matt was in economic terms, where Matt was describing is 00:26:11 where marginal revenue equals marginal cost. That there's not a lot of value in, in trying to buy technology and a tractor 00:26:17 because it's just, you know, the offset you get in revenue basically pays for the technology. 00:26:22 But that I think is, is the challenge of the industry. And, and even kind of just, you know, plug a little bit what we do, what we're doing, a concept agritech, 00:26:30 but as the industry as a whole, and as I drive back and forth to Missouri, I'm always listening to the conference calls of the majors, you know, Corteva 00:26:38 nutrient, CF Industries and hearing message of technology. And, and that's where if we can produce higher yield, 00:26:46 if there's a return on investment for a dollar that goes in, the variable cost is a dollar, 00:26:51 but the return on that is three, that is the only way to survive in this industry. Now, I think more profitability comes back in 00:26:57 as interest rates drop. Because I think, you know, I'm, I'm gonna go out on a limb here and I'll explain this really slow. 00:27:04 I'm a, I'm a big believer in what's called economic value. And when you look at your return on your invested capital 00:27:10 and your invested capital is everything that you put into the farm, from your land to your tractor, to your combine, to the seeds, all the capital 00:27:16 that goes in there, that minus your cost of capital. So that is your interest rates. It, it's, it's the cost. It, it could be a cost of your equity 00:27:26 that you're putting into the investment that spread is your economic value that you derive from your farm. 00:27:33 And what we've seen is return on invested capital's going down as net income goes down, um, lately, then your wa your cost 00:27:43 of capital is going higher through interest rates. So therefore it's, it's deteriorating the economic value that's created by the farm. 00:27:50 So what do you do in that situation? Efficiencies? You, your, your return on assets, your efficiencies of everything you're using, everything you're putting in 00:27:59 to the product, you have to drive more and then be very efficient with your costs of capital. Especially where interest rates are high 00:28:06 to drive economic value. That's, that's the ticket for winning in this industry. And that's the ticket for anybody who's ever gone 00:28:12 through these sort of struggles. Alright. I wanna go through, by the way, I wrote down invested capital minus cost 00:28:17 of capital equals equals economic value. I like it. I like economics. Uh, and so, uh, 00:28:22 I have a degree in agricultural economics or crying out loud. I haven't talked this much, I haven't geeked out this much 00:28:25 on, uh, a cutting the curve, extreme ag episode on agricultural economics for quite some time, maybe ever. I love 00:28:31 This stuff. So sorry if I'm going too far mix. So Matt was a banker 30 years ago and he thought, hell, I got outta this for a reason. 00:28:37 Alright, answer me this. He talked about efficiencies. That works to a point. Yes. At some point you're about as efficient as you can get. 00:28:45 What things are you on Miles Farms. Let's talk about strategies. Now on the, we've talked a lot about on-farm economics, 00:28:51 where it is, why it's there, et cetera, et cetera, policy. Maybe there's gonna be some, uh, uh, a lifeline company, 00:28:56 USDA that's happened a lot. What are you doing? What adjustments are you making right now? Heading into 20? You're at the, you're about done in 2024, 00:29:04 you're ahead of us in the Midwest. You're down there in South Arkansas, so you're ahead of us. You're putting the wrap on 2024. 00:29:11 What are you now thinking about adjustments you're gonna make because of the a on-farm economics? 00:29:16 Well, it is just like Mr. Steve said, you know, we've gotta figure out how to do more with less or do what we've been doing with less. 00:29:24 Yeah. Uh, we'll create us to pay less interest and, but I made some mistakes this year trying to cut cost. Uh, I honestly did, you know, cut, 00:29:32 cut fertilizer here, cut this out. You've gotta be extremely careful when Mr. Steve alluded to this with ROI, 00:29:39 that you're not cutting something out that's actually making you money. Yeah. You know, they sell products that I, 00:29:44 I'm gonna use no matter what the price of the crop is because I'm getting a return on it. Even when the crop's lower, I get a less return. 00:29:52 We're gonna have to be real careful not to knee jerk and say, well, I'm not doing this, I'm not doing that. You know, and then you go to second guessing, 00:29:59 and I'll give you a prime example. You know, we do some tillage and when we put out our poultry litter, 00:30:05 which is our main source of phosphorus fertilizer, you know, we cover that, that we cover that, you know, 00:30:10 we incorporate it in the soil. You've seen the text the other day probably on a group text when I was, where I was asking Kelly, you know, 00:30:16 in a no-till situation, you just sling it out there on the ground and, and just let it sit there. 