Field Crops Webinar - Grain Price Outlook and Marketing Strategies - Matt Gammans

March 22, 2021

In the last session of the series, MSU agricultural economist Matthew Gammans focused on addressing grain price outlook and novel marketing strategies. He first went through the recent March USDA World Agricultural Supply and Demand Estimates report, identifying the current supply and demand pressures driving global commodity markets. He then discussed novel and less conventional marketing approaches including organic, transitional, non-GMO and environmental certification programs, as well as custom contracts with food processors looking to procure grain grown using a specific set of practices. Dr. Gammans provided a brief description of what each program is, what type of premiums are typically available and where one might go to learn more.

Additionally, Matt discussed some of the buzz around carbon sequestration and carbon credits and what these might look like going forward. When considering any of these marketing opportunities, producers should identify a market before making costly changes to production practices. Securing a premium requires meeting a demand: listening to consumers and developing relationships with buyers is essential.

Video Transcript

 Thank you for having me I'm excited to be part of the webinar series. As Ricardo says, my talk is is a little bit disjointed so first I'm gonna talk about just kind of a quick update on the markets. Mostly just kind of summarizing some of the new report that came out a couple of weeks ago from the WASDE so that's the World Agricultural Supply and Demand Estimates, a report put out by the USDA. So that's gonna be kind of the first little piece of my talk. And then kind of the second piece will be thinking about some unconventional marketing strategies. So kind of rather than just trucking your (indistinct) and elevator and kind of taking whatever the spot price is or coming up with a forward contract from the elevator, trying to think of ways to get a price premium. So, talking about organics and non-GMO and then a little bit at the end I'm going talk about some of the buzz around carbon credits and kind of how we might think about those. So it's occurring to me right as I'm doing this that I really should have introduced myself a little more thoroughly first. So I've dove right in with the WASDE but this is my first year at Michigan State. I'm an assistant professor in Agricultural Economics Food and Resource department. And so I finished up my PhD at University of California at Davis in Agricultural Economics last spring, but I'm actually a Michigan native and a former Spartan. So I did my undergrad here in the Agricultural Engineering department and I'm originally from Grand Rapids. So, really excited to be back in Michigan and excited to get to meet all of you virtually for now and then hopefully in person as we get to the summer and fall. So with that, I will start to kind of go through some of the updates from the WASDE report. So kind of the headline numbers here is that there wasn't too much projected changes to the corn and soy ending stock, but the USDA did increase their production forecast for the South American soy. So if you've been following they had a ton of weather problems as they're getting the crop into the ground last fall. And so there was kind of some while pessimism for them but optimism for us in terms of what that would mean for the markets but it's actually coming along kind of better than maybe some of the original expectations were. So when we think about kind of this worlds of find demand, it's really all about kind of expectations that are driving the price movements. I should mention so a lot of this market outlook will focus on corn and soy. So I sincerely apologize to some of the wheat folks but I will make it up to you in the second half of the talk I promise. So, continuing to have a really strong export market. So, the China corn story has been kind of the main story in these markets throughout the marketing season and really strong export demand for soybeans as well. So, that's kind of looking at the current crop, the current marketing year and then looking ahead, we have some of our first acreage forecast from the USDA for corn, soy and wheat, and looking at elevated acreage for all of those. And we'll get into the specific numbers in a second. So as I mentioned this shows the corn exports both to China and then across all destinations for the past few years. So, you can see that the exports here at the far right across all destinations, now isn't totally out of whack with where it's been historically. I mean it's definitely high but it's not crazy, but what really has driven, what really has kind of compensated for otherwise kind of a a mediocre export year has been this new demand from China. So, and you know that's good, but it's also it means there's a lot of uncertainty, right? So, we kind of don't know if this is here to stay as we come into next year's harvest or if this is something that's going to evaporate and we're gonna kind of go back to not being able to rely on export demand from China. So that depends on their (mumbles) situation, depends on kind of whether the stocks that they have are able to kind of maintain quality. So, some reports that kind of the stocks that they have are overstated because they're deteriorating in quality. And then as always it depends on the weather, right? So if there's bumper crops and kind of some of China's more traditional suppliers especially thinking Eastern Europe, that's kind of not going to be good for the ability of U.S. farmers to export there. So that's the situation on corn. And I should add to that these numbers are not something that's kind of been radically changing in the last month, right? So this has been kind of the story throughout the marketing year is elevated export demand from China and then good to very good export demand overall. So here's soybeans. So, this is the same graph I showed you before only this is soybeans rather than corn. So, here we see, if we look at the end here and kind of compare to previous years, this is really good export demand overall and then really good export demand from China specifically. So both export demand and then China specifically is really elevated and the next graph actually is gonna show this even clear. So, this is the share of total U.S. stocks that are exported. So you can see kind of this marketing year that we're kind of just over halfway through, 86% relative to averages of mid 60s to low 70s. So that means that even though there has been some update of the production forecast for South America, it's still good news on the whole that there's