AG Bull

AEI.ag | Golden Age Or Just A Bridge

• Tommy Grisafi

Share episode

www.agbull.com

We test the “golden age” claim against data on trend yields, usage, margins, and policy. Corn usage improves while soybean demand stays soft, and tighter operating margins force sharper risk management into 2026.

• Corn yields modestly above trend, not extreme
• Corn usage climbs above trend, supportive tone
• Soybean yields mid-pack with weak export story
• Rare overlap of big crop and high price
• South America hedging pressure on beans
• Contribution margins flat despite higher revenue
• Higher operating leverage raises cash flow risk
• Practical marketing and insurance priorities
• Limits of ad hoc payments and equity gaps
• ARC/PLC timing and cash flow planning
• Upcoming AEI.ag webinar and travel

AEI.ag is where you can find all of our content. We have a premium set of articles. We have our freemium newsletter as well. We have an upcoming webinar where we're gonna be my business partner and I are gonna be breaking down our outlook for the farm economy, really focused on management lessons that producers can implement, especially if they have a tight margin outlook for 2026.


Please like and subscribe @agbullmedia 


Watch Us on U-Tube AG Bull Podcast
(105) AG Bull Podcast - YouTube

www.agbull.com
AG BULL Media


E-Mail tg@agbull.com

Thank you, Tommy G


SPEAKER_01:

How are we doing everyone? Time Christophe Agbow Media Agbo Podcast. I just got done watching President Trump and Secretary of Ag Rollins. She said they're giving you a bridge payment just until we enter the golden age of agriculture. The golden age of agriculture. She said it four or five times. I have no clue what she's talking about, but this guy does. David, what is going on? Agriculture is so back. But with that, you brought seven great slides and margins look tight, correct?

SPEAKER_00:

Uh, and God we trust, all else bring data. I really think that when we talk about this golden era of agriculture, we're gonna have to really see the data where this is gonna play out. Let's recap where we are in 2025. This is our take about how big the 2025 corn crop was in terms of yields. If you draw a trend line since 1988 and you plot every year above or below that trend line, you can get a deviation. And that deviation from the trend line gives us an idea of how big that crop was. And so when we look at 2025, we're looking at a about a bushel, 1.1 bushel above that linear trend line. Now you can argue we need a different set of years. You can argue uh a lot of different points here. Like maybe you should take 2012 out because it was an anomaly. Our point here is that it feels like a big crop because we've been raising a bunch of 170 bushel yields. But when you look at it throughout the lens of history, it isn't a been-busting crop. It wasn't 10 or 15 bushel above the trend line. I think our marketing plans need to really think about that for 2026 and saying, you know, we just can't assume, like, oh, we're not going to have a repeat of 2025. That was a really big crop. I don't think that's the right conclusion.

SPEAKER_01:

No, no, Tommy.

SPEAKER_00:

Yeah. Yeah.

SPEAKER_01:

Brings this slide to back it up.

SPEAKER_00:

Well, this is looking at the other side of the balance sheet. This is usage. Again, I think trend lines are really interesting when you look at a lot of history. This is the trend line for corn usage on the left, and you can see we've gained a lot of ground over the last couple of years and we've crawled above that trend line. So I think we could start to talk about you know a lot of excitement and enthusiasm when it comes to corn usage. This is the entire bucket of usage. So when you look at on the right, that right just measures how far above or below that trend line is. You can see a couple of years ago when we were hanging out at 1.4 billion bushels below the trend line, that was similar to the magnitudes we saw back in that 2012 drought. So we really rationed usage a lot back there in 2012. We've seen that recover quite a bit. I think if you're gonna have a goal in there in agriculture, Tommy, you're gonna have to see this number get even more above that trend line. So if we get 500 million bushels or a billion bushels above the trend line, that would be just absolutely good news for producers wanting to move a lot of bushels and hopefully at a high price.

SPEAKER_01:

Yeah, and it just it's hard to get them. I'll pop in here. It's hard to get them both to hit at the same time where you have a record crop and a big price. We saw it unfortunately, I said unfortunately during the Ukraine war. If if you're a farmer and you think it was a great deal that Russia invade Ukraine and disrupted the whole system, that created a false sense of, well, it wasn't false, but it created huge demand and and created a lot of uncertainty, correct?

