It was another tough week as futures continue to decline. January futures are down $88 in just two weeks. This decline is scaring away all buyers from the cash market. Last week, the only activity was EFP’s layups. The market is showing signs of a shrinking business environment, even as reports still indicate steady sales. The main issue worsening the trade is inventories, which remain the key focus. Things have returned to a new normal pace. The slowdown occurred months ago, and the market is now settling into a slow rhythm. Once pipeline inventories decrease further, conditions will tighten again. Meanwhile, we are heading into a season of heavy holiday shutdowns, just as shipments from outside the US are slowing down. This situation resembles last year, when the market struggled most of November and December before turning up. Last year, we feared a reduction in supply caused by duties and tariffs. This year, we must be concerned about their actual effects. On Friday, I saw a 5.65% rate for a 15-year loan. Additionally, shipments from Canada and Europe are dropping. While these factors alone don’t resolve the housing market slump, they are moving in the right direction to help reduce producers’ losses.
Open interest was growing as the week came to an end. We are back in an area where the short funds add to their big winning position while the industry adds to their long position. We don’t get a CFTC report, but it would be the norm. Watch the open interest in November. It is holding over 2169 contracts with 10 sessions left. There is always a lag with the funds offsetting trades, so I’m not looking at it as important just yet. We also had the same open interest dynamics building last year at this time. There is a lot of deja vu on this one.
Technical:
January ended the week with a 19.40% RSI. It came into the week with a 34.60% RSI. It was off 1 to 1. Technically, the market is oversold. While not a perfect science, it usually isn’t off by more than a few days.
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.
The higher trend continued last week after a tariff announcement. The announcement cleaned up the tariff-free wood. The next batch has the tariff increase on it. It is hard to project the anxiety of the next push. Unless you were hiding under a rock or a really bad lumber trader, you had already been “good dealed” to death and have a fair amount of inventory. It looks as if industry has wood. Now if we continue to see decent mill outtake, we can surmise that demand has picked up, and our long-term dynamics have changed. There will be a time when outtake cleans up the excesses. It’s early. Today, it is an assumption. Tomorrow it may be reality. We are going into the week with a look at whether the market is better or not. Futures will see a roll or buying from the funds in November. My guess is that they are over 5000 short now with the bulk sitting in November. There was no report last week. The government shutdown is another in a long line of psychological negatives (headwinds) we have lived with this year. This housing market will rally when a “normal” reappears. That could be a long way off.
The market will never change its stripes. Selling a premium in futures is the business way to trade. If it is $200 OSB, $300 SYP or $420 spruce, you should sell the board. Now, if you think you own it at a level that can’t lose, then hang in there. The fact is attaching a hedge every time the spread is wide is how this business works.
Technical:
The technical oscillators are aging. They are running out of upside. With a gap from 597 to 604 in November we have the perfect correction setup. Again, this is not bullish or bearish, but pure natural. If the futures market doesn’t start to correct and fill the gap, the takeaway is a pending breakout up. This type of chart pattern in lumber generally gives off good trend analysis so we’re watching close.
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.
Join Jeff Eizenberg and Ben Hetzel as they dive deep into the complex world of agricultural markets, consumer spending, and the surprising economics of convenience. In this eye-opening episode, they challenge the narrative of high food prices by exploring the booming delivery service industry and questioning whether consumers are truly feeling the pinch. From DoorDash delivery fees to wheat market strategies, the hosts break down the nuances of agricultural economics with their signature blend of humor and expertise. Learn why “hope is not a strategy” and discover insights into market risk management, harvest expectations, and the evolving landscape of food production and consumption. Whether you’re a farmer, agribusiness professional, or simply curious about the economics of food, this episode offers valuable perspectives that will change how you think about pricing, convenience, and market dynamics.
Check out the complete Transcript from our latest podcast below:
Convenience vs. Cost: Navigating Agricultural Markets, Convenience, and Consumer Spending
Jeff Eizenberg 00:58
Welcome back to the hedged edge. I’m your host, Jeff Eisenberg, with my co host here. Ben Hetzel, it’s week three, Ben, and it’s Friday afternoon. You’ve got a football game to go to. What’s been going on?
Ben Hetzel 01:12
Yeah, thanks, Jeff. Glad to be here today. Got a lot of exciting things to talk about, and that the markets they just they never cease to stop. Amazing me how far down we can go. It’s all red again today, pretty much. But speaking of football, super excited. I’m a sports guy. You’re a sports guy. Little different sports the way we use a ball, but we’re still sports guys. We got the big homecoming this week in lemon, where, where I live, and taking on a neighboring rival team, which is actually a closer here at work to that town than I am my where I live, so a neighboring rival in Buffalo, South Dakota. So it’s been a it’s been a really good rivalry over the years.
Jeff Eizenberg 01:58
There we go. Well, could call FanDuel and see if they can put you guys on there for tonight’s game.
Ben Hetzel 02:03
Hope he has a great game, and battling some injuries mid season here for some of our guys, but it’s fun. And over here in Scranton, they get the football game in Richardson tonight. So the heading or Scranton Nighthawk boys are headed over to Richardson, North Dakota, to take the Raiders on. So good games should be games that the teams that I’m cheering for can win, but hopefully it’s just a good night of football and everybody goes home safe.
Jeff Eizenberg 02:35
Yeah, that’s good. Well, we’ll check in next week and find out the score here and see if you guys came out on top getting into the show. This is week three. It’s taking a life of its own. You know, we’ve had on some great guests so far, and as we talk more, and it’s just spurring all sorts of conversations and discussion and really new ideas for the farmers, the farming community and everyone in the local area to want to tune in and share ideas with themselves as well. Today’s topic, I think everyone’s going to think we’re probably crazy as we start to think about how this this plays out. But what we’re going to be talking about is how expensive is our food and the reality that people are paying 10, $12 delivery fees for a $10 cheese burger, and that they’re still complaining that the cost of food is too high. So let’s call this what this is. I’m going to call it out. This is going to be our dash barometer discussion, and I’m excited to hear what you think about it. I’m excited to hear what others have. What others have to say. You can check in with us by tweeting us at AG underscore, RCM, or you can find us on Facebook or YouTube by searching RCM, ag services. I want to find out what people are paying for their Door Dash, how much they’re paying, and in the end, how is it effective price? So we’ll talk more on that. But before we do let’s do a couple of things. First, let’s check in on this week’s market. It was, it was what it was post week report, pretty quiet. Expectations were that we were going to have this big meeting today with President Xi from China, and it was going to be a scenario where the markets were going to rally, because if Trump is going to cut the best deal ever, where are we been? We’re 12 hours after the meeting.
Ben Hetzel 04:34
Yeah, great meeting on both sides is what we’re hearing based on what I see, but nothing for egg, nothing
Jeff Eizenberg 04:44
tricketts, nothing for AG, you know, there is a little bit out there, some thought that. Well, yeah, we’ve got this 20% tariff on fentanyl, which is raising 80, 90 billion of dollars worth of income and rent. Revenue, and that they’re going to take that money and pick it right back into the farmers. We’ve been hearing 10, 11 billion and Farm Aid, if that’s what they have to do, that’s what they have to do. But I don’t know about you, I just much rather see us selling our grain.
Ben Hetzel 05:17
Yeah, absolutely. That’s the best thing that we can have going on. Is is just fair trade. And you know, there’s a lot of talk that if the Supreme Court rules it’s unconstitutional what Trump’s done with tariffs that could have a devastating impact on these markets. And I think farmers and ranchers just need to be prudent with marketing decisions and mitigate risk where they can and in hopes that all that’s just hooey and goes away. But the risk is there. You know, however they plan to utilize money to rob Peter, to pay Paul, so to speak, is just nonsense. We need fair markets, and we need a market that’s profitable for our producers, and I don’t think any government form of bailout has ever been good for the ag sector long term, right?
Jeff Eizenberg 06:11
You’re right, and it might be a short term band aid. And you know, there’s talk and hope that ultimately we get a deal done. Doesn’t seem like this crop year, but let’s say for next and maybe that’s the reality, and we were facing these current prices, or possibly lower, because everyone’s got a great crop coming, and we’ll have to take in the aid, do what we have to do to get on to next year. And then, you know, hope that we have a new strategy. And you and I have talked about the word hope, and that’s one thing that I’ve been training my entire career, 25 years. And whether it’s a hedge fund or agriculture side of the business, that I’ve been on, hope is not a strategy. And that’s one thing that I feel like this show, is we’ve pulled it together and talked and communicated that our goal is to help people understand that there are opportunities in the marketplace. It doesn’t have to be because you love the price. It doesn’t have to be because you have to sell. It has to be because you have a plan and a strategy.