really strong export demand and potentially the possibility that stocks could kind of decrease even more than expectations going forward. So that's the export situation. Turning towards kind of looking into the future. I have kind of U.S corn planted acreage here. And so, for now this is a forecast, right? And what's going to really drive this is going to be the weather getting into April and May and really seeing kind of what fields are good to go and what fields aren't. So for now it's pretty much looking right about in line with the past few years, right? So 91 million acres of corn last year, the USDA is forecasting 92 million acres this year. So not necessarily a big story, but still going up. Soybeans is a little bit different. So with soybeans we see kind of a more dramatic increase in forecasted acreage relative to the past couple of years. And so kind of putting this all together with the wheat crop that's already in the ground, we see kind of forecasted acreage trending up kind of as I've shown more years than I probably needed here you can see all the way back to the 70s. But trending up over the past few seasons and having a high amount of acreage this year. So, and that's kind of the way it goes, right? When commodity prices are high we expect to get a few more acres in on some marginal fields. So again, sort of good news, bad news, really strong demand, still high prices, but people are responding to that in ways to try and increase supply. So turning to Michigan specifically, I have here, this graph takes a little bit of explanation. So, I have the corn basis for the nearby futures contracts so that's the whatever futures contract is next to expire in a given month. So if you see her on the bottom axis here, you can see kind of September, we're looking at December's future contracts. Once we get past December, we're looking at March futures contract into May, July and September. And so this black line here is our past marketing year so you can see the basis. This is specifically for the Thumb area. There tends to be not too much dramatic variation at least in the major growing areas but there can be some, so this is for the Thumb. And you see really strong basis and especially when you look down to the blue line which is our three-year average for the previous three seasons. So, you can think of this blue line as kind of maybe what we would expect, what our expectations would be kind of if we, didn't know what the situation was right now and this black line is where the base actually is. So if you're looking at a May futures contract, your cash price is almost getting up there to be just the same as the futures price so that's a really strong basis for our area. And it's kind of a similar story in soybeans. So you can see kind of we have in blue, this is our three-year average basis and we can see that we're way above that right now, right? So talking about, what is that? 35 cents stronger than average so really strong local basis. So this is, already the future markets are kind of not rewarding storage as much as they might typically. And in our area specifically, the really strong basis is not encouraging you to kind of walk in that price now. So, looking ahead these are, I say forecasted but it's not really, it's maybe the world's simplest forecast. So this is a forecast in the sense that it takes the harvest futures prices. So these are the prices on futures contracts for next fall that are trading currently so the current price on those. And then going back to that blue line on the basis charts, taking out that expected basis. So this is saying, the past three years this has been the basis as we get into harvest season, right now we don't have an expectation that's different than that so we'll just kind of use those numbers. And if we plug in that basis along with the future contracts that are trading now, what does that look like for our expected harvest price? For corn, you have a December futures contract trading today at 4.69. We have expected basis come next December of around negative 22 cents. So that gives us an expected harvest price of 4.47, and then turning into soy you have a November futures contract so that the contract months are different between corn and soy. So November futures contract for soy trading at 12.16 minus our expected basis that's that blue line again of 75 cents for 11.41. So, all that can change, right? I'm not promising these numbers but kind of looking ahead today these are where kind of the market is telling us it thinks we're gonna be at next fall. So, what to do with these numbers? I think kind of relative to kind of where these ratios are at, I don't think these numbers are kind of telling you to do anything crazy with your corn soy rotation. So, if you're in a corn soy rotation that's working for you, I would not say that either of these numbers is kind of a dramatic enough difference to jump out of that rotation. If corn was at $8 and soybeans at 11.41 then maybe it makes sense to forego that soy rotation and try and kind of shoot the moon on corn but that's not the case here. So as always with both these kind of big picture forecast as well as getting into some of the finer scale marketing detail, it's a question of kind of how much risk is out there and then how much risk can you afford. And so how can you reduce that risk by locking in prices that are profitable even if they're maybe not fantastic if you can make a profit, locking in some of the crop there. And then trying to leave yourself some room to potentially benefit if prices move in your favor. So that's all I have for my kind of fricking dirty market update. I'm happy to open it up for a few questions. I don't have a crystal ball, I can't make promises about the prices but if there's kind of specific questions, I think now would be a good time to try and answer those. - [Ricardo] Thank you very much. So one question that I have here. And that's one thing that we always wonder whenever we are talking about wheat farmers. How can I plan ahead? Because I mean, so those price look good. I mean, to me do you know what I mean for like a work extension. I'm very happy to see a point at 4.50 most of the time. So the whole thing is, you just said you don't have a crystal ball but from a farmer perspective how can I play with the tools I have as a farmer in order to make sure I'm getting the best price? I don't know if you can even answer that but you know what I mean? So how can I make sure I am able to (mumbles) the market more than I can from the farmer's perspective? - Yeah, so I just finished kind of a larger workshop on grain marketing that maybe some of the attendees here also attended but maybe not. But we're turning that