00:30:20 And you know, they're a little concerned about that too, from a no-till situation. 00:30:24 Where's that, where's that manure going? Yeah. So we took a percentage of our farm said, okay, we're not gonna till this. 00:30:29 We're just gonna put the litter out, let it rain in and, and hope all is well next, next spring. 00:30:35 Then you get the second guessing yourself, okay, what if I lose 20% of that? Or, or if it don't work as well. So 00:30:40 Yeah, if you lose 20% of the nutrient, uh, value of the manure, then that more than makes up for sending one of your hired guys out there 00:30:49 with tillage equipment to incorporate it. Yeah. 'cause you're thinking maybe I cut back. I don't have a hired guy per hourly rate. 00:30:55 I don't have the wear on the tractor. I don't have the diesel expense. So you're, you, you know, you can, the whole thing, 00:31:02 it's hard to, um, uh, uh, to cut, cut expense yourself into prosperity. Right? There's always that thing, uh, you know, there's, 00:31:10 there's frugality and then there's stupidity because like, well at some point you still gotta go out and do the farming. 00:31:17 The thing we, I appreciate that so much or you know, like I said, if you're a farmer and you're still in business in today's world, 00:31:24 you've done a pretty good job. Now I do think sometimes we, we don't know all the money we spend, you know, and, 00:31:33 and where's the waste, where's the, you know, where's waste money being spent? You know, you, I I would say you've really gotta, 00:31:41 if you can't look at your books and do your books, like you should, you should hire someone to do it. 00:31:45 They'll pay for their self. Yep. And a lot of times we get in the way of ourselves, you know, you take a, a farmer that's not real good at, at managing 00:31:53 that side of his business. Well, he can hire a guy for 50 grand or a hundred grand to do that. 00:31:58 And he says, well, I can't afford that. But if it's cost him 200 grand because he's not getting it done, 00:32:03 then there's an ROI on that guy. Yep. But man, we have cut. I I, I mean, we're getting to the point 00:32:08 where we've about cut all the fat off we can and then we're still in this situation. Now you can't look at, you can't knee jerk to the point 00:32:17 that, well, this is a bad year. I'm gonna quit. You know, the old farmer you're talking about, stay too long. 00:32:22 You know, that where that keeps me up at night, you know, I'm not quite old enough to, to be looking at that, 00:32:28 but I'm thinking, no, I've got a degree. Should I be, should I go to work for concept agritech? You know, go just make a salary and Yeah. 00:32:36 And all just snowballs on you. But you've gotta look at a 10 year plan. You can't look at a one year, two year plan. 00:32:42 You know, if you're building a set of grain bin, you don't need to look at what you need next year. You need to look what you're gonna 00:32:46 need in the next 10 years. My hope is that if I stay the course and watch what I spend and make sure it's an ROI 00:32:53 that I can come out at the end of this thing. What about Steve, uh, programs? Your company's doing it. I think more companies are going 00:33:02 to probably follow your lead, um, on there's gotta be give somewhere, you know? Absolutely. And I'm not, and I'm not being mean, 00:33:11 but a lot of agricultural suppliers, uh, patted the books pretty good when farm revenue was up because they knew the money was there. 00:33:20 And so there was a lot of increase in some of the increase in prices was very justified. They're paying more for fuel, they're paying more 00:33:26 for electricity, they're paying more for their insurances. God knows my farm insurance policies 00:33:30 doubled in five years, you know? Yeah. I get all that. But some of these agricultural supply companies are gonna follow your 00:33:36 lead and start making some adjustments because they'll have no choice. Am I right? 00:33:42 Yeah. They have to. And, and that's where, you know, and, and you know, I dunno if we wanna get into, 00:33:48 and I, I don't like the term program because to me, program is a shell game, you know, program is like, you know, more enticing, you know, in, 00:33:56 in enticing the purchase by something that looks shiny or what appears to be a benefit, but might not really fully be a benefit. 00:34:04 And, and, and to go not the economic side, but more of philosophical side, um, you know, the challenges that we face 00:34:14 and, you know, even what Matt's talking about now of cutting everything to the bone and being, what he's saying is driving efficiency, 00:34:21 which I love that. Going through challenging times. Like I love the, like I always, I'm a big obstacles the way sort of guy. 00:34:28 And when you think about the, the line is what stands in the way becomes the way that it, it sharpens you, it makes you better, 00:34:35 it makes you more efficient. And going through these times have allowed us to even think through these programs. 