Ben Hetzel 07:19
Well, that’s a great topic, because, you know, the last two years, at least, even longer now, but the last two years, particularly, we’re in wheat country, so that that’s a huge concern for all the producers that I talked to. Hopefully they’ve got other grains as well, because it’s, it seems, or, you know, hopefully they like to grow other grains, because it seems like we’re moving away from wheat or trying to. But as you look at the wheat market, the last two years, there’s been 20 cent carries between the contract months, pretty steadily. You know, there’s some that come in tighter, you know, 1315, cents. But you know, by expiration, a lot of times they widen back out to 20 plus cents. We’ve seen them as wide as 30 at expiration. But you know, at one point in time, there was 60 cent carry out through three months. And that’s given you a great opportunity, even if you don’t like to your point the price up front, you can maybe look out there and find a spot where it works logistically to market some grain that traditionally would have a good basis, you know, a traditionally good basis. And I’ve been talking to growers lately about that very, very topic, you know, we need to be calling into the elevator merchandisers and saying, Hey, if I deliver in Jan, Feb, March, what kind of basis could I lock in today against this carry, you know, and they can go to work on that, you know, you make, make those offers, put that drain out there for them to Go, try to market. Because by time we get there, oftentimes, Jeff, you’ve been in the market a long time, these carries converge to the front end, and we just see this same flat price all the way through the marketing year, or a range of that. You know, last year, at harvest, we on 14 pro spring wheat particularly, just as an example, we dipped down into the high $4 range, which everybody was just their minds were blown that we’d have a four in front of the price of wheat locally. But it happened. And then we got back to five and a quarter. And I’m like, Guys, we might have to be happy with this price. You know, not saying this is it, but it’s going to take something non traditional to break out of this. While we didn’t get it on the futures, we got that steady yo yo effect. But as it went, it went out, the only reason we seen $6 cash or high $5 cash was all basis. You. And in a lot of ways, it was non traditional situations that don’t always present themselves. It wasn’t seasonal demand that created that opportunity. It was a shortened market somebody needed to cover and advantages for the farmers that are near that you can’t count on that hope that that’s going to happen again. To your point, hope is not a strategy. So you got to look out there and say, Okay, what can I get for a basis to take the carry out of the market, whether it’s corn, corn got nice carries out into the new crop, wheat, wheat has a nice carry there’s, there’s usually an opportunity out there, if, if you’re looking for it, and you know, if you, if your facility that you’re marketing with, or your your buyer is willing to to roll positions, you can take some risk off that way as well. And I don’t want to get too far in the weeds on some of that, but you know, as you know, I do a lot of stuff with over the counter, using swaps. Do a lot of non traditional contracts for growers, where they’re making offers, getting premiums, and maybe the market spikes. And being an independent Co Op is Scranton equity is in the way I operate it, which is kind of nice that I’m the guy that’s choosing how much risk we take. Because I, you know, I’m reporting to a board, and they’re all in the loop of what I’m doing. You know, if you’re a bigger company, maybe you don’t have the flexibility to do some of this stuff. But you know, if, if that market were to rally and you want to blow out all that offering, we can potentially roll that into a new crop position if it were to hit. And if you’re offering grain, it’s usually above the market on those deals, so it’s a premium to where we’re at today. And if that hits, that means the market did, did respond. It did what we were hoping it would do we wanted it to do, and we’re being rewarded. And, okay, we got rid of all our grains, so now we gotta roll that position to a new crop. That means that new crop values better than it was when you put this position on. Also, I don’t find a hole in that strategy.
Jeff Eizenberg 12:18
Yeah, you’re right in thinking along those lines. And sometimes people think about price and all they see is the flat price. And the difference between a flat price and the pricing you’re talking about is that you need to break it apart into two. And so we’re taking a little bit of time here in this episode to speak about the difference between futures and basis and challenge people to think a little bit more outside the box and having those types of conversations with their buyers. Right now, we are seeing offers on the future side, with some of the cash contracts that you’re talking about that include OTC and others that could be as over $5 in 2026 for the futures portion now, basis is the other side. Are you as an elevator going to put out basis offers for 2026 crop? Probably not right now, but coming up into the middle of next year, you will so people will have the opportunity today to think about pricing a portion of their grain for next year, even though they don’t love the price of this year’s grain. And I do want to make make a note here we’ve talked and you’ve said, well, people traditionally don’t like to do that, because they don’t know if they’re going to actually grow the crop. Have you ever gotten to a point talking with guys that they don’t have anything to sell?
Ben Hetzel 13:50
Good point, you know, generally, there’s something left year to year. You know, most farmers that I’ve ever worked with, there’s a few that’ll sell out of certain drops, but generally, there’s one or or maybe two that gets stashed away and kept as a reserve, you know. And the old, the old mentality that I heard a lot of times growing up from my dad was, well, that’s my bank account. If I don’t raise a crop, I got something to sell. I don’t know that. He was always thinking that that would mean the market would rally and he could sell it for more other than it’s just he had it to sell. And I’m not going to speak for him, obviously, but as I’ve been around and heard those conversations, that’s what it appears in it, for certain people, is it’s, it’s kind of a little nest egg, but generally producers will have, especially in wheat country, it seems like we always carry about 25% or more. Seems like the reporting coming out always around 30% stocks on farm. So that means we’re carrying a chunk of grain all the time. Yeah. And I would challenge growers, why is that not forward contracted in a carry market all the time? Why are you not taking premiums out of this market all the time? You don’t have to get way out into the future with that. You can be three, four contract months out, and all six, nine months if you want to get aggressive and and take that carry out. You know you have the grain. There’s virtually no risk to you if you weren’t going to market it anyway, other than you might actually market it. And if that’s a crime at that price, then don’t do it. Please don’t do it. But if it’s a good price, it’s way above the market, and you’re going to be disappointed in that. That’d be the only reason not to do it.
Speaker 1 15:47
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Jeff Eizenberg 16:04
shifting gears a little bit to harvest, since we’re heading into that timeframe, it’s almost fall. Next week be the first week of fall, and probably by time this show airs, it will be the numbers are big. We’re looking at a huge crop nationwide. You’ve shared with me that you’ve got some great crop coming in, maybe some quality concerns about the freeze that you had last week. Love to kind of hear from you where you are there. It’s grant equity and talking to the farmers in that area. How’s the quality look? How does the how’s the crop look? And more importantly, where are you going to put all the grain?
Ben Hetzel 16:47
A few challenges there in that statement, the quality from what I’m seeing and talking to people, we’re optimistic is the word to use there. Don’t really know how it’s going to pan out, but I was in some fields with some guys and pick some ears. I got to get them checked. Still what we’re dealing with there, but it was really encouraged by what I was seeing, been hearing it. So I had to see it for myself, to believe it, so to speak, because it’s just a kind of unchartered territory. And to be honest, the last experience I had was not good. We ended up with super light corn that stayed at, you know, close to 20 moisture and there’s limited places to go with stuff like that. So really encouraged. I think our overall quality is going to be better than what a lot of us anticipated in in most of the areas, obviously, there’s going to be the entire spectrum of really bad stuff to stuff that wasn’t even hurt. I talked to a farmer near the rain country this morning, and he got up in the middle of the night to check the weather, and his son’s got a field that, for whatever reason, when he checked the weather, there was a cloud on the radar right over that spot where his son’s field is, his corn field, and he refreshed it because he couldn’t believe there’d even be a cloud in the sky, but he refreshed it, and I’ll be darn that was the only place in the southwest corner in North Dakota that had a cloud, and that field did not freeze. The only thing he could attribute it to is his son’s been going to church a lot.
Jeff Eizenberg 18:20
Hey, sometimes it pays.
Ben Hetzel 18:22
So, yeah, it’s better than we thought. And and we’re cautiously optimistic that it’s going to be it’s going to be okay. We’re going to have something to market. I don’t know where we’re going to put it. I think the baggers will be working overtime to put it in the big white peg zone in the field. You know, if it’s, if it’s quality, that can be exported or blended, we’ll find some homes. There’s a good export program for corn, and on the P and W, there’s, there’s other homes as well. And this grain will those grain will navigate through the pipe, and, you know, you get quality issues. Basically, the best thing you can do is stash it away and get through harvest, and then bring those samples, bag samples, Bin samples, whatever it is, bring them in, get them checked, figure out what, what grade flow it needs to go through and and get it, get steel wheels rolling.