into a video course. So there'll be kind of a richer material that I hope to be able to reference you to the future. For now, the two most obvious options are looking to forward contract and looking to hedge. So or more likely a hedge to arrive so this is working kind of with a local elevator in setting up a hedge to arrive contract or a forward contract kind of depending on whether or not you wanna lock in that basis. So that kind of you're promising a certain amount of profit next fall. And then you can deliver you already know the price that you're going to get. So you know the price that you're going to get kind of even as you're going into planting season. So at these prices I think, I'm not sure I would recommend kind of all of your acres in one place at one time, probably it's better to diversify but definitely at these prices these are profitable prices to you and it makes sense to be locking in a chunk of your production, yeah. - [Ricardo] And I don't want to put you on the spot and actually you just said something very amazing here. So when it comes to a percentage and diversify, do you have a recommendation 30/70, 50/50, 80/20 or we don't want to have to go that far to make those types of records? - Yeah, I'm gonna weasel out of this one and the reason why is because it really depends on your operation and also kind of even things that are going on maybe off-farm that affect how much risk you can afford. So, if these are profitable prices and you are a risk averse operation or a risk averse person maybe, then I think you you want to lock in a good chunk if you know that these are profitable prices for you. If you're someone who can afford more risks, then maybe a chunk now, 50% or 25% now another 25% in a few months and then maybe plan on marketing the rest of the fall. So it really specific to the risk that a given operation can afford. But I would say at these prices I wouldn't leave it all to next fall I would get some contracted out now. - [Ricardo] And another thing that you mentioned and I think we cannot emphasize enough is the fact that, you know your own books, you know your own expenses, right? I mean, maybe going back and knowing hey, how much costs me to grow corn and soybean? Maybe it costs less than my neighbor or more so that's where things change as well so maybe doing a very good job with the record keeping and going back and doing the the business part of the business you know. - Absolutely and one more point that I kind of wanna add on that is when you're contracting you have to be cognizant of the risk that we have some adverse weather or something else goes wrong. So you have to kind of not only have to know your own finances but know what sort of variability in yield realistically are you looking at? Because you hate to get into a situation where you're contracted for 20,000 bushels and you don't have it. So that's a situation you definitely wanna avoid and also that's gonna depend, that's gonna tie back to kind of what insurance programs you have too. So this stuff does get complicated fast So I think the more that you know about your financial situation and your cost of production the better situated you're going to be. And then in terms of general advice, just kind of not trying to have all your eggs in one basket. - [Ricardo] All right, thank you very much. I think if you wanna move to the second part and we might have some more questions over there, sure. - Sounds great. So switching gears kind of dramatically here. So I'm gonna talk about kind of I've called it novel marketing opportunities. I think some of you will rightly say, organic is not novel it's been around for a long time. Maybe a better word would have been unconventional. So really just anything where we're thinking about how can we get a premium for our crop rather than kind of taking it to the elevator and selling it as number two (mumbles) and well, not just for them, but they're just as an example. Anyway to get us away from kind of that commodity grade, where we're trying to kind of make our product unique in some way and then exchange that uniqueness for premium. So I plotted out kind of how I think people often think about this. So, we have some new production practice, often this is going to be something related to kind of environmental conservation or making our product green or highlighting some local attribute. So yeah, so it can be kind of a physical change in the product itself if you're growing something at a higher level of quality, it could be a change in kind of the practices that you're doing on farm or could it just be a change in how you're marketing if you're really trying to highlight that. This is a special crop from a special place, this is kind of a local Michigan product. And then it also could be kind of new crops so thinking about specialty grains and things like that. So we do these new things, we have these new products and then we kind of go and find new buyers and that's going to give us kind of new revenue. And a key point of my talk, you're gonna get upset with me 'cause I'm gonna say it a million times but I really want to emphasize that, it's not quite that sequential, right? Really we want our practices on farm to be responding to the demand side, right? So it's not like we go out there grow something and then we kind of go look for a market after the fact, no, we want to be responding to kind of what is the demand for specialty products and how can I supply that demand? So what demand is out there that's not being met and then how do I find it and respond to it? So really it's as much as we'd like the supply side to be driving the story here when we get into these sort of unconventional marketing situations it's the buyers that are driving things. So it's what do consumers want and what kind of confederate premium. And who are these buyers thinking about kind of food processing companies typically? For some products there might be a direct consumer. I'm not gonna talk too much about that today but mostly thinking about ways that either we can kind of get our product certified by some certification organization who's gonna then allow us to fetch a premium or working with a food processor specifically to develop a relationship where our product is able to kind of get more than it would at an elevator. So this is kind of a busy slide but I'm gonna kind of explain it slowly and it's actually pretty simple. So, over on this left hand side I just have kind of conventional so we can think about just kind of standard commodity marketing at whatever the futures prices minus the local basis, that's the price that we get. And then I have some alternatives here and you can see that kind of organic, non-GMO, specialty