00:34:40 I've been, I hate the word program. Uh, you know, I worked a year on this with a group of attorneys and trying to, to get everything together just 00:34:48 to help to, to take practices that are out there in other industries and larger companies to be able to remove volatility, 00:34:56 increase profit for the farmer. And, and I'm a big believer in, if we put, if we put our customer first 00:35:03 or just in life, like what I try and teach my boys, if you put somebody else first, if you, if you create, if you create the canvas for their value 00:35:11 for their art, you know, that is, that is always a win. You know, always bring more to the table than you take. And that, that's, that's been the heart of what we've tried 00:35:20 to do in, in helping the situation. But most importantly, in bettering the farmer not helping but bettering 00:35:28 Better. Um, our company's approaching you, Matt, and saying, uh, we realize 2025 is gonna get skinny, 2024 skinny. 00:35:36 We're going to, to are, are they doing price reductions? Are they just doing, uh, incentives pay early 00:35:42 and you save 25%? What are you seeing? Uh, it's not as much as you would think. I mean, concept has, has kind 00:35:49 of took the first step in my operation. Uh, they're, they're the first ones to come to the table with any kind of, I don't know if you call it relief, 00:35:57 but a little bit better way. Don't Call it a program that p****s Steve off. He said twice. He doesn't like the word 00:36:03 Strategy. You know, He's also sitting, he's, he's sitting there and if you're listening to this while you're driving your 00:36:08 tractor or truck, he's sitting there with a little pad of paper. I almost think he's been writing down 00:36:11 what Matt and I are saying. So I appreciate that. Taking notes. Well, and, and, and what we've seen so far mostly is trying 00:36:21 to lower the interest rate. Like they'll come out with a, you know, zero interest to December type deal, you know, if you buy this product. 00:36:27 That's kind of in the incentive we've seen so far. I did get some information, uh, yesterday. There's gonna be a few advancements on the, on the 25 model 00:36:38 of CP seven 70 cotton picker. And Deere's not, I don't think Deere's gonna go increase the cost. And that's the first time. And I, and, 00:36:47 and you heard me say that you've never seen a year when they don't increase the cost, 00:36:50 especially if they're adding something to it. Yep. I think, I think the companies are starting to recognize the problem is 00:36:59 if something don't happen really quick Yep. These bankers are not going to be able to renew, renew. I mean that it's an immediate and we need meet. 00:37:10 That's what we, you know, that's what we said to the governor. And, and there's a lot of outside factors. 00:37:15 So there was a guy made a statement in here and, and don't a hundred percent, you know, hold me the, these numbers, but I think he said Brazil is increased their 00:37:24 cotton production by three times. Okay. Alright. They don't, these companies don't make them pay, uh, tech fee cost, you know, the different costs that we, 00:37:36 we get in in America, they're like, I mean, if you go to Brazil, you can see the whole country's farmland. So I mean, that's cash cow. 00:37:44 They can cut their, they can produce cotton at 65 cents and make money. Yeah. And they're tripling their production. 00:37:51 What's that gonna do to us cotton? I mean, you know, it, it just, it just, it's, it's coming from every different direction. Right. 00:37:59 And, and, and that's a, that's a topic for another episode, um, about the Brazil situation, but okay. 00:38:04 About the, uh, incentives or programs or discounts or whatever concept Agritech has variable pricing. So you're going to do a thing 00:38:12 and that's just based on seasonality or is it based on how are you doing it? Uh, so variable pricing, we're, we're starting it as, 00:38:20 as an early pay program. Okay. And, and it is based on, you know, I'll, I'll cover the efficiencies of what it creates for concept 00:38:28 and how we're able to do it. Uh, but, but just to describe it a little bit, it's, uh, you know, what we saw is, you know, in this sort 00:38:37 of a market, a farmer has to invest in their crop. Their only hope is to actually to drive yields higher or lower costs. 00:38:44 You know, but like, if, if, if you start giving up on that, and that's what we talked about, that cost cutting and, 00:38:48 and you know, and being in the, the CFO role of concept agritech, you know, it, it's always, it's always interesting that being a finance person, 00:38:57 people think that cutting cost is, is gonna be my mission. And it's like, no, it's like, don't cut a dollar to like, 00:39:03 don't save a dollar to lose five, like shoot for that yield, um, you know, shoot for that return. 