Jeff Eizenberg 19:19
Sounds a good plan. Well, let’s take a minute here. Ben, since we’re staying on topic of quality and bagging and bringing in samples, would you mind give us a quick update on what’s going on with the co op? I know you’ve had a huge project you’ve been working on and some new storage facilities, as well as a revamped track rail line. Tell us what’s been going on out there, what’s the status of the project, and when can people start to expect to start bringing hauling in more grain?
Ben Hetzel 19:49
Yeah, so we started this project, ultimately, over a year ago, we changed the traffic flow and put up a new scale and grading house. And. Main Office got the trucks navigating through the facility a little bit cleaner and smoother. It’s been well received. It’s not ideal, because the way the the community is laid out here with the railroad track, and there’s a creek that runs through so kind of limited, or what, what options we really had there to fix the traffic flow with all the infrastructure that’s already in place, but we think we got a pretty good plan going forward. That was phase one, and now phase two is well underway. As you referenced, we’re putting up another slip elevator. It’s a big investment for the Co Op, big investment into the community. It’s going to have far reaching effects. I’m anticipating with speed at which we can dump today, we have two, basically two concrete work houses that we use to handle the multiple commodities that we’re doing, and each one of them has a dump pit inside those work houses. So it’s, basically two, two dump pits, and it’s going to be going to four. And the two new ones are high speed. Each one of those dump pits is faster than the two pits we have today. Quite an increase in velocity of receiving. And you know, as we looked at it, the age of the workhouse and the load out facility for the amount of grain that the equity is has handled over the years, it was time to really look at investing in another load out. It’s high speed, so we don’t have to spend 1215, hours loading these trains. We can get them loaded in six, seven hours because of the track layout, it just makes it kind of a non event, if you will. But that’s the idea. Is there’s less and less people in the rural communities that they’re wanting to live here, and we got to speed this stuff up and take care of our people that do work for us, and it’s going to be a huge advantage. And with the changes the railroads made to their policies on how they handle these big timed out trains. It’s, it’s going to be a really nice addition. So if it comes in the middle of the night, I don’t, don’t necessarily have to get up super early and and go get that train loaded. We can kind of pick our time slot, get it loaded and move on about the day. So huge, huge advantage for the producers in this area. It’s going to be a facility, a legacy facility, as you know, these concrete houses stand for many, many years, and super excited about that, but we are back out of the ground. Yes, we’re on the surface of the ground and getting ready to go up in the air. So the crew is working diligently to pour the last slab before they build the form. And once that forms built, we’ll be we’ll be slipping. Wow. So super fun
Jeff Eizenberg 22:55
next year, next year’s the next year’s crap. We up and going, hopefully,
Ben Hetzel 23:01
if they the weather holds and they get the slip done here late October, which is kind of the anticipated, optimistic timeline, maybe early November, and then all winter and next spring they’ll spend putting the equipment in place, and hopefully we’ll be able to fill it harvest The next year. But it could be September,
Jeff Eizenberg 23:21
September, right? Well, if we get another crop like this one, you’re gonna be pretty busy out there.
Ben Hetzel 23:28
Yeah, lots of bushels. And takes a lot, a lot of effort on our people. And I’m super excited to see see this change for not only our producers, but our employees and and it’ll it’s going to be fun. Just need the bushels next year as well.
Jeff Eizenberg 23:48
Hey, from your mouth to God’s ears, right? That’s right. Well, good luck, and yeah, keep us posted. We’ll be checking in with you on that as we talk more.
Speaker 1 23:58
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Jeff Eizenberg 24:15
we’re going to shift over to this week’s main topic, which not that we didn’t already cover a lot, but we we’ve been talking over the last couple of weeks to different people. We’ve talked to the banks, we’ve talked to Dwayne over at Dakota western bank. We’ve we talked with David Munoz, with Bartlett, and the same topic keeps coming up. We’ve got higher priced beef, we’ve got higher priced cattle, and we got the fact that people are spending more and more at the grocery store, they’re spending more and more for a normal meal. And there’s a consensus out there that the consumer is feeling pressure in a pinch. So I really want to throw it out today that I don’t really think that the consumer is in that much a pain, if you think about it, Dwayne brought this up to us the other. Day that people are buying their fast food or their convenience food, let’s call it that they’re buying it on a credit card, and they’re buying it through DoorDash. They’re buying it through, you know, some of these convenient solutions. Well, if they’re doing that, how much are they actually paying for the food versus how much they’re spending, and it’s actually impacting their pocketbook, that’s the question. And then we can ask, Is food really that much more expensive, or can people afford even higher prices?
Ben Hetzel 25:35
I don’t know if I even want to touch that topic, because, you know, to each his own. But no, I think, I think it’s an interesting scenario that’s unfolding. You know, we’re not, I don’t think any of us are naive to the credit card game. You know, if you don’t pay that credit card off every month, then you are financing whatever it is you’re putting on there. And if that’s fast food or whatever it is, I would just about bet there’s a whole lot of convenience purchasing in there, where we’ve become a convenience and instant gratification society. Take care of what I want right now. And I mean, I’m a victim. I’m I’m in it, and so, you know it. I don’t think people in general. Now, of course, we live in rural America. You’re, you’re in closer to Big City Life. I mean, you live it. So it’s, it’s hard for me to even comprehend what’s going on in that realm. But out here, I don’t see a lot of adjustments being made. I still drive by a few C stores in the mornings, and people are in there getting their breakfast or their coffees, or maybe they’re packing a lunch for the day, whatever it is that’s the most expensive place to buy that. And I don’t see a change in the flow of traffic in and out of those places so and I haven’t changed my habits, but I know that when you go buy a steak, it’s, it’s 20 bucks, you know, expensive, some dollar steak, and fortunately for myself and my family, we raise our own. But there that’s opportunity cost too. You know, I could sell that and not not eat that steak, but, you know. So the prices have gone up. I don’t think it’s hit the retail stores, you know, the big bot stores, like it’s going to that. We’ll see that starting to develop here in the fall months, probably more and more as these prices, you know, there was a stockpile of product in the system that maybe didn’t have prices ratcheted up on yet, but it’s coming, you know. And so what does it take to start breaking that habit? I honestly think that, you know, I think my dad might have said this years ago to me, or a few years back, that the only time you’ll really change people’s habits is, it is when they get hungry.
Jeff Eizenberg 28:04
Literally, we don’t see that in our country right now. I mean, to be honest, I I was like, you don’t change the habits too much. But I the other day, I was last weekend, went to Ohio State football game, and we just tailgated. So we were down. We’re waiting. And we got late to the tailgate, so we missed all the good food. And I said to my wife, let’s order Chipotle. I bet you I can get it delivered to me standing here on the corner. And she said, No way. I don’t know what you’re talking about. I go, No, watch this. Pulled up my Chipotle app, hit the num, hit the button, ordered three different Chipotle burritos for us, for her and I, and in a friend. And all I had to do was type in my location, and next thing you know, 30 minutes later, I was standing at a corner waving down a guy in a in a in a yellow minivan, and he dropped off my food. Now I cost me $10 but that was the best $10 ever spent. I almost even bought the steak Chipotle to spend a few more dollars just, just so I could feel like I got it
Ben Hetzel 29:08
all. Oh, man, that’s that’s an amazing story, because if you’d have bought a nacho in the store or in the stadium, it cost you what that whole meal cost you guys. Yes, exactly, right.
Jeff Eizenberg 29:21
So I think the point in all this is that employment is strong. There’s people utilizing these middlemen services and these tools that are have been created. And I looked up the data, and in a five year span, Door Dash and these different types of companies have increased their revenue from about a billion dollars to 12 billion. So 12 times the amount of money is being spent on these services again, post covid. Covid accelerated this middleman business, and now you think about people, Instacart shopping, having people go shopping. Before that, what are they paying? Three. I have 10 more dollars on top of their grocery bill. People are complaining about the fact that prices are too high, but the reality is, they’re spending more on these service conveniences that they don’t need to spend. So to your dad’s point, to your point that you made that your dad said, I don’t think that there’s actually a problem with the cost of food. It’s likely that people have become a little bit lazy.
Ben Hetzel 30:24
Yeah, hard to believe that, like Walmart delivers groceries, or, you know, you can send it, call your order in, and they’ll deliver it like DoorDash out here in rural America, they’ll drive 25 miles. I I’m not even making that up. I didn’t know that was a thing. It’ll literally deliver it to a neighboring town 25 miles away, if you’re willing to pay for it. I have no idea. I I have no idea, but that just blows my mind. For then the gas to go home and go to Walmart and pick that up and spend the extra 1520 minutes other than the drive time, just because you’re driving through town and traffic and go in the store, out of the store, I mean, they I don’t know if you could charge enough for that.