crops, these overlap, right? So I set this up as sort of a Venn diagram where there's overlapping. And so, it's not like you have to just choose one it's going to be, they can overlap and you can have multiple dimensions that together are able to kind of give you a premium. So, that's also what makes it kind of tricky is that someone might ask, what's the premium on organic corn and the story with all of this sort of unconventional marketing things is there's not really just one premium, right? So it's really going to depend on kind of your relationship. Are you selling it for food use? Are you selling it for feed use? And so they're not kind of just gonna be one number the way that there is with commodity prices. So I'm gonna talk a bit about organic. I'm gonna talk a bit about non-GMO. I'm not really gonna talk actually about kind of specialty crops very much. Michigan has just about any crazy grain you can think of there's someone growing it in Michigan. I was just reading an article the other day about some teff which is an Ethiopian crop that someone decided they could try and grow and sell here. So, there's lots of different kinds of specialty crops that will grow if you plant them but the question is can you make a profit doing that? And for that you really need to know upfront that you have a buyer who's really interested. So, there's tons of anecdotes from kind of the craft beer boom of people getting excited and planting hops, not having a market and just kind of showing up at breweries hoping to sell a bunch of hops that they had you know it's kind of a lot of money to grow and not having very good luck. So don't let that be you, before you get too excited about any sort of specialty grain, you need to identify the market first. And I ideally, to be really confident that the demand is there, you kind of want the demand side knocking on your door and being like, hey, this is something that we need. So then I'm gonna talk about organic and then I have this transitional here which I'm gonna talk about, which is really an important consideration when you're thinking about organic generally is this transitional phase in the middle as you're going from conventional into organic. And then at the end I'm going to talk about carbon markets and really just kind of trying to kind of not pump the brakes and not throw cold water but just I think there's been a lot of buzz and so I just kind of want everyone to know what these are, what they aren't and kind of what the picture looks like. And there's a lot of uncertainty right now which makes sense that there's a lot of excitement but just knowing kind of how these might fit into your operation potential down the road. So yeah, so first kind of the I would say the best known unconventional marketing tool is organic. So this is very large premiums but also really large cost in a lot of kind of limits on what sort of fertilizers and pesticides are allowed. And basically, none of the kind of typical inputs that we would think of going into a production farm. So, just to illustrate it a little bit, this is kind of an average over the past few years, an average organic corn price of 9.65. So that's super high. But then you have to turn to the yield and we're looking at an average. I think these estimates are from Indiana but probably a pretty similar story in Michigan of about 120. So, obviously these are (mumbles) specific, obviously these vary a ton, but really big yield declines and that doesn't even kind of get into the cost. So big benefits, big costs, it's totally possible that this is something that could work for you but it's definitely something that has potentially large downsides as well. So, the good news is that demand has increased for organic products looking across the major commodities over the past 10 or even 20 years. And the domestic supply hasn't kept pace. So we're actually importing organic products from China and other locations to kind of meet the demand. So there is demand out there for organic products I mean, it does fetch a pretty high premium. So unfortunately the USDA data on organic prices is kind of lackluster so there is some reporting out there but it's not great. The company that has kind of kept the best records and tracked this most carefully is Mercaris. So you can get kind of some baseline information if you're interested from this website, but to get kind of the real nitty gritty analysis you're gonna have to buy a membership like you went to DTN or anything else that's gonna kind of provide some of that data that isn't publicly available. So, is it worth it if you're kind of just a little interested? No, probably not. But if this is something that you're really considering for your operation, if it's something that you've been thinking about for a few years, then I would probably encourage you to really kind of dive into the numbers so that you can kind of pencil out, okay, what does a revenue and profit per acre look like, one year out, two years out, three years out if I start to make this transition? So here I have just kind of some average premiums and average yields across the three major crops. So average premiums so this is just kind of on average how much over conventional is an organic product selling for and these are estimates and these can vary a lot. And they're not constant, right? So in a really strong market like we're seeing now, I would expect these premiums to get to be a little lower. I wouldn't expect soy to be 10.60 over the current soy price. But on the flip side in a weaker market I would expect the premiums to be a little larger. So in that sense you could almost think about it as something that manages risk. Where when the markets are good you're not gonna get as much of a premium and then the reverse when the markets are bad. But you can see these yields are probably lower than you're getting on your conventional crop, impossibly substantially so just for a point of reference, USDA has average Michigan yields at around 154. So 35 bushels per acre lower than that is a pretty big yield penalty and that's not even getting into the cost side. One more point on this which is kind of tying to my next slide is that this transition period is three years, so these yields happen before these prices happen, right? So you're going to start to see lower yields kind of before you see these big premiums. I'm sort of realizing that I'm sounding like an ER and I don't want to sound like an ER. There's reason to be upbeat, especially if you have a diversified operation where you have some organic and some conventional, these premiums are really large. And if it's something that you're passionate about and excited about, and especially if you've kind