00:39:09 And that's what we're, we're trying to encourage or, or be there as a partner to help the farmer through that. And, and that's what variable price is, 00:39:18 that when you look at all of your costs being fixed, and from the minute that somebody buys our fertilizer, it's fixed. 00:39:24 And what we're doing is giving a rebate that, you know, like on any grain that the, the farmer's choosing to, uh, to grow that there's a rebate right now through November. 00:39:36 It's one a one and a half multiplier after November 15th. It's a one to one. So if you, if you're a corn grower, 00:39:43 corn goes down a percent. We match that by one point a half percent rebate at the end of the season. 00:39:48 And it's a check, it's not a credit. We're not holding on anybody's money. Uh, so if it goes down 10%, we're writing a 15% check. 00:39:55 If, if if it goes down 20%, we're doing 30. You know, so that's where for The cost of the input, for the cost of the input. 00:40:01 So if max production, you're, you're gonna say granted, you, you're doing it on the input bought, if Matt buys, 00:40:08 Matt buys 200,000, 100,000 is huge square numbers. He is $100,000 of concept agritech stuff. And today, and by next year, uh, corn is down, 00:40:19 uh, 8%, you're gonna give him back $8,000 of that $100,000 8%. You're doing a percentage match on Correct. The product. 00:40:28 Correct. Yeah. But it's a one and a half multiplier right now. So, and this year on that a hundred thousand dollars, 00:40:34 we'd be writing through, uh, $30,000 checks back. Okay. And, and that's, you know, and, and how we're able to do 00:40:40 that is using the insurance of the market. So we, we look at variable price, the benefits of it are twofold that it's a protection for the farmer if, 00:40:51 if their crop values decrease, that if we're decreasing our input prices. And, and we'll use a quick example. 00:40:57 We had this, uh, incredible farmer out of, uh, uh, out of Arkansas increases yield 40. You keep talking about the 00:41:03 incredible farmers out of Arkansas. We're talking to an incredible farmer out of Arkansas. No, yeah, it's, 00:41:07 well, I mean Matt probably knows him. So the guy, the guy increases his yield by 41% on soybeans and his revenue went up 9% because beans went from 13 to 10. 00:41:16 And it's like, you did all this work and you grew revenue 10%. He put about 40, $46 per acre into, into the crop, 00:41:23 which gave him an ROI, he was just a little bit north of two on his ROI that he on the input costs. But with variable price, we would've taken his ROII 00:41:33 to about five because we would've dropped the $46 an acre down to like the, the high twenties, the low, low thirties. 00:41:40 And, and you know, that's, that's the partnership side of saying, Hey, we're with you on this. We have, we have the ability with the size 00:41:47 of our company to ensure this. We don't have the margins in the product to do this. We have to, we have the ability to go get insurance, 00:41:54 and we're paying for that insurance on behalf of the farmer. Got it. So, by the way, so, uh, 00:41:58 do you participate on the upside also? So if, uh, commodity prices go up by 10%, are you gonna send him a bill 00:42:04 and say, you owe us more for that? No, that's the gift actually to the farmer as well. So that, that's, that's, 00:42:09 that's the hidden gem in variable price. All right. And it's really, well, it is really important. I'll just mind, I'll say this real quick. 00:42:15 They are locked to our price sheet the minute that they enter the contract, the minute that they prepay, right? 00:42:21 So we've never seen crop prices go up where input prices aren't going up with it. So if crop prices go up, that's all gravy to them 00:42:28 and they have lower input prices because we were able to lock in the raws at an earlier date. So it's, it's a hedge on both sides for them. 00:42:37 Matt, you gonna see more of this? Well, I, I mean, I, I sure hope so. I mean, you know, I, I sure hope we see, uh, 00:42:47 this is gonna sound, maybe I shouldn't say what I was gonna say, but the people that make money off us, it, it feels good to know that they're figuring that out. 00:42:57 That, that we're in trouble and that we need help. You know, and I, Mr. Steve, tell me if I'm wrong, 00:43:02 but I I don't want to, I don't want you to write me a check, right? I mean, if I, if when I look at this program, you know, 00:43:09 with Reed, you know, I told him, I said, I, I don't want you to have to write me a check. That means prices have increased 00:43:16 and I've gotten my money outta the market about it decreased and had to, you know, get a check for from you. 00:43:22 I am thinking about that correctly, right? It's exactly, it's, it's stabilization in the downside and it's kind of like, you know, it's like home insurance. 