Jeff Eizenberg 31:12
I think you should at the game tonight. You should try the chipotle game that I just played. I don’t know how close the closest one is to you in lemon, but put it in if you can, and text me how much it would the delivery fee is, if it’s not Chipotle, I’m sure Chick fil A or something else around you has it. Text me the picture. I have to know the listeners. Oh, my God. I have to know. I should
Ben Hetzel 31:37
try to do that. I’ll try to remember. You might have to text me later to remind me my mind might not be on Chick fil A or Chipotle. I don’t even know where there’s a Chipotle. I I’m guessing Bismarck two hours
Jeff Eizenberg 31:49
might be a little cold by the time it gets
Ben Hetzel 31:52
to you. I hear you though, you know it’s I don’t think the price of that stuff has gone up to a point where people are going to change their habits. And, you know, it’s too easy to get get extended credit on your credit cards or whatever it is. And you know, we’ve seen an increase in pay scale in rural America. I’m sure it’s happening everywhere. So as people have earned more, even though their dollar doesn’t go as far. You know, this perceived idea that I’ve got, oh, I’ve got three 5% more to spend on convenience or or entertainment or whatever it is, and beyond the food, and we won’t even touch this, because this would be a whole nother rabbit hole. But how many apps and TV channels subscriptions do Americans have that are just hitting their credit cards and they don’t even know anymore? I look at mine, and I’m just like, my dumb kids, every time I turn around, there’s something on there. I’m like, Stop doing that. We’re not doing this, you know. And so if you don’t monitor that, pretty soon, you’re just getting gobbled up with these $10 $2 whatever they are, fees for these subscriptions. It’s crazy. Now there’s service companies out there, these middlemen, as you call them. They’re they’re out there helping you figure out how to manage that, right? So making a business off of your bad decision making, you know, I blows my mind.
Jeff Eizenberg 33:21
Yeah, well, we’re gonna keep track of that. We’re gonna call that the dash barometer. I think we keep track of it. I think we put a challenge out to listeners to text us or send us a picture of cost of a convenient drop off at your home. I’d love to see that. I’d love to hear from people, if they can do it, it’s just, you’re going to need to take a picture and drop it in on Facebook or the YouTube channel, or even even email it into us, if you like. But I’m going to, we’re going to report on this one. So more to come. On that front,
Speaker 1 33:57
if you’re enjoying today’s show, check us out on Facebook. Just search RCM, ag services for market updates and tips. Find us on Facebook.
Ben Hetzel 34:05
Today, you talked about the cattle prices being high, and we’ve talked off, off there, and conversations and whatnot about the government. You know, I’ve seen the video, and I don’t know if you’ve seen it, I’ve talked about it with people that Trump stood in front of an audio a group on at a podium and said, we got the price of eggs down. We’re going to get the price of beef down. You know, for the ag community, that’s that should infuriate us, but yet, you know, the American people are concerned about it. We don’t want the price of beef to go down because we raise it. You don’t raise beef, so you want the price to beef to go down. So when you order that Chipotle steak sand steak burrito, it doesn’t cost you 30 bucks next time, right? And so there’s, there’s conflicting opinions on what’s in the best interest, but it comes down. Each individual, just like the rest of this stuff. But again, mitigating risk is so important for the Ag producer on that front and hope is not a strategy. You said it, and I think that we should stand on the hill with the flag all day long, preaching that. But one thing that every producer is realizing, and I think our next episode down the road, should we should bring in a guy, and I’ve got an idea for an agronomy input speaker. He would shed some light on what’s going on in the input world. But what we’re seeing is, after an adjustment for inflation, some of the highest price inputs compared to the lowest price for production, that disparity has gotten so wide our producers are are really in a pickle. And so I think to call out one of our goals with this podcast is to help navigate that that space and educate producers on opportunities in the market and tools that are out there. And I encourage growers that are listening and people that know producers that are listening that might hear this point I’m at this, and tell them, hey, there’s there’s somebody out there that might be able to help you, and I think the partnership that we have, Scranton equity, RCM egg services yourself, me and the team that we have around us can do a phenomenal job to lead people to the right solutions for their challenges. And I just want to call that out.
Jeff Eizenberg 36:41
That’s right, and it’s a great way to wrap up today’s episode and segment is to repeat the theme, the team is everything. It’s it’s what we all need in order to be successful. Not one of us knows everything, but not one of us is going to have the right answer every time. But if you share your ideas and you’re willing to talk about the good and the bad, not just the wins, but also the losses and the risk that you face day to day, there’s going to be a solution for you. And unfortunately, it can’t come at the end, when you’re faced with harvest and you haven’t made a sale, it has to be along the way, throughout the year in advance, like we talked about earlier in this episode, even as far as six, nine, even 12, months in advance. So definitely plan on checking in with Ben, getting involved with with your local buyer on a more intimate basis, your bankers, your agronomists and your brokerage firms, and talk with them about how they can help give you some good ideas. Share with them your ideas as well. And what we hope in the end is that these episodes, these shows, yes, we’re having a lot of fun today talking football and DoorDash, but we’re hoping that in the end, people are taking a minute to reflect and think about how their farm and their operation is managing and mitigating risk
38:13
absolutely well. Thank
Jeff Eizenberg 38:14
you again for the great week on this show. We’ll be back back on the mic next week and next few weeks after that. So good luck in football this weekend. We’ll talk early next week.
Ben Hetzel 38:27
Yeah, enjoy your weekend. Can’t wait to catch up next week. Thanks, Jeff,
With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since
Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:
The current state of the markets within the wealth management industry
Is there a beacon of hope, or is it all doom and gloom for the markets?
Other strategies to think about outside of the stock market and so much more!
Visit rcmwa.com for more information and be sure to follow them on Twitter and check them out on LinkedIn
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Check out the complete Transcript from this week’s podcast below:
Stock market outlook and Tax savings strategies for 2023 with Tim Webb
Jeff Eizenberg 00:14
Welcome to the hedge edge by RCM AG services where we’re getting out of the field and onto the mic to bring you weekly market updates, commentary from commodity experts in monthly interviews with the biggest names in agribusiness. Welcome to the hedge edge and the first episode of 2023. As always, I’m your host Jeff Eisenberg. Today we’ll be taking a break from commodities and diving into the world of equities, interest rates, as well as tax savings and business planning strategies for the new year. Our guest today is Tim Webb. Tim is a close friend of our sister company, RCM Wealth Advisors, where he’s the Chief Investment Officer and managing partner. Tim has been working as a portfolio manager and advisor to families institutions, and agri businesses, implementing no nonsense financial planning strategies, and market investment disciplines to help clients build and maintain wealth and reach financial goals since 2003. Tim, welcome to the show.
Tim Webb 01:25
Thanks, Jeff, for having me. Appreciate it.
Jeff Eizenberg 01:29
Absolutely. Hey, last time we saw each other I think it was on the golf course. And correct me if I’m wrong, but pretty sure I was standing on a green that you drove Absolutely. Over the green went over.
Tim Webb 01:40
Yeah, I want to be clear on that it. It carried the green.
Jeff Eizenberg 01:47
Oh, is that possible? So you you grew up playing baseball. I mean, some people say golf and baseball don’t mix. But from what I see, it’s a perfect match.
Tim Webb 01:57
Well, you know, I, I’ve always been somewhat of a big hitter, I back and forth pretty much my entire career. And initially, it did not mix, I was having the banana slices all the way into the woods and all that other stuff. And if we’re talking advice here, I’m going to give two quick driving tips, I guess the first one would be try to transfer a little bit of weight to your front foot that helped me out a ton. And then really just kind of driving down into the ball and through it. And if you’re looking for power, the one thing that I’ve realized is that I do swing hard, that’s that’s neither here nor there. But where I generate my most power is because you’re in a small confined area, is you actually have to push down into the ground and up you have to figure out how to generate a lot of power from a very short period short area, right. So you can kind of drive my feet into the ground and then come up at the at the point of impact there. So Wow.
Jeff Eizenberg 02:55
So you’re not not only you know, offering financial advice, you’re also operating Golf Tips. Which one did people take you up on more frequently? I guess is the question.