of already kind of know some people who potentially you have a relationship with who are going to be demanding organic product, then I think it's something definitely to consider and definitely be excited about. So, the certification process I think arduous is kind of the word I would use. It's a lengthy process, it's not quick, it's not easy by any stretch. So the three year process that I've mentioned a few times means that basically you kind of start doing all the practices that you would that are required from an organic farm, and you do those for three years, documenting it kind of every step of the way before you get kind of the shiny USDA organic seal. And this seal is really what you need to fetch that full premium. So, the application requires really detailed information about your operation. You work with a certification agent and you develop a... Sorry, I'm blanking on the word. Basically, you develop a systems plan that's going to be kind of, how am I running my operation in a way that's consistent with the guidelines that are set out for it to be certified organic? And then you have an annual recertification, right? So, it's not just like three years and then no one checks up on you. It's an ongoing process where you kind of are renewing every year to keep this certification that's allowing you to have these premiums. So MSU extension has some good information on this so I would really highly recommend it if this is something that you've thought about, I really highly recommend kind of checking out this website and it kinda walks you through some of the process. So, the transition period, that's that three years as you're going from conventional into organic. A big question there is how can you kind of try and get some of that premium during the three-year transition phase? And it's hard to do. I think that especially if you haven't found a buyer going into the process, it's going to be challenging to kind of get large premiums when you're in that transition phase. So, kind of relationships are the key word here. So I highlighted Kashi the cereal over on the right-hand side and they actually have for that specific product, they have relationships with farms that they only supply from transitional. So they don't buy from organic farms and they don't buy from conventional farms. They only buy from farms that are transitioning and their argument is, we're kind of encouraging people to start this virtuous cycle to get them into organic farming and we're going to help them by giving them a premium along the way. So, I haven't done a full analysis of kind of exactly what's going on, but to me I think it makes a lot of sense, right? Like these are people who are kind of getting to the point of being organic and I think it makes sense that they get a premium while they're along the way since they're adopting a lot of these costly practices. But that's just 'cause you think you deserve a premium doesn't mean you're gonna get one, right? It's really all about finding those opportunities so to work with someone who's actively marketing a product as as being transitional. So Kashi has worked with this separate private certification agency to develop kind of what does it mean to be a transitional farm? Yeah, so I kind of already mentioned this but yeah don't plan on these organic premiums until you get that USDA certified seal, right? So the transitional phase, you can try your best to market it as much as you can to maybe get a premium but it's really, it's not quite a sure bet the way that a certified organic product is. So this is something that you need to kind of build into your finances and if you have the opportunity to run a couple of years of losses before you kind of get the certification and the answer is gonna be different for everyone. So another option that's out there, I think it's a neat program because it's kind of Michigan based which means that they know more about Michigan agriculture and they're willing to work with Michigan producers in a way that I think some of these national certification programs aren't as tailored. So this is the Michigan Agriculture Environmental Assurance Program. So this is a program that gives you a certification for adopting a lot of the practices that it all often comes back to such as cover cropping or no till or strip till, but not a strong record track record of kind of commanding premium. So what I would say is that if this is something that is interesting to you and you're kind of looking to market your product as being environmental friendly if you have kind of other practices on farm that you think show a track record of being, a good environmental steward. I think we all think of ourselves as good environmental stewards, but adopting some of those specific practices, this certification would be something that you could get beforehand and then maybe kind of use that as a tool to develop some of these relationships. Basically just showing like, hey, I have someone kind of to vouch for me. But in and of itself, not a program that you're gonna magically get a big premium for. Can we maybe take like four minutes and do a couple of questions on, I see that the chat is kind of filling up. So Ricardo is now a good time. - [Ricardo] Sure, yeah. Actually, I wanted to add a few things about what you mentioned about the organic part and I'm gonna guess about the premium but when you think about management, it's way more complicated. I mean, it's amazing but it is not the same as you do a conventional on top of also your expenses will go higher and you're gonna get lower yield. So I always wonder farmers whenever they're thinking about it should you put that on the table as well because the premiums are higher but you're gonna have to invest more time in management for a lower yield, do you know what I mean? So I do think you mentioned when you said well, it is about if you're passionate about it and I always joke, in order to be a organic farmer you need to love what you do because it's not easy at all. I mean, I don't know (mumbles) 'cause it's complicated but if you're passionate is way to go. - Yeah, I think that's exactly right. It has to be something that you're excited about. I think if you're just kind of just doing it on even if your profit, if three or four years out your profit is a little bit higher, it's because it's taking a lot more management time into it. So, I'm sort of like by the time you compensate yourself for that extra management effort, it's something that you have to be passionate about. That's my impression of it. - [Ricardo] Yeah, you're correct. And even when you think about even like for example, if you're thinking about soil health and do you want to do cover crops