Ep #04: Risk Management and Understanding the Markets with Mike Rohlfsen
Ready to tackle the wild world of agriculture markets? It’s time for Markets 101. Mike Rohlfsen of Agris Academy joins the show today to share how farmers and ag businesses can minimize risks and boost success. A multifaceted lifer in agriculture, Mike pulls from his experience trading in the east U.S. corn market to offer valuable insights for navigating the markets and minimizing the challenges that can make or break a farm.
Listen in as Mike opens up about what it was like working with Cargill in Ukraine—and how different it is from the U.S.—and what he has been doing in ag and venture capital over the last 13 years. You’ll hear his thoughts on what’s coming up that could disrupt the agriculture industry, what it takes to step up your risk management game, and more.
Listen to the Full Episode:
What You’ll Hear About in This Episode:
How the market impacts a farmer’s ability to be profitable.
Why currency value is critical for farmers around the world.
How Mike and his partner got the idea to go into the education side of things.
What they’ve been looking at lately with the markets and Bitcoin.
Mike’s experience working with Cargill in Ukraine and how it differs from the U.S.
What Agris Academy is and how it works.
What farmers can control that contributes to risk management.
Ideas Worth Sharing:
“It’s really hard for any entity to know more than the market knows.” - Mike Rohlfsen
“Don't fight it. Don't hate it. Embrace it, and work certain ways and with certain disciplines around utilizing futures and options and other things as risk management tools.” - Mike Rohlfsen
“Know your position. It sounds super rudimentary, but you can’t manage what you’re not measuring.” - Mike Rohlfsen
Resources:
Mike Rohlfsen: LinkedIn
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Read the Transcript:
Mike Rohlfsen: We get a call from Nemiroff, which is the largest spirits producer in Ukraine. And they're like, “It's our understanding you guys are bringing in sugar through Odessa.” And I'm like, “Yeah.” And he's like, “Well, there is so much home hooch being made from all this sugar that's being stolen that you are literally screwing up the supply and demand situation for the entire country. So what are you going to do about it?” I’m like, “I ain't going to do anything about it. There's nothing I can do about it, but you being Ukrainian, go find out in Odessa who's skimming us and problem solved.”
Welcome to The Land Ledger podcast, where investing in farmland meets the future of finance. I’m your host, Brian Kearney, here to guide you through the untapped potential of farmland as an asset.
Whether you’re already investing in farmland, want to invest in farmland, or you’re just curious about safe alternatives to stocks and bonds, this is your space to learn, explore, and be inspired.
Your journey to farmland investing starts now.
Brian Kearney: Welcome to another episode of the Land Ledger Podcast. I have Mike here from AgrisAcademy. Mike, welcome to the show.
Mike Rohlfsen: No, great to be here. Thanks for having us on.
Brian Kearney: Yeah, excited to dive into a little bit about the markets. That's going to be the goal of this show is kind of markets 101. And then if you want to dive deeper, we'll have a link in the show notes about AgrisAcademy. You can really dive in there. But before we get into that, Mike, tell me a little bit about your background.
Mike Rohlfsen: Yeah, so I'm a, shall we say, multifaceted lifer in agriculture. About two-thirds of my career was spent in Cargill, and it was sort of older school, refreshing, throw you in the pool and make you swim in Cargill.
So, you went back then, you went through 3 or 4 rather quick domestic roles on the merchandising side, which I did in central Illinois and then Texas and then back in Minneapolis. And then I got tapped on the shoulder, oh, four and a half years in to be the sort of a guinea pig, shall we say, to go to Ukraine.
And I started Cargill's commercial operations there and was there for 5 years and probably the best job I ever had. More than just a job, it was a lot of things and real development effort from square one, then came back at, if anybody remembers much about the grain business.
Cargill had made a significant acquisition of continental grain. That was going to be the next end all be all for us and brought guys like me back to do various things. And I did have a pretty sizable position. I was trading basically the Eastern U.S. corn markets for Cargill's entire asset base in the East.