Tim Webb 03:05
Well, the only benefit in golf I can do is with my drive. My short game is horrendous. So but ya know, it’s I enjoy it. I joined the league and over the past three years, so I’ve improved markedly my golf a little bit. So I get out maybe, I think maybe, you know, I try to get in 18 holes a week if I can. Yeah, so it’s nothing nothing great. I’m I’m I’m a mid 80s shooter. So don’t other than the dry. That’s all I can impart on this conversation. Okay, well,
Jeff Eizenberg 03:39
I’ll put you on my scrambled team for sure. Next, next time we play, but I do well, I do. Well, it scrambles. Yeah, on percent. Great. Well, yeah. So excited to have you here today. You know, we’ve been obviously working together in parallel for a long time now. And, you know, the markets. We’re going to talk about a little bit about the markets. And you know, before we jump into that, I think it might be helpful, just for anyone listening in just to give a little bit of your background. I mean, you you started our CM malt advisors over 10 years ago with with Bobby shorts, and you know, the CEO of RCM alternatives and in ag services. What What can you tell us about this journey? I mean, 10 years ago, you know, all we had to do is stick your money in the markets and we’re looking pretty good. 10 years later, but it’s different world now.
Tim Webb 04:28
Yeah. Well, especially in the in the overall wealth management space as a whole. So I started my career back in 2003. Started with a great regional firm, ag Edwards, and after about four years, four or five years in there, I remember going down to a meeting at their St. Louis campus with the CEO. And I won’t mention names with that but the CEO was asked and it was it was like around 2007 I guess right around there. was closed for Friends with the Gallatin family who had started ag Edwards. And I remember the question was, Hey, would you ever sell this firm? And he’s, you know, quote unquote, Over my dead body? Would I ever sell this firm? 11 days later he sold the firm. Right? So. So from there, you know, it went to, I think it was y cobia. At the time. I can’t remember offhand. I didn’t necessarily want to stay with with that firm. So I ended up transferring over to Smith Barney at the time, then you hit kind of the the 2008 financial crisis. Citibank broke the buck. Smith, Barney was kind of their crown jewel of, you know, assets for the bank at that point. It was, it was at that point, it seemed as if we were gonna be buying some other groups. I remember calling some of my friends on the street, like, oh, they were calling me. I said, I hear we’re buying you there. I got we here we’re buying you like okay. Eventually they, Morgan Stanley and Smith, Barney decided on a joint venture, which eventually turned into Morgan Stanley, long term, they were offering up some deals, I didn’t necessarily want to take any kind of deal from them. So at that point, in 2009, I opened up in independent office, went to the RIA model, right, so there was, you know, broker johrei, but it was through a local outfit. And that local outfit was eventually swallowed up by Charles Schwab. So that
Jeff Eizenberg 06:34
was an interesting time, because the RA model is so different than the traditional stock brokerage model, right? You’re really taking an entire look at someone’s financial plan, as opposed to what stock Can I pick? That’s going to me the next Tech tech, tech stock or something along those?
Tim Webb 06:51
Yeah, it totally true. And the biggest thing with that is, is really kind of becoming a fiduciary, right? So once you go to the gray model, it’s so much different than it was back when I started in 2003. When you go into the RA model, you’re sitting on the you’re sitting as a fiduciary to your clients, and you’re sitting on the same side of the table, right? You’re not making any Commission’s off of their business, you’re charging a fee for service and advice, adding value and and not necessarily pushing any product to any one person and or client, right. So the idea is what is best for that individual, that corporation, that that non for profit, that is going to help them and all those people that might be within that organization, and you push forward from that standpoint now, from an overall business, I couldn’t make that any better. Right? So, you know, there’s from the situation of having to say, Okay, well, what is best? How do we get a go the best? How do we go about getting our clients to that end goal. And that’s where the IRA model, in my opinion, the registered investment advisor model is best suited for the lion’s share of clients, and you’re starting to see even the big banks and all that stuff, trying to push their business more towards that arena.
Jeff Eizenberg 08:01
Yeah, listen, everybody is an expert at their business right at this stage in the game. And we want to let them stay experts at what they do and bring you in to piece together the the financial elements of it makes sense. And then also your global network, additional service providers or partnerships, allow for you to then also kind of be at the helm of some of these organizations, whether it’s a, you know, a farm, in an elevator, you know, somebody that’s touching in traditional agricultural businesses, or, you know, obviously, not inside our markets, but other types of companies and businesses that you work with elsewhere.
Tim Webb 08:42
It’s great point, one of the one of the main things to and where you can continue to drive value for your clients is trying to figure out ways that you can help their business in every aspect, right? So be it bringing specialty Farm Insurance to two different groups, bringing estate planning wills, getting, you know, essentially negotiating on behalf of your clients with these groups, going to different different outfits that may do those services and bringing some volume to them, so that you can bring the volume discounts back to your clientele, and say, Okay, well, here’s, here’s how, here’s what we’ve negotiated. This is, you know, these are the experts in these fields, and they’re gonna bring this to you, and it’s most likely going to be less costly than you would going out on your own right. So that that’s kind of the big thing and kind of bringing that full full suite of services to whatever client base we’re chatting with organization or otherwise, right.
Jeff Eizenberg 09:42
All right, well, we’ve got the elevator pitch down now. So let’s flip over to the important stuff. What is not that that doesn’t count, but people want to know and I do too. Where are we going with stocks, the stock market, and interest rates coming up here in the new year? Here we’re, you know, obviously market end of the year down terribly, almost as bad as 2008. And then you reference the 2003 period when you started. That was another terrible period. But you know, I guess the first question is, is there a beacon of hope? Or is it all doom and gloom here? What are you and your team looking at right now?
Tim Webb 10:21
Yeah. So you know, obviously, you know, the big in maybe you’ll have questions about this later. But the big thing that are on a lot of our client’s mind is, okay, is there a recession coming? Or I believe we already are in it. Some, some, some don’t.
Jeff Eizenberg 10:36
And I’ll tell you, my Costco bill, telling you we were going to be in recession, I can’t believe the prices, I’m going to hit the brakes and sending my wife to the store.
Tim Webb 10:44
Yeah, yeah. Inflation. That’s obviously another big situation. And, we try to inform on that as well. But yeah, with respect to is there a recession kind of looming hovering over us? The answer, in our opinion, is yes. Right. So we’re kind of projecting it out probably for the second half of 23, which is where it looks most likely. Everybody who’s been in the markets understands that this past year, was it didn’t matter what you’re in, you could have been in stocks, bonds, Bitcoin, silver, gold, you know, it seemed like everything was, you know, really tracking backward. And in a lot of ways, in a typical recession, some of those things might have worked, you know, even in the corporate bond space, or those high grade corporates or, you know, mortgage-backed should have done a little bit better than they did. So everything kind of really took it on the chin, some of the numbers, you have
Jeff Eizenberg 11:33
to take a pause there and make a plug for the alternative side here, you know, following CTAs, fad had a great year, you know, double digits. So let’s not forget about where there can be potential is commodity since we’re on a commodity podcast. Remember, there was there were some positive numbers out there.
Tim Webb 11:55
No doubt. I’ve been seeing those numbers from you guys. And they are quite impressive. I would I would definitely agree with that. Yeah, so there, I mean, yes, there’s, as you know, there’s always someplace where you can kind of look, it was just more difficult and 22. Right. There was in, you know, to put it put it lightly, I guess, to really look back, you know, because they started raising interest rates so aggressively and above expectation, wait way beyond what they were predicting, right. Like at the beginning of 22? I believe they were kind of coming out saying, Yeah, we’re going to probably do employment looks good. We’re probably going to have 325 basis point rate hikes throughout the year of 22. Well,
Jeff Eizenberg 12:36
exactly. It just complete change, of course.
Tim Webb 12:39
Yeah, they did that in one month, right. So we’ve just seen this happen fast and furious. And the other big thing that we look at, and you know, what, everyone’s there’s a lot of froth still left in the markets, right. So, you know, from a standpoint of empty money supply, right. So they’ve, there has just been because of the pandemic and everything else like that there has been a flood of money that’s been put out there, be it through different government programs, things like that different bills that have passed, but there’s been a lot of money, and that has kind of pushed through the system and still has a way of working, it has some more time that it has to work its way through the system if you will. So now, you know, moving into 23, you can see the Federal Reserve kind of saying, Okay, well, we’re, we’re looking at some of these things we’re at we did just did a 50 basis point hike, some are projecting another 75 basis points. And one thing that we’re seeing a lot of is that, you know, if 22 is any indication, I don’t necessarily think the best place to look is what the Federal Reserve is kind of touting right now. Right? Of course, and
Jeff Eizenberg 13:49
dead wrong. I mean, why should we believe right?