it might be a little bit more conventional in organic than in confessional because that cover crop it is hard to kill without a herbicide. So if you're trying to go that route because of the environment, sometimes you're actually not and not be so nice to the environment does make sense. It is amazing but a lot of work and I think you need to think through before going that route. - Yeah, I super strongly agree that's a great point is people think, oh, well, the more work and the higher the premium the better it is to the environment, that's not necessarily true, right? It really is farm specific and kind of making practice, choosing practices that work for your farm. - [Ricardo] You also mentioned about wheat when it comes to me wheat here, so let's say one of the struggles we kind of have, I mean, we have over 5,000 farmers they're (mumbles) verified. So that tells that they are doing a good job when it comes to the environment. But at least for now I do see and maybe if we have any farmer here that wanna talk about, I don't see we getting any premium for those farmers going that route. They're pretty much doing because they believe in the system. Do you know what I mean? - Yeah, I haven't heard of anyone getting a premium from that specific program. - [Ricardo] If like you guys are in the chat now wanna tell us that we are wrong, I would love to hear that because yeah. So the program is amazing, but I see people doing just more because they believe and would be amazing if we had a premium for that. But there is no as far as I know. And Matt I do have one question here actually from Clyde he's saying, where is the nearest marked for (indistinct) I don't even know how to say the word. - Yeah, I don't have an answer to that one. That's a good question but I don't know. - [Ricardo] Yeah, a place where they sell beer I don't know any mark for here. And Emily she made a comment, she said, "I work as a MIP technician and I have not heard "of any of my producers getting a premium." So she's pretty much agreeing with what we say. I wish that could change, but yeah, it's kind of sad. - I have a bit more to do so I should keep rolling here. Great. So non-GMO, I just have to say I don't think super highly of some of the non-GMO pressures. I think there's a lot of evidence that GMOs are safe and good for our agricultural economy and good for consumers and producers, but it wouldn't be quite a complete presentation without it because the fact of the matter is that, there's demand for this product and people can get premiums for it. So kind of putting aside maybe some of my personal prejudice. The benefits are it's a much less stringent process than certified organic. So if you're looking for kind of some opportunity to get a premium and you think that you can grow non-GMO, corn or soy, it has a potential to kind of deliver on that promise. So, there's not a certification program run by the USDA the way that there is for organic but there is kind of this non-GMO project which I will say has the prettiest logo out of all of these certification programs that will verify product as not containing GMOs. So I have estimates of premiums. We're talking about kind of 50 cents to a dollar for corn, a buck twenty-five, two bucks 75 for soybeans. So not bad by any stretch. And cargo actually does offer some non-GMO spot purchases at some of their Indiana and Ohio locations. So you have to get it there but you can actually sell kind of without a contract beforehand. So, I've been kind of hammering home that you always want a contract beforehand but it's actually not specifically necessary if you can get your non-GMO grain to Indiana or Ohio to sell to cargo. One thing to really stress is that, so for corn I think it's 97% has to be non-GMO and they'll test it at the facility and for soybeans it's 99%. So it's really requires a lot of care to prevent contamination. So it can be contaminated by cross-pollination. I've heard of stories where people kind of forgot to track exactly which acres were which and some got mixed into the bin with the non-GMOs and kind of spoiled the whole batch. So if you're gonna go that route it's just really important that you kind of look up all the best practices for how to separate your fields and you follow those so that you kind of the premium that you're expecting is the one that you actually get at the end of the day. So yeah, that's my piece on on those non-GMO market. And then direct to consumers. So I omitted talking about wheat beforehand in the earlier portion of the talk, but really this is where wheat has a pretty strong track record of at least in the state of Michigan of having really nice relationships with food processors. So, you don't necessarily need to kind of enroll in a certification program if you have a great relationship with a buyer. So if you have a buyer that kind of likes the way that you run your farm, you are able to consistently supply a quality product on time, then probably your best route is just to kind of make that relationship as productive and profitable as possible. So there's lots of large food processors will have these programs. If you go to kind of any of the big kind of food conglomerates websites, I've been to a lot of them and they all will have kind of some heartwarming story about kind of a couple of specific farms. And my guess is that those farms are fetching a premium for their relationship with that supplier or sorry with that buyer. So a couple of examples, Triscuit obviously is kind of the most famous one in Michigan, pretty much on every box you'll see them talking about their Michigan wheat farmers. Star of the West milling Co, has contracted with Kellogg's down in Battle Creek to supply a lot of their wheat as well. It comes with strings attached, right? There's specific actions that you have to take on your farm in order to be eligible for these programs. But I think it can be a profitable route to go. So unfortunately unlike the certification programs there's not kind of like a clear like, here's what to do next step here, right? So this is kind of always being kind of looking for opportunities if it's something that you're interested in. And if you have neighbors who are selling into these programs talking to them and it's really kind of a relationship based model. So I want to end on well, I'm gonna end this section on kind of three general principles. And then I am gonna talk a bit about carbon credits in my last few minutes. So the first is kind of know who you're selling to before you grow. So don't adopt practices in hopes of finding a market later, you wanna forward contracts. And then unlike the commodity markets you can't count on kind of a good price being available to