But I was just, I was used to chaos, and I was used to the five years in Ukraine where every day was something pretty, pretty stark. So I sort of redefined myself a little bit and went into Cargill Strategy and Business Development Group, which is sort of their C-suite strategy and all their M& A, and then after that went into Cargill Ventures, which was both ventures in a standard sense, but also venturing in terms of unleashing internal value somewhere buried within Cargill.
And I, things changed, Cargill changed, I changed, I just thought, I was looking for a change, even after almost 20 years there. In the last 13 or so years, I've either been in a nascent ag business, more agtech-oriented or on the venture capital side, which I've done, I did 5 years with a fund out of Kansas City.
I'll actually give a shout out to my partner, Jeff Kazin, too, because he's actually, for those listening, he had to kind of really farm today. So couldn't make it. But what Jeff brings, he did the full Monty at Cargill 30 plus years and one of the best risk managers on earth.
And he also has built a farming operation himself from scratch circa about 2012 and to today. So it adds a different perspective to what we do because we really, we have a commercial business in AgrisAcademy, but he also really puts the finer points on putting his farmer hat on and how to manage these markets and the risk with that.
So I just want to throw Jeff in there too, because it does, we round ourselves and compliment ourselves quite nicely.
Brian Kearney: Yeah, that's awesome. That brings up a lot of questions I want to dive into. How did you both get the idea for starting this though?
Mike Rohlfsen: Perfect question because I sort of went back to Jeff because I was going to say that exact same thing. You're reading the ether between us here. I didn't believe him to be perfectly honest with you and it was a little over two years ago and I was looking for something new to do and he definitely was looking for something new to do. He strongly believed that from the U.S. farmer's perspective, if you looked at that kind of pie value between the buy and sell side, too much of it slips to the buy side and away from the farmer. Then again, it isn't a binary thing. It's more out to the market as a whole because farmers aren't taught the same core merchant skill sets and risk management skill sets that we were taught at Cargill.
And I, again, I certainly felt that had to be the big-picture answer. Don't get me wrong, but I didn't believe it. It was maybe as extreme as he described it, but he was spot on.
Brian Kearney: Yeah.
Mike Rohlfsen: And we've been at this for two years and that's what we do. We teach, we're not an advisor, broker or anything like that. Our mission in life, at least on our producer business.
Is to teach, teach, teach and consult and we do everything from winter class on, through that platform. And we also have 1 on 1 relationships with retained customers as well. So that was really the whole genesis of all this. We are market junkies. We love trying to figure things out.
In fact, we were, this is the day after the election. We were all trying to figure out what happened last night, before by what the markets were telling us. Yes, I'm wearing a Bitcoin shirt.
Brian Kearney: That's what I was gonna ask about next.
Mike Rohlfsen: I'm a massive coiner and Bitcoin was rocking before some of these things were, and I think that was telling you something, interest rates were moving in a way.
I think that was telling you something, little stuff like that, that we love to just, we'd bet over the weight of a ham sandwich at the diner. We love to try to figure out all this through–what the little tea leaves are telling us. So, yeah, so it's funny getting back to that.
For me, I joked on another podcast, I'm much more comfortable talking to folks in Carhartts than I am at big tech conferences with folks with Patagonia vests. It's just a different–
Brian Kearney: More fun to talk to. Yeah, no, agreed there. And I was doing the same thing last night. And it is interesting this election, particularly you saw things like Polymarket that have been expecting this for three months.
Mike Rohlfsen: Yeah. Oh, yeah. And we were, so again, being market junkies, we beat up Polymarket all the time. We were watching the trade by trade. We were trying to figure out who's even part of these trades ‘cause some of these were 2 million trades and some of them were 5 million trades.
And we were just, but then we got to the point where like there's a lot of money at stake. And I just don't believe people are going to be voting stupidly for the sake of making a point or whatever. And there's another sort of macro-finance podcast that I'm occasionally on, or one of the folks that does that.