Tim Webb 13:52
I agree. And the worst part of it all is, is the markets are trading based off of their, what they’re saying and all that other stuff. It’s not based off of fundamentals. It’s not based off of even, you know, tracking, it’s all based on what is the Federal Reserve going to do? What are they going to say? What are they going to project out? And that’s no, that’s, that’s not a good place to be overall. And I do think in 23, that’s that that narrative starts to change a little bit, right. So eventually, the markets do tend to always go back to okay, what’s the valuation that I’m at right now? Right, where, where is where can I find future growth and, and future prospects for different companies? And once we start getting back to the fundamentals, which we do believe will happen in 23, be it in the bond markets, be it in the stock markets? We do think we get back to some normalities where we’re going off of what you know, earnings because obviously, you’re going to have compression in earnings. You know, there’s going to that’s going to trickle through. That’s probably what’s going to trigger the recession that we think is forthcoming. On top of it, you’re gonna probably see that the Federal Reserve is going to kind of keep their Put on the gas a little bit. So you get closer to more of a 5% unemployment rate, versus staying at the three-and-a-half word that it’s technically quoted at right now. Right. So, you know, so there’s gonna be some of that coming off the system, which, you know, with respect to stocks, that we don’t necessarily think that’s the best growth environment. So for some of those cloud computing companies, some of those, you know, even even some of the big aggregate tech companies, they’re facing headwinds throughout that. So, you know, our goal is kind of looking at, okay, what dividend paying stocks value based stocks are we looking at, we know, there’s going to be some volatility that comes through here, you can utilize some option work with that utilizing covered calls. And we have something we call our triple income strategy where we’re doing different things to kind of generate synthetic Nan, we want to call it synthetically generate options, premiums to kind of get some of these, these dividend paying stocks at a better price, do a covered call or call spread on it on the back, and really kind of mitigate some of that volatility that, you know, we saw throughout 22. So we think that that strategy in 23 looks to be a little bit stronger than saying, okay, everything is dip back so bad in the tech space and the growth companies that it’s gotta be a good time to buy it.
Jeff Eizenberg 16:21
Is really, what if I could summarize what you’re saying there, at the end of the day, hope is not a strategy, right? And you you really have a view of where where things need to go? Or are potentially going and then being tactful in how to allocate? You know, really kind of falls on your shoulders a bit, I guess, you know, a question that comes to mind is, historically, people have been successful with passive investments, versus the active type of investment strategies. And I know, you and your company that you’ve mentioned, your, your strategy, you know, have had quite a bit of success on the on the being the tactful, or, you know, active side. Maybe just talk a little bit about that. Not too not too detailed. I mean, you’re talking to commodity traders. So, you know, we understand, you know, covered calls and options, strategies, but just high level what, what are some of the more active approach? You take?
Tim Webb 17:22
Yeah, yeah. And speak briefly on the past stuff. Yes, over the past 10 years, with easy money. It was kind of a point and shoot situation, right? You know, it was, if there’s 500 targets out there, and you hit a few of them yet, it’s gonna it’s gonna be fine, right like that. That’s that that’s what was good under easy monetary policy, obviously, it’s gotten a lot more difficult. Now that the volatility is ticked up. And also, that has come to kind of a screeching halt from an empty money supply aspect, right. So that, that in 22, right around October is pretty much gone, too. It’s still a little bit going on, but it’s pretty, pretty slow down substantially, right. So with respect to that, you know, the way the way that we look at it for 23 going going forward, you take a passive index, you know, let’s just say the s&p 500, a lot of times people say, You know what, I’m gonna put that in there. Okay, so just based off of what I said before, that’s a market cap weighted average, right? So that the biggest companies in the world are going to have the most amount of exposure in that s&p 500 font. Right? Right. So you’re gonna own all the apples, the Google’s the Facebook’s meta, if you will, all of those, that’s going to be comprised of about 35% of your portfolio between 30 and 35% of your portfolio based on market cap weight. And, you know, you’re technically moving more towards kind of a technology based portfolio with respect to that. And in our opinion, in this upcoming year, the value base is going to be more the healthcare sector, you know, a little bit maybe, you know, financials have been hurt a little bit, but, you know, those potentially could do okay, being that we’re in a, you know, somewhat of a an abundance type of atmosphere with the Federal Reserve type of thing. So the one the one strategy that we employ is obviously, we want reoccurring dividends that have consistently increased over time that we think that are going to continue to, you know, they’re not going to get hurt too bad throughout any kind of recession, because they’re kind of their built in businesses. They’re the steady growers, if you can get four to 6% in market return, and you got a two to 4% dividend, you’re looking at a six to 8% Return overall. And sometimes you just got to take what’s given to you in that particular time. Right, you know, question
Jeff Eizenberg 19:36
Question comes to mind right there. So with cash rates as high as they are now three to 5% it was cash-rich companies are the ones that you’re thinking about because ultimately they’re going to earn interest on money it’s an excess cash plus potentially thrown off profit from the from the best business actual revenues. Is that something that you’re thinking about?
Tim Webb 19:57
Absolutely. Cash is king right? You know, that’s, that’s Always the, you know, we do what’s called discounted cash flow analysis or discounted cash flow, you know, kind of reporting on companies. So we’re always looking okay, what’s the cash look like? What’s their ability to continue to pay those dividends? What’s their growth model? Because, you know, be it with inflation still at high levels, right? There are certain capital expenditures that different companies were paying for in the past, right. wage growth was kind of moving pretty, you know, up pretty quickly, because, you know, you had easy monetary policy, and that kind of trickled down through all the, through all the ranks or so yeah, definitely cash is going to be king our opinion 2023 typically always is. But you know, those high valuation stocks, while they may be cash rich, they’re still trading in multiples that are well beyond what we think that, you know, could continue in 23. There. So it’s just more of a conservative approach, right, just just for to start off the year. It’s not that we can’t pivot it, you know, because at some point, I don’t want to be all doom and gloom on this. I do think, at some point, there’s going to be a great buying opportunity, both in bonds, because those have retracted so much. And even in those growth stocks. I mean, I just I think the market is waiting, somewhat for an all clear sign. But I want to put that in perspective as well. Right. So we’ve just gone through 12 months of the market, you know, starting in January, the market just started tanking and 22 going down, going down. I’ve had a couple of pockets. We had about nine or 10 situations where the market tried to rally and failed throughout 2022. We do think that tends to continue into 23. A little bit. And but with that said, if we do go into recession, markets will be trying to get out don’t they’ll be the first things to recover, right? So typically, recessions lasts anywhere from two to 18 months as a whole. Right? That includes 2008 and blues back for the past 50 years. So, you know, we’re 12 months into kind of a retracement in, in equities. And we do think that, you know, I don’t think we’re gonna hit the long end of that 18 months, but I think for the first couple of quarters, I think it makes sense to play it safe. dividend payers, things like that. The other thing is I have not this is something that we’ve been doing, we’ve been kind of doing a laddered CD strategy. I haven’t bought CDs for DVDs.
Jeff Eizenberg 22:21
I mean, are you talking about the ones that we listened to on our old disk man? Or what does it say?
Tim Webb 22:29
Well, it just, you know, the appetite for risk right now is very, very low is what I would say with the base that we deal with, right? So that’s also if you look at it from the contrarian standpoint, too, that’s also an opportunity like you, you may want when things get it’s that old Warren Buffett, you know, saying is, you know, be greedy when others others are fearful, we’re starting to hit some peak fearful levels right now, which, from our standpoint, we look at that as an indicator of good times ahead a little bit, right. So when we come out of these, these types of recessions, you have the largest you have, you can look back, and you’re going to be looking at 45 to 50% returns, potentially out of these recessions and and not too short time after that. And stocks will typically run six to 12 months ahead of that recession actually being over, right. So I don’t want to get too fine with with the strategy saying, Okay, you got to do this. And you got to wait until you get an all clear sign. That might not be the case, right. So it’s a situation of we know where we’re at, we’re about 12 months into this retracement, we know potentially could last 18 months but went a little bit longer. Okay. Historically, now we’re passing some levels, we had a pandemic, that was pretty large and had a quite a bit of an effect. We’ve had easy monetary policy that they’re pulling back. Oh, and by the way, we got $32 trillion in debt at the government level.
Jeff Eizenberg 23:51
Let’s not forget about that. Oh, another 1.7 here at the end of the year, whatever the number is. Yeah,
Tim Webb 23:56
I saw it. I think that’ll probably pass but we’ll see. So yeah, and it’s just one of those things where it’s, it’s, you know, you want to play it safe a little bit. But as I was saying, with the laddering of the CDs, we’ve been doing that, but we’re doing short term, right? So you’re able to get, you know, on one month, you’re getting 4% type returns 4.2%. Now, it’s annualized, right? So but we’re kind of laddering that so that we’re doing it month by month on that. And then as the interest rates are being risen, sometimes the CDs rates are raised, rising and kind, but we also want that liquidity available to us so that if the markets do turn, we don’t think they’re going to turn on a dime. But we do want to have some availability with some of the capital to then be able to put that to work for our long term strategy, right? In these situations, what we’re going through right now, you have to you got to kind of battle in the short term, find your pockets get in there. And then you know, at some point, we want to get back to a long term strategy because we do believe more Kids are going to do fine over a long period of time. Historically, they always have, you know?