SPEAKER_00:

That's absolutely correct. There's just not many years when you can sell a lot of bushels at a high price. That takes a lot of demand. We've got to really push that demand curve out there quite a bit. So we'll see what happens here as we move forward. But it's we really want to see this usage continue to grow with strong prices. We took a look at it for soybeans as well. I our take here is the soybean crop is a little bit bigger in terms of departure from the trend yield as you look at it throughout history. About, you know, it's at the 55th percentile. So there's a few crops that are bigger. If you look at a really big soybean yield, it's maybe four bushels above the trend line compared to eight tenths of a bushel above the trend line. So that's the context for where this soybean crop here is in 2025. I think there could still be some sleepers out there for some really big numbers in the future. If you if you're in agriculture long enough, if you have a long enough career, this chart will help you think about the range of possible yield outcomes that you might see over your career. So anywhere from six bushel below the trend to six bushel above the trend. And 2025 just wasn't at those extremes. On the usage side for soybeans, I think this is a really this is maybe the question. If I had a crystal ball tell me and I said where commodity prices going to be a year from today, I think this is the chart that these charts I don't want to see updated. We just don't have a solid soybean story here on the usage side. If China comes in and starts to buy a lot, I think as the White House and the administration has been signaling, they anticipate it to happen. This really could be the ushering in of this golden era. We would need to see a pretty big turnaround in this soybean usage story. A lot of export activity happing. We have a lot of domestic crush going on, but how do we get some of this export activity kicked up? We just haven't got a good soybean usage story put together in the last few years.

SPEAKER_01:

And that's a much different chart than the corn where you see your little dot dot dot going up and demand our blue line staying above it. To me, that looks extremely bearish. I was on a conference call today at NASVIC Trading, and all these guys said, yeah, soybeans have had a big pullback, but if China does not buy even close what they're supposed to, then this price is 50 cents too high. And that would come right into South America getting ready to hedge their big crop because they're gonna come here and get ready to sell GN Feb March and uh hedge. Now, this this just shows how tight things used to be, how great they were, and then how tight again they're getting, correct?

SPEAKER_00:

Right. This is a snippet of the types of budgets you're you're the viewers are gonna be seeing as they put together their crop budgets. And so this is Indiana projections. You're gonna see a similar story across the corn belt and the Great Plains, but this is for a 50-50 corn soybean rotation. And I didn't adjust these for inflation. So if you dig back into your own archive files, you're gonna see something similar. You look back in the 90s and 2000s, a 50-50 rotation had about$300 an acre in budgeted revenue,$175,$180 in contribution margin. Now let me remind everybody what contribution margin is. Contribution margin is what we have left after we pay our seed bill, our fertilizer bill, crop protection, repairs, crop insurance. And so that contribution margin is in what we use to pay rent. We pay our machinery bill, we pay ourselves, we pay our debt obligations, and we generate a profit from that. So if you take a look at what happened since 2005, you see revenues have taken off, they've trended higher. The contribution margin has gone up mostly sideways. So between 2015 and 2020, contribution margins was hanging out around$210 an acre, and we're in that$200 to$220 an acre window here today. And so what's going on here is that it takes a lot more revenue to get a dollar of contribution margin. And I think this partially explains why corn is always exciting. So if you have$1,000 an acre in corn revenue and$200 in contribution margin, if yields are 20% higher or commodity prices are 20% higher, so instead of a thousand, you get 1,200, you've doubled that contribution margin. You've added 200 plus 200. So you've doubled it. If you have something like soybeans, maybe you have$500 an acre in revenue, and that 20% shock to the upside is now worth$100 or 50%. So corn has more operating leverage. That feels good in the good times. It feels really painful in the lean times. And if you look at these crops collectively, there's just a lot more operating margin. So the next slide really takes a look at that and says, hey, what does this operating margin look like for a rotation? How many dollars of revenue does it take to get a dollar contribution margin? Before 2010, it was about$1.50 in revenue. Today it's closer to$3 of revenue. What does that mean? Well, I think the first one is that we have to be really good about our risk management approaches. We have to make sure our marketing plans, our crop insurance plans, our government payments are really helping protect that. Because when we have higher leverage, those vault, those movements in revenue from our budget to reality has a really big amplification on what that contribution margin and that profitability looks like. If you think about this from an agronomic standpoint, we got to really have a king corn-like management approach to all of our crops. We got to be spoon-fitting these things, making sure we're getting those bushels that we need to get our crop across the finish line. So those are the things that we've been thinking about, Tommy.