I've been on Polymarket before. It's legit. Sure, there might be a little bit of market slippage or a little bit of skew here and there, but you could say that about a lot of things. and he was like, “People aren't going to just punt a million dollars just to make a point. There's plenty of ways you could do that.”
And to go a little market wonky, so we taught an options class on Monday and we were driving home. And he was looking at Polymarket and we were wondering, ‘cause there's a day when an option expires where it's Delta goes to one and it's a binary result or zero, zero, if it's out of the money. And we were thinking, ‘cause it was like 60, 40, 60, 40, maybe 62, 38, and it was kind of bouncing around and say, when is it going to go 100 and zero or will it, or the rules kind of, and sure enough, I don't remember what it was last night. It went like 98.2, like that. And I'm like, something's over. 10,
Brian Kearney: Yeah, 10-ish last night.
Mike Rohlfsen: You can turn off the news. It's over. It was very interesting. The markets have an interesting way and to kind of dive in deeper on that, this wasn't where I expected the conversation to go, but I love it. Some, if you're familiar with like Anthony Pompliano, very fascinating market.
Mike Rohlfsen: He was one of my first consistent Bitcoin podcasters–I still take him in every once in a while, but yeah, huge hat off to him for the trailblazing he did back then, for sure.
Brian Kearney: Yeah, and he actually investigated the transactions on Polymarket because it's on the blockchain. Anyone can view it. There was not a whole lot of market skewing. It was pretty darn close, the average and mean and median investment amount. It was pretty fascinating.
Mike Rohlfsen: Yeah, and there was some interesting verbiage around that one night last week, I think, where it got pushed the other way. And there was oddly some narrative on both sides about that.
But that thing lasted about an hour and whomever did it, they got their face ripped off and it went right back again. And I'm like, to me, that was the point that this thing must be working pretty well.
Brian Kearney: Yeah, I agree. Perfect. Well, to go back to the commodity side, tell me a little bit about Cargill in Ukraine and standing that up. That's a fascinating thing.
Mike Rohlfsen: Yeah, I'll talk about it. I'll also link to some points we make about the differences there versus here. And so, when I got there it was 1995, it was four years after independence or three and a half even. It was the wild, wild west. It was absolutely nuts.
There was no price transparency for anything. Yes, most of what I did was grains and oilseed-oriented on the trade side, but we were trading scrap metal. We were trading molasses. We were, I mean, because we'd find stuff that there wasn't just information on behalf of the seller that where we would be able to insert ourselves and, in essence, kind of arbitrage that out, ultimately make a market for it.
In fact, I think our margin structure was obscene back then because we had information that the sell side didn't have. But I know for a fact, and this is going to sound somewhat counterintuitive because we were making so much money the first couple of years, our margin structures were obscene for grain trading, but we, probably more so than the other traders or certainly the local traders, added that price transparency and informed the farmer about how these markets work and what we can do to work better together and that kind of thing.
So over time, we created a ton more price transparency there. And the connection we always make when we're teaching and or speaking like this is sometimes as farmers will curse whatever the Chicago Mercantile Exchange is spitting out at 115 every day.
And I get it at times, don't get me wrong, but it is a beautiful piece of information that is synthesized for you and really only you in terms of it really representing a US-centric price of grain that the whole world can reference and it serves basically as the global reference as well.
So, in a way, it's a gift. But the Ukrainian farmers don't have, and again, this war situation aside, even before that, I mean, you couldn't really get funded. Yes, it was kind of you farm with yourself, not with the bank. There's no such thing as crop insurance. There's little things like that that are real gifts to the U.S. producer. There's basis price transparency. So there's local price transparency to a U.S. producer. And that's, we know that because we've worked super keyed on that. And it's core of what we teach in
terms of really managing your initial discussions and interaction action through the basis, not just some flat price discussion with your buyer.
But it is amazing how even how fluid and transparent and market reactive basis can be in the U.S. So they really have 2 levels of market information that are super unique to the US producer and really a gift in terms of information.