Jeff Eizenberg 25:10
Yeah, I can completely appreciate the long term view. And I think that kind of leads into the next section here, which is kind of transitioning away from what markets are doing, or doing or anticipated doing to, you know, really building a business, long term business, and the planning and structure around that, I think is super important. And, you know, making money in stock in the stock market, or in equities or bonds is one thing. But the other side is also extremely important. How about saving money in taxes or, you know, preparing your infrastructure and your business, to be able to pass it on to either, you know, other employees through employee benefit programs, Aesop’s other things like that, or succession planning, if you’re a small business, small farm, or even just a small business passing things along those ways. So if you could just maybe shift over a little bit, Tim, and I mean, there are many other strategies that people should be thinking about that outside of just where do I, you know, what stock? Do I buy? What, you know? How high is the stock market?
Tim Webb 26:18
Gonna go from here? Yeah, yeah, good point. So, you know, from a tax planning standpoint, you know, for our clients, businesses, organizations, farmers, we, that is something that we concentrate pretty heavily on. So we’re fair, you know, the corporate benefit space is something that we’re in and we look at it very heavily, and we bring that to our business owners as a great benefit
Jeff Eizenberg 26:38
large or small businesses are absolutely,
Tim Webb 26:41
yeah, it could be individual, individual owner only type 401 K’s right. And they didn’t realize that they could potentially get, you know, $67,000 off of their taxable wages, by setting something up for themselves themselves and their wife, whatever, your wife and husband opposite way. So just it’s one of those things that we really try to help from a financial planning standpoint. So we’re talking about market strategy, things like that. This is more under the financial planning wealth management portion of of our business. So in the corporate plan space, and or even just retirement space, right. As I mentioned, just previously, we’re $32 trillion in debt, what does that tell us? Right? It tells us at some point, tax rates are going to have to go up quite a bit to pay down our debt. So what do we do? Do we just sit here and wait for those rates to go up and continue doing what we’re doing? Or do we take advantage of some of those government, or, you know, the IRS places that allows us to put money away into a tax deferred vehicle, or an after tax deferred vehicle, ie what the Roth portion of things, and take advantage of what we can while we can build those balances up? So that in the future, because we all know, they’re kind of kicking this can down the road, at some point, you know, it’ll come home to roost, right, there’s gonna be a situation, what we try to plan for is we don’t want that situation to happen, right, as you’re going into retirement, and then oh, by the way, tax rates had just moved up, 10%, you’re gonna have to work another two years, even though you didn’t necessarily plan for it, you know, from that standpoint, right. So we’re trying to prepare our investors for the the likelihood or potential that tax rates could go up in the future. And one of those ways to do it for businesses and individuals is getting the proper retirement planning piece to your business or your individual aspect in place, and be prepared for the unknown. Right. So that that’s, that’s the big takeaway I would give.
Jeff Eizenberg 28:41
Yeah. And I think that, you know, a lot of people end up just putting a lot of trust in their accountants to tell them exactly what to do here. And I think that the accounting community does a great job giving advice, but at the end of the day, you know, you partner with accountants to help them be more successful in advising their clients. And I think that, you know, any accountants that are listening in here? It’s, yeah, let’s let’s all work together. Because at the end of the day, if, you know, all parties are swimming in the same direction, it’s going to be a lot faster boat, right?
Tim Webb 29:11
Yeah. No, no doubt, a lot of times. So that’s part of that financial planning process overall, is, you know, many times, you know, and I often say like, your money is your business. Right? It’s it’s unique, right? So
Jeff Eizenberg 29:26
you got like Jim Cramer does isn’t that his line? Your Money, Your business or something along those lines?
29:32
I don’t know. I don’t steal it from him. You know, you might. Yeah,
Tim Webb 29:37
well, yeah. If he said it, oh, I must have heard it passing. But I’ve been saying that for years. So but it but it remains true, right? So you have to run your money like your employee, right? So you’re putting your employee out into different markets, and if they’re not being productive, then they’re a non productive employee, and you need to get rid of that employee in in some sense, right. So um, And, and that’s also a taxes, right? So what a lot of times in the financial planning process, whether you have your own account that you love working with, or if you’re looking for one we have partnered with, with different firms in that regard that have a very sound track record of working in the financial planning process. But we oftentimes will do conference calls, you got to have your own management team and run your business, right? So we work with them and their accountants to say, Okay, well, here’s what we’re looking at. It could be Roth conversions throughout time, it could be okay, here’s where we’re at from a business standpoint, we need to figure out a way to get $150,000 off of the company books, how do we do that, from a proper retirement planning standpoint, things like that. So that when you start getting that out, you’re paying less taxes year over year, and that money is now growing for you versus going reverse back to the government. That’s, that’s that where that starts to bifurcate. And you get, okay, we’re going up this way, as opposed to paying that way, right. So and then all of a sudden, you continue to build on that. And then come retirement, diversifying your tax liabilities, be it through some Roth pieces, and like cash balance plans, then you can kind of have a situation where you’ve, you’ve also done proper tax planning, all the way through your accumulation phase. And when you get into your withdrawal phase, because we always kind of talk about there’s two phases to your retirement. Right now, if you’re not retired, you’re building your business, you’re building your individual net worth, and you’re accumulating the assets that you need to build so that you can retire a lot of times, you’ll work for 3035 years. And with the advent of new medicine, and a lot of new cool kind of technology coming in from stem cell and all that other stuff, people are going to be living longer, potentially, right. And you might be working for 35 years, and then in retirement for 30 years, right. So now, you’re not making that income, how do we? How do we account for that in the future, and that’s what we, that’s where that financial planning process comes in. We basically look at it year over year, figure out how to get you to that end goal so that you don’t have to go back to work when you’re 82. You’re like, wait a minute, I didn’t, I didn’t realize I should have done that.
Jeff Eizenberg 32:12
Are you question? Are you going to be able to hit the ball, as long as you are at 82?
Tim Webb 32:17
I’m going to try? I definitely, you know, every nowadays, because I swing so hard. It’s a couple Advil before the round. And if you go after, right, maybe
Jeff Eizenberg 32:28
something else help as well, you know,
Tim Webb 32:31
hey, you know, it’s one of those things, you know, gotta get, you know, maybe, maybe it’s something to ease the pain, if,
Jeff Eizenberg 32:38
you know, this is it. And I think in terms of easing the pain related to retirement planning, I think that what you guys are doing is phenomenal, you know, excited to be partnered with you guys in this project adventure to, you know, get this story out and message to more of our, you know, farming and agri businesses that are out there, you know, small, medium, large, I mean, at the end of the day, particularly in agriculture, the business has grown exponentially, you know, a small country elevators, now a mid sized country elevator, a, you know, a farm that was historically, you know, had revenues, a million, or $2 million is now, you know, for six or 8 million in revenue. And, you know, there’s a lot to manage. And, you know, there’s a lot of work that needs to go into making sure that these businesses, they used to be more family run, continue to be family run, and then grow pass on, and ultimately are successful for many generations to come. And that’s why I think that, you know, this discussion is super important today, and really wanted to have you on here, Tim, so
Tim Webb 33:52
I’m an Indiana guy, we have a great, we got a great farming community out here and everything like that. So yeah, we’re, you know, obviously land and everything is done very well. And, you know, what we’d like to do is we like to bring those services out to them, because a lot of times, you know, there’s not many alternatives in a specific area for them, where they can take advantage of, of a different perspective or something along those lines, there may be only two shops in their entire, you know, 30 square mile radius, and they don’t want to travel out, you know, so we go out to them, we sit down and chat with them and all that stuff. So it’s, you know, just want to let people know that they have options that they can choose from, and it’s more of a holistic approach, looking at the whole, the whole piece of the puzzle for you. So,
Jeff Eizenberg 34:39
yeah, this has been great, Tim, really appreciate this. I think what we’ll do is catch up with you here, maybe quarterly to see what’s going on with markets and you know, touch base on any new new updates related to these planning strategies, as well and you know, other you know, we have an office out in Kansas, you got the new office there in Crown Point, Indiana, like you said, I mean right there in foreign country and continue to grow. So congratulations on the business. You know, one last thing I’d like to ask here before the end of before we wrap up is, you know, first of all, you’ve kind of already given us your market prediction, you think that market is forward looking and likely to make a turn around here at some point. I’m not going to stick number on it for you but you know, it sounds to me like that’s that’s your your one point. And then second is you know, if you had to kind of go back you’re 21 year old body right after you graduated college. And you know, you’re gonna go out you’re gonna go play in the Major Leagues. It sounds like let’s say, let’s say that didn’t work out what what extreme sport would you find yourself interested in getting after?