you or at least the best price isn't always available to you, right? These markets aren't liquid so you can't, supply and demand don't always, even out the way that they typically we think they do in our big commodity markets. So really, you can get a premium just by kind of leveraging your relationships strategically. And then this ties back to the beginning of the talk, don't mark it all in one place, right? So you don't have to turn your whole farm into kind of organic, non-GMO all at once, right? You can keep some acres, conventional, have some other acres that are targeting a niche market. That can give you a way to get some increased revenue without kind of taking out all of the risks that would come with kind of changing all of the procedures. So those are kind of general principles for kind of anytime you're thinking about new marketing strategies to get a premium. - [Ricardo] Matt, I just have one quick question. - Yeah. - [Ricardo] So do you see any benefit of like a farmers they're contacting those companies directly like literally a cold call to Kellogg or someone do see any benefits from that or not really? - I know what you mean and the honest answer is, I don't know. So I have not heard a story of that working out but I also think one call, maybe it doesn't, maybe its worth it, right? Well, the worst they do is laugh at you and then you just up and you're no worse off. So I don't know, that's the honest answer is I do not know. I haven't heard of any success stories but I'm not gonna sit here and say, no, never call Kellogg's out of the blue 'cause yeah, I don't know. That's a good question. - [Ricardo] All right. - All right, so yeah, in the last little bit I'm gonna talk about carbon credits. We can kind of think about this in a lot of the same ways where this is really kind of changing on-farm practices to try and get an additional source of revenue. So here the revenue isn't kind of coming through a crop, it's not coming through a premium, it's actually a direct payment for the carbon that is being sequestered. So, but when I say sequestering carbon this just means kind of using practices that lead to kind of some greenhouse gases that would be out in the atmosphere being in the soil instead. And that's a lot of what farming is. So kind of all of you are sequestering carbon. It's just a matter of kind of sequestering it relative to what benchmark and how can you sequester more and then kind of trade that additional sequestration for carbon credit which is a payment. So who pays? So kind of the theory and the logic of a carbon market is that there's kind of polluters over here who have to kind of pay someone else to reduce their pollution or to sequester carbon. So the idea would be kind of, you think about like an oil refinery would pay farmers to adopt practices that lead to less greenhouse emissions and then kind of whatever that price of carbon is that determines how much payments there have to be. We're really kind of long way from that kind of theoretical model be the case. And I think a lot of times when we talk about carbon credits today, we're really talking about Ag stakeholders. So a lot of times kind of the big Ag suppliers you think about Bayer or Syngenta or Indigo paying farmers for specific changes in their practices. So when people talk about kind of a carbon market or carbon credits, it can be a little bit misleading sometimes 'cause really kind of when it gets down to brass tacks what typically is happening is people getting payments for changing their production from kind of things that are thought of is kind of not as good from a CO2 perspective to adopting cover crops and adopting no till and things that are are seen as kind of sequestering more carbon. So how much? So kind of these really, really vary conservatively and there's not kind of one uniform market right now. So there's not a carbon market. There's a bunch of different kind of people who are looking to buy carbon credits often voluntary. No one's kind of forcing them to make these payments but this is just kind of something that they want to do to then kind of turn around and market to their consumers downstream. So prices I've seen prices from $6 to $20 per ton of carbon. What does that pencil out to for an acre? Really depends on kind of what the practices you're looking at. Definitely no more than a couple of tons in an acre and honestly a couple tons means that basically you're just taking it out of production more or less. So more realistically to keep a field in production and to be getting a carbon pad that we're talking about, maybe a quarter of a ton. So yeah, so depending on the price kind of anywhere from $3 an acre up to maybe 10 is kind of the price range. So you know as I sort of alluded to the technology to actually kind of dig into the soil and measure how much farmer A is sequestering versus farmer B and then pay them differential rates, we're nowhere close. So that technology I think we're working towards it but I think it's a long way off. So pretty much everyone who's talking about carbon credit programs is talking about paying for new practices. They're not talking about actually measuring carbon. So, typically these practices are cover cropping, no-till or kind of specified rotations or increasing crop diversity. So I know a few weeks back Dennis Pennington talked about how adding wheat can be profitable while adding wheat can also potentially be a way to keep more carbon in the soil. So I do think there are kind of opportunities for dual winds out there, but you have to be definitely strategic and also kind of probably a little bit lucky to kind of get into one of these programs if that's gonna pay a good price. And then just like any of these other certification programs, lots of paperwork. So you need to be verifying that these practices are new so that you weren't doing them before, and you have to verify that you're actually doing them. And then oftentimes you'll have to share kind of some of your data at least for the Bayer and Indigo programs that I'm aware of where you actually sharing some of your data so that they verify that yes, these practices are happening on this farm. So the existing programs totally voluntary for buyers and sellers. And I think that this is probably most likely the way that we'll continue to see it for the foreseeable future. So, I know sometimes people hear kind of carbon regulation as kind of getting in everyone's business and dictating what they can and can't do on their farm. I think that sort of policy change is unlikely. I think for the foreseeable future, what these programs will look like is either government or non-profit or private sector companies that are paying farmers for