Brian Kearney: Yeah, that makes sense. Not usually how farmers see it, like you said, but that does make sense when you–
Mike Rohlfsen: And that's part of the difficulty at times in terms of breaking through and what we're talking about and what we teach because they do think, you know, we actually create a situation, and this links to the market question as well.
As futures traders at a company like Cargill, you probably think there's some, “Ooh, they got an edge,” and don't get me wrong, they spend, they put thousands of people and millions of dollars a year trying to create an edge. But again, most of that's been arbitraged away as well.
There's so much information that's free today. And there was a time in the very, very early days, I remember, and I'm almost dating myself at this point, you know, 30 years ago, where there was a little bit of old carryover of asymmetric sort of information that you knew maybe that the market didn't when working for Cargill every once in a while in some extenuating circumstance.
But if you went back to the 70s and 80s, you'd hear the stories about the big Soviet tenders that happened where they'd throw a bone to Cargill one time and throw a bone to Dreyfus the next time. And you knew you had the book on 3 or 4 hours before the market did, and you would make money.
Now that, to us, it's a 50-50 bet. And there are times when the Cargills and, I don't know, the ADMs and whomever are doing well in their futures positions and maybe have a good year, but they seem to have a knack of giving it right back. We teach, again, there's best practice and utilizing futures as a risk management tool and as an information tool, but don't think that there's a guy out there or even us because we had huge positions that we're going to somehow be able to beat that random walk and that perfectly smooth curve.
If you look at the grain markets in any one moment, you can basically build a perfectly smooth, starting at the money and working your way out of what the option markets are saying on either side, symmetric price points. I'll take the Pepsi challenge with anybody who disagrees with what I just said over and over and over again.
You get perfect symmetry. Okay, maybe a quarter-cent skew here and there because something ticked or something's moving. But it's amazing how efficient these markets are. And as you also know, it's more than just commercials and farmers doing it anymore. So you've got hedge funds, you've got black boxes, you've got big investment funds that maybe come in and out thematically or seasonally or whatever. So it's really hard for any one entity to know more than what the market knows.
Brian Kearney: Yeah, absolutely. That brings me to a couple questions. And the first one is how important is this to the farmers? How important is the market when you look at their ability to be profitable or not?
Mike Rohlfsen: We break it into two parts. So the part that I just mentioned, and again, don't fight it. Don't hate it. Embrace it and work certain ways and with certain disciplines around utilizing futures and options and other things as risk management tools, but where we know the U.S. farmer can win more is learning all the mantras and the disciplines and the art and the science of the physical trade things.
We have our, at least our customers win in the things that they control that are sort of merchandising 1012, or 2303 type things. And we've gotten a couple folks now that are in this and could work for a really good, but those are the things you can win nickels per bushel at a time over and over again without having to necessarily take on more futures risk, or it works just as well in a bear market as it does in a bull market or in a carry charge market as it does in an inverted market.
So there's really two facets to your question in that there's an unwieldy, heartless sort of monster on the one hand, but it is your friend more often than not, and there's ways to work with it. And then there's the things you control within your market and within your assets and within the other things you can leverage to add meaningful value trade by trade or position yourself by what you're even seeing in the physical markets are sometimes telling you something.
Brian Kearney: Interesting. So dive into that a little bit more, the difference or the potential, not really edge, but the things farmers can control that a nickel might not sound like much to the listeners, but a nickel per bushel adds up.
Mike Rohlfsen: Over and over again it adds up. First of all, this is going to sound almost too rudimentary, but passing on the things we learned and the things we know our best practice for anyone risk managing is to know your position. It sounds super rudimentary, but you don't know, you can't manage what you're not measuring and you don't know where you are.
It's really hard to play within that. So we are hyper-vigilant. I’ve got two meetings this afternoon. First thing I'm asking them to please fill out your risk tracker is what we call, refer to it. So we can really talk your position and then think about how to best approach the market. So it's a little bit taking a step back, but it's fundamental to managing risk and maximizing the things you're doing.