SPEAKER_01:

All right. This is interesting here. This last little uh number salad here.

SPEAKER_00:

Yeah, there's a lot to digest here, but this is kind of digging back into the archives and helping us make context for what the USDA just announced. And so 2018, those were the MFP payment rates from 2018, and that was the total tab for that was$12 billion. So you can look through there. Corn payments were a penny a bushel, soybeans were at$1.65, wheat was at 14 cents. Keep in mind that there were some livestock commodities, hogs, dairy, some specialty crops, almonds, and cherries. They got some payment rates as well. Now take a look at 2019. 2019, the USDA had 16 billion dollars in total funds going out the door, and you can see those higher payment rates across the board. So corn jumped to 14 cents up from a penny. Soybeans went from$1.65 to$2 a bushel. We're still early in this conversation, but the USDA is again back at that$12 billion pie. That's a that's sounds like a really big number, but we don't know how many slices are going to get taken out. Because that 2019 program, as you can see there, added a lot more crops, added a lot more livestock commodities. So we added peanuts and peas and and and ginseng and cranberries. It was a big list, so there's a lot of slices that went out of that. So we'll see how big the we know the pie is 12 billion. We see how many slices come out, and then we'll start to get an idea of what kind of number producers can put into their cash flow projections.

SPEAKER_01:

Yeah, quick question. Did did you did they really break down who's getting what, or they just pretty much had a fancy meeting in suits and ties and said we're given 12 billion?

SPEAKER_00:

This time around or in the past? Just now, like a few hours ago. I I don't know how those calculations came to be. I haven't seen the table that shares how much that comes to. My understanding is there's going to be, you know, in the past, there was a an exercise to try to figure out how much were those impacts, and then how much budget room is there to get that across the finish line. So I think it's a little bit of uh of all the above, Tommy.

SPEAKER_01:

Yeah, and from what I talk to, that to get the ag economy whole again, we need 30 to 40 billion at least. So this 12 is just a band-aid, and uh it's not who knows how they're gonna distribute it, or not all people are qualified for it. I have clients who've been very successful in other ventures and they're capped out because it looks like they're massively too successful. And it's odd they invest in some other business that does well, and then all of a sudden they get knocked out of the farm program. So it's uh, but their neighbors getting the money, right, David?

SPEAKER_00:

Well, I think the other thing to keep in mind is there's the potential for ARC and PLC program payments for the 2025 growing crop. Those payments aren't available until 2026, the fall of 2026. And so I think one of the big headaches for the last round of ad hoc payments that came in the spring with Congress passed a year ago, was that it just paid X dollars an acre for soybeans, X dollars an acre for corn. So, Tommy, you talked about the neighbor versus neighbor conversation. Well, here's a different one. If you had dry land corn in the western Great Plains, you got the same with an APH of maybe 90 or 110 bushels per acre, you got the same payment as a producer in Iowa or Illinois with a 200 plus bushel APH. And so these ad hoc programs are really difficult to administer from the USDA. I don't want to make light of that, but I think sometimes it falls apart whenever producers are sort of comparing how much they get and how much benefit it has to their operation versus peers or neighbors or other parts of the country. Sounds good.

SPEAKER_01:

Well, David, stay right there. Tell people how they get a hold of you at your company. Ae.ag. And then also, where will you be out public speaking here the rest of the month of December, sir?

SPEAKER_00:

AEI.ag is where you can find all of our content. We have a premium set of articles. We have our freemium newsletter as well. We have an upcoming webinar where we're gonna be my business partner and I are gonna be breaking down our outlook for the farm economy, really focused on management lessons that producers can implement, especially if they have a tight margin outlook for 2026. We're rolling into December, I'll be or January, excuse me. Hard to believe this year is flying by so much. I'll be on the road speaking quite a bit in January, headed to Indianapolis, headed to Missouri, and then headed to Chicago as well. Unbelievable.

SPEAKER_01:

All right, next time we meet, we're gonna talk about this corn bean ratio a little bit and talk about the planted acres. We didn't get to that, but don't worry, you'll be back probably next week or the week after that. And next thing you know, it'll be a new year. Thanks, my friend. Thank you, Tommy.

Head Shot

Tommy Grisafi

Host
Head Shot

Jim Wiesemeyer

Co-host