documentation that they're adopting new practices. So the catches that they really have to be new, right? So sometimes people are like, "This isn't fair I've been doing this for a long time." And I totally agree that it's not fair but you have to think about it from their perspective, right? They want new (mumbles), they don't want to kind of pay you for things that you're doing anyways. So kind of where are we going from here? I think there's a lot of uncertainty. So there's a lot of excitement. I think we've seen a lot of increased interest at the federal level. I'm often bi-partisan so there's a recent bill that had with tasks the USDA with certifying a third-party carbon credit verifier. So that's a little confusing. So the USDA is going to verify a verifier who then will be in charge of making sure that kind of all of these different programs that are out there whether it's Bayer's or Indigo's or other companies that they're actually kind of verifying carbon credits in a somewhat uniform and scientifically defensible way. So I think that bill, I'm not, I don't wanna be a political forecaster. I think that bill might pass and the USDA might kind of start looking at that route. And I also think it's possible that the 2023 Farm Bill could contain additional carbon-related content. Again this is going to be kind of voluntary programs most likely. So a lot of these practices cover cropping specifically, I think a lot of these on a lot of farms make sense even in the absence of payment. So I wouldn't kind of wait around all decade waiting to see exactly how this shakes out. It's gonna be a dynamic process. The first kind of set of subsidies are gonna be different than the next round of subsidies. And the price on carbon is something that they might come out with one number one year and then the next number it might get changed. So just like with any other sort of regulation or just like what the insurance programs, they're not gonna be constant over time, they're gonna be dynamic, they're gonna be changing. And so if something makes sense for your pharma I wouldn't wait forever. Documentation is super key and kind of the better your documentation practices are now, the easier it's gonna be to jump on these kind of when the opportunities arise. So, if you're not cover cropping say or if you're kind of not doing in a no-till system, you wanna document that so that when someone asks, "Hey, we wanna pay you to do that." you can show that you were doing it before that you're gonna change it to get this payment and kind of all the documentation is good to go. So, you have to document before and then you also will have to be able to document kind of after the fact to prove that you've made these changes. I know I mentioned this earlier but knowing your cost of production is key. It's really hard to evaluate kind of what sort of payment makes sense for your farm if you kind of don't know the finances on your farm. So the better idea you have of your cost of production, the more you're gonna be able to kind of weigh these different opportunities and say, hey, that's a program that actually I think is gonna make me more money. And then this kind of relates to that. I would be hesitant to sign up for the very, very first program that comes along. So these carbon markets are all about, I know I'm stressing this but it's all about additional carbon, right? So as soon as you attack one of these green practices, you can't kind of go back and sell it to a new, highest bidder, right? You'd actually have to like switch out of it, go back to kind of not doing the practice and then like try and get in a few years later. So like, I wouldn't, if this isn't a practice that you would typically adopt on your farm, if this is something that you really are only doing to get the carbon payments I would kind of shop around a bit and not necessarily jump at the first opportunity. So that's my piece on carbon credits we're at 8:00 p.m. so I'm happy to stick around for questions sorry, I kind of ran us right up until the hour there. - No man, you're like on time and you did great. Matt, just one comment and question when it comes to carbon credits. I have been talking to a few folks and one of their main issue is about signing a contract and kind of feeling like a company is taking control of their lands, you know what I mean? So do you have any recommendations there? Do you think there is a, so that fear has any base or that's not, you know what I mean? So that's what I'm getting all the time. Yeah, it looks too good to be true and I need to sign a contract, they're is skeptical. - Yeah, so do you know specifically. So I've definitely heard concerns around kind of data ownership. And I think that that's something that is kind of a larger issue in the agricultural sector is a lot of these kind of large multinationals have a lot of data on farmers who are enrolled in their programs and kind of are they using that data in a in a fair way? From my perspective that that's more of a policy issue than an individual issue, kind of it might be the case that like collectively do they have too much information but from an individual producer, if you can get a good price for changing your practice I wouldn't kind of take a big moral stand against the multinationals personally. But I do agree that the data management concerns are legitimate but I just think that they're not necessarily kind of something that's gonna be resolved at an individual level, I think it's gonna be a larger policy change. - And I do have one question saying that, so the farmer that has been doing this practice for the last 10 years does not qualify? - Under kind of most of the things that are being proposed, no they won't. So yeah, I hear the frustration, I totally get it. It does seem unfair but we have to think of it, this isn't a reward for good behavior, right? This is paying for a new product. And so if this is something that you're already doing I think their perspective is well, it made sense for you before so we're not gonna pay for it now, but yeah I'm not gonna say that's like fair or ethical, I'm just gonna say that that's the way it is. - Yeah, well Matt, so that was an amazing presentation. I don't see any other questions here today. We'll thank you so much. I think you did an amazing job closing our series and meds available via email. So you guys saw here, Matt do you mind putting your email one more time? - Yeah, absolutely. So please feel free. So I came here during COVID so I'm still trying to kind of build out more relationships with some of our Michigan producers. So I would love to love to get in touch and have some emails back and forth so.

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