Other little things like, you know, I don't think farmers are taught to really like, for example, look at the potential carry value utilizing both futures basis and then future spreads to know that, okay, if I tuck my grain away now, and I look at the market, that's, say, afforded to me out to March.
In fact, we had a conversation, someone in Iowa yesterday about this and do the math on the basis to basis spreads and other things and go, “Huh, okay, that actually pencils to carry my grain and sell that deferred,” and counting the month to month interest cost of carrying things like shrink, a lot of people don't really manage shrink very well, but it can be a pretty meaningful cost depending upon sort of time of year, depending upon the crop year you had, some crops will shrink worse than others, some will shrink better, but it is a cost. And then back when you had soybeans at 15 bucks, a monthly shrink was in the cents per bushel. So if you're not seeing a base and your interest cost was 10 cents per bushel every month.
So if your basis is not suggesting for you to carry through that, you are speculating that, where again merchant 101, if I'm running a grain elevator, I'm off basis. Period. Full stop. It even gets more exaggerated.
Brian Kearney: For the listeners that don't know the markets, what do you mean by off basis?
Mike Rohlfsen: Basis is really nothing more than the relative price difference in your market versus the–against the current futures market. So if corn is in Chicago, is it 4 bucks and your local bid is 3.90., your basis is 0. 10 under the current option. And that's, believe it or not, when you're running a risk deck at an asset as a merchant in Cargill, you kind of look at the futures market, but you're all about basis.
You trade and you hedge versus basis and you're incentivized on your basis position. So that's another key learning again on the producer side to go, “Huh.” They thought, again, there's some magical thing when coins at 8 bucks, all those guys somehow made a buck or 2 per bushel on this.
No, they didn't. And to be honest with you, they don't really care about that. In fact, if anything, high prices and volatile prices are a merchant's best friend because it's easier to buy grain that way. Like right now, crops tucked away, farmers are tired, probably thinking about Thanksgiving and Christmas or maybe going to Florida.
Yeah, so it becomes a really hard time to buy grain. And the futures market really aren't shaking anything loose either. So basis is the way to make grain move. It's the sort of the local price dial where the Chicago mercantile is kind of a global, you know, North American price dial where some guy in Southern Illinois has got maybe the river, his local grain elevator, local ethanol plant to go home.
Those are those little price, little knobs that are trying to yank my grain their way versus their way. So that's how basis functions.
Brian Kearney: Yeah, that's very helpful. And then how does the macro environment or geopolitics affect the day-to-day farmer in Illinois or Iowa?
Mike Rohlfsen: I'm gonna, again, get a little wonky on you only because I'm a macroeconomic junkie. I think one thing we, Jeff and I will often throw a trade mantras that when you live with a bunch of traders for years on end, and talk smack to each other, you come up with these things. We have something called “it works until it doesn't” trade and there's the road is littered with a lot of works until it doesn't trades at various points in history, and I'm not one of those persons that's a big dollar bear or whatever. I mean, 70-something percent of world trade is still priced in dollars, but there's been some signposts in the road talking about the global macro that is maybe saying the dollar ain't as sexy or even more importantly, I think treasury bills aren't as sexy as, you know, people just don't some central bank somewhere in the world just doesn't blindly tuck it away and look at it later.
And with our debt, I think, I could be wrong, just you and me talking here, but I think the possibility of lower interest rates is pretty minimal from here. We have too much debt to reprice. We're going to print money to occasionally paper this over, and there's nothing bearish in the interest rate perspective about that. Now, there could be some other things that cause interest rates to drop, but I just don't think it, and if again, in today's day, these folks with 8 or 9% loans with the bank, that bites, right?
So I personally don't think you're going to see, loans to the producer drop all that much. I mean, again, market, the market votes, the moment they did that 50 basis point cut, what was that about a month ago, the 10-year treasury rocketed right back up. So the market, people say the bond market's really smart, and I think relative to other markets it is.
So that's one thing. Obviously, you get moments of, again, the Ukraine war was a perfect example where