00:43:30 Like you, we, I don't wanna write the check 'cause your house burnt down, but we're we're there, it's a safety net below you. 00:43:36 The i, the the, the best situation in that is the commodity prices did go higher and you locked in your inputs at a lower rate, 00:43:44 therefore you're increasing your margins. And, and, and, and I'll, I'll mention this from concept side. 00:43:49 What's so attractive there is to lock in the raw materials that you have a business where you look at capacity within 00:43:56 the business and we're so busy for three months out of the year, we're over capacity. And then it's smooths out. It's kinda like a bell curve. 00:44:03 And where we can, we can build our, we can utilize our capacity in those months knowing the orders that we have and, 00:44:11 and that there's operational savings in there that allow us to pay for the insurance. And, and then, you know, also on, on the finance side 00:44:19 with this, we'll actually finance the variable price program at 0% interest to January of 2026. 00:44:26 We've worked with partners on that. 'cause that goes back to that economic value model. You know, if we're able to increase your profitability, 00:44:33 that your return on your invested capital goes up and your cost of capital goes down, we're allowing you to create economic value. 00:44:41 And that's where to bring those strategies to the table to simply help is, I mean, that's, that's how we're gonna grow our business. 00:44:49 That's, you know, that's, it's, it's a lot easier to keep, you know, the best form 00:44:53 of customer retention is drive profitability and keep your customer in business than going out and finding another custom. 00:44:59 And, and you know, that is a long-term situation that is much better than, than, you know, Hey, that didn't work for you onto the next guy. 00:45:08 Matt, get outta here on farm economics. We've, we've not painted a very rosy picture. But also we're pretty honest here. 00:45:14 I mean, if we say that, uh, extreme ag is here to help our farmer followers, well what we supposed to do, tell 'em, uh, tell 'em it's, 00:45:21 everything's gonna be just okay. And, and, uh, don't worry about it. I don't think that's a, a strategy for, you know, 00:45:26 hope is not a strategy, right? That's exactly right. Hope, hope will get you in trouble. And, and we have come accustomed to the fact in, 00:45:34 in the last century that well, you know, somebody's gonna take care of the farmer 'cause we gotta eat. 00:45:39 I'm not sure that that's is in a person's mind today. That's not, you know, we're a national security. We're producing what we produce is national security. 00:45:50 And I don't know that, I think there's gonna be a realization at some point in time, you know, that hey, we've, we've got to do something. 00:45:57 And, and I applaud concept for being one of the ones that's, that's took the first step in trying 00:46:02 to help protect the farmer. 'cause if we go out of business, who are they gonna sell to? You know? I mean, they know that. We know that. 00:46:09 Everybody knows that. All right, I think we're gonna leave it right there. Um, his name's Steve Acker. 00:46:15 He's with Concept Agritech, one of our business partners here. If you wanna learn more about the Variable Price Initiative, 00:46:21 because we're not gonna say the word program. Um, where do they go, Steve? Um, we're gonna, we're we actually literally just launched 00:46:30 this, so we're gonna have some information coming out about it. Um, our, I've had many conversations 00:46:35 with our district sales managers. They're all really well versed in it, uh, on social media. I believe in the next couple days we're gonna be 00:46:41 launching some material on it. In The website? In the website. Oh, website. Yeah. Concept Agritech Tech 00:46:47 with a K concept, agritech with a K. Go and check it out. And then they'll be seeing more about this by the time this episode releases. 00:46:54 You should, uh, it should be, uh, probably up on their site and they'll know more about it. His name's Steve Acker, uh, joined by 00:47:01 the amazing farmer out of Arkansas. Matt Miles and me. Thanks for being here. I know this is a long episode, but it's an important episode 00:47:08 because we're talking about your legacy and your farm and your lifestyle only happens if you stay around to fight another day. 00:47:16 And that's gonna come down to the economics on your farm. And that's why we covered this in such depth and breadth. 00:47:22 We'll be doing more of it as things go on. Check out all the hundreds of episodes at Egg Extreme Ag Farm 00:47:27 and also this entire library of free videos of guys like me and, uh, and Matt are out in the field days shooting. 00:47:33 Also at events like, uh, commodity Classic and then also@theextremeag.farm, you'll find a whole library of cutting the curve episodes. 00:47:41 So till next time, thanks for being here. I'm Dave Mason with Extreme Ag Cutting the Curve. That's A wrap for this episode of Cutting the Curve. 00:47:46 Make sure to check out Extreme ag.farm for more great content to help you squeeze more profit out 00:47:52.605 --> 00:47:53.885