Tim Webb 35:59
I would think I you know, and I’m currently looking into it as well even at my advanced by becoming more advanced age here. Rock climbing also in an odd way boxing so my father was the US the heavyweight Bengal bot Bengal Bowl champion at Notre Dame for two years running. So, you know, that would have been extreme I guess it’s kind of a fight sport that would have been something you know, kind of on those stressful days in the markets are down, you know, you know, a little boxing would have been okay, too. But yeah, I’m currently I’m looking into some rock climbing options for myself. Not a ton out here in Indiana overall.
Jeff Eizenberg 36:40
Yeah, I was gonna say probably not right in the heart of rock climbing area, but can certainly I guess I know what to get you next year for Christmas. I get your boxing boxing bag or heavy bag? Yeah, yeah. For the office, you could play ping pong. And then you know, the loser after you lose to the young bucks, you have to hit the bag.
Tim Webb 37:01
You know, they can’t beat me just so you know. I mean, it’s as hard as they try. It’s not gonna happen. So
Jeff Eizenberg 37:07
Well, Tim, really appreciate you coming on the show. How do people get in touch with you? What’s the best place to reach you? Yeah.
Tim Webb 37:14
So we’re at obviously, you see the RSC mag services. So we are our CM Wealth Advisors. So it’s RCM w a.com. So you can check us out there. And you know, our number and everything contact information, a lot of our groups listed on there as well, not all of our strategic partners. But a lot of our interior group is listed on that. So yeah, we’re happy to help in any way that we can. Big or small to your point, it doesn’t matter to us. You know, if you have questions, it’s a no obligation. We’re here to help. If you need some help, give us a call.
Jeff Eizenberg 37:47
That’s perfect. Yeah. And then tie in with the services piece. We can obviously all we could talk about both sides of the market at the same time. So
Tim Webb 37:56
we’re gonna come on in, right. There’s more to come on that for sure.
Jeff Eizenberg 37:59
So yeah, we’ll keep keep everybody posted. But all right, Tim. Well, thank you so much for your time. Super, super great to see you. Next time, we’ll get another round of golf in and catch up for a game of ping pong. But thanks again and enjoy the rest of your you know that your new year coming up?
Tim Webb 38:20
Absolutely. Thanks for having me. Appreciate it.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
The agriculture industry in the U.S. has continued to grow over the last century along with the world wide demand for U.S. agricultural products. While the typical consumer probably does not realize how big the American agriculture umbrella is, it is essential to acknowledge all the individuals that play a role in feeding the U.S. and the world. The U.S. agriculture industry employs over 20 million Americans and hundreds of millions of people worldwide. There are over 2 million farms across the U.S., ranging from small to thousands of acres, with the average American farm being 435 acres. While many areas of agriculture contribute to the U.S. GDP, about 1% of the U.S. GDP comes from farming.
1% of U.S GDP may sound small; however, in 2021, the U.S. exported $177 billion worth of U.S. farm and food products to the world. The U.S. farmer plays a vital role in feeding the world right now, and that role will continue to expand as the world population grows. For more interesting facts on the U.S. agriculture industry, click here.
Production in the U.S
The traditional area for the largest US agricultural product production is the Midwest for corn and soybeans; however, there are many other states that are highly productive for these same commodities, including the high plains of Kansas and Colorado and the vast prairie lands in the Dakotas. The U.S also produces many specialty crops i.e Florida for oranges, Idaho potatoes, , etc. In addition, other commodities, like Cotton is grown across the south and into west Texas, while others like sunflowers are grown in the Dakotas and the famous lumber industry in the Pacific Northwest and east Texas. In total, top three U.S. farm products are cattle/calves, corn, and soybeans that span the country.
Thanks in large part to the excellent stewardship of the land as well as improvements already discussed in technology (link to equipment and fertilizer), it is no surprise that the U.S. has also significantly increased its exports over the last 20 years. In fact, since 1950 the U.S. corn yields produced have increased by 360% and as a result it is no surprise that nearly 30% of all feed grain is now exported (https://grains.org/chart-of-note-u-s-exports-of-feed-grains-in-all-forms-giaf-end-marketing-year-at-nearly-101-million-metric-tons/). In other words, the US truly feeds the world “today”! .
The U.S. vs. The World
While the U.S. is a significant cog in the world agriculture market machine, it is important to remember that we are only one big piece. Just because we are functioning at our highest level it does not mean that problems elsewhere won’t affect us. What happens in South America while it is winter here can have major impacts on prices in our markets. As we are seeing right now, Russia and Ukraine are both major players in the agriculture and energy markets. It is important to pay attention to production in other countries as they compete against the U.S. for exports in a global market. South America’s rapid rise in the soybean market over the last 20 years shows how vital global production is to watch even when we don’t have seeds.
As we mentioned previously in our What it Takes to Feed The World Series, the global population is expected to grow by 2+ billion people by 2050 — world farmers will need to grow 70% more food to feed the growing population. The U.S. will not be able to meet these needs by itself, so growth worldwide will be critical. The increase in corn yields can be seen below, and as you can see, the gains in recent decades will need to continue…is this even possible without more arable land?
Threats to U.S. Farmers
The U.S. has farms of all sizes that face unique challenges, but all face one similar challenge, mother nature. While the weather is different in all places, it is the most crucial thing in agriculture production, and unfortunately, it is one of the few things we have no control over. There is a reason you buy crop insurance to manage the risk of the uncontrollable, you can read more about that here, but it is also why there are so many types of insurance that relate to weather events.
Each farm faces its own unique challenge, but the ultimate goal is to stay profitable and farm for years to come. The price risk associated with farming changes every year and is different for each farm/producer as expenses, yields, and income needs are different. It is vital to understand this as cookie-cutter plans to marketing may work for one farm or one region but can lead to failure in others.
RCM Ag Services and Producers
RCM Ag Services is a full-service risk management and crop marketing advisory firm. Our team specializes in risk management strategies to help producers hedge their risk and maintain profitability. We discuss strategies that fit your marketing plan and fit within your risk profile to help maintain a comfortable relationship.
We help farmers with cash sales, hedging, breakeven and offer speculative trading accounts. We believe the farm operates best when you know that someone is keeping up with the market and lets you handle producing a great product. Working with people throughout the agriculture industry allows our team to stay plugged in to all areas of importance.
FEEDING THE WORLD IN THE FUTURE
Bringing awareness to how the agriculture industry is vital to feeding the rapidly growing world is pivotal as we continue to face unprecedented challenges in global food security. However, there is a silver lining. We already know what must be done; it is figuring out how to do it that could be problematic. The world must unite and understand that each of these areas highlighted in the infographic is very complex, employs millions of people worldwide, and is vital to the growth of the agriculture industry as well as producing the necessary food for the future.
The 2021 U.S. grain crop has the potential to be one of the largest on record. Where did all the yield come from, what areas were the hardest hit, and why on God’s green earth are grain prices still so high?
Today, we are joined by several RCM Ag Services grain markets experts from around the country to catch up on a post-harvest update and share an outlook for production and marketing in each of their respective regions for the remainder of the 2021 marketing season and the upcoming 22 crops.
It is no secret that commodity markets have been on fire over the past 12 months. On today’s podcast we’ve brought on one of our real-life firefighters from RCM Ag – Jody Lawrence along with Tim Andriesen from the CME Group to provide us with some inside baseball knowledge of the current state of the agriculture markets and to discuss the real world application of the use of short dated options to potentially fight the current blaze of volatility surrounding agriculture markets.
As the director of Research for RCM Jody is no stranger to the podcast. Tim, is the Managing Director of Agriculture products for the CME Group and is responsible for management of the company’s global agriculture commodities business – including grain, oilseed, livestock and dairy risk management products.
Find the full episode links for The Hedged Edge below:
RCM Ag Services is a registered DBA of Reliance Capital Markets II LLC. Trading futures, options on futures, and retail off-exchange foreign currency transactions are complex and involve substantial risk of loss and are not suitable for all investors. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. There are no guarantees of profit. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. You should not rely on any of the information herein as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments. Opinions, market data and recommendations are subject to change without notice. Reliance Capital Markets II LLC shall not be held responsible for any actions taken based on this website or attached links. Parties acting on this electronic communication are responsible for their own actions. Past performance is not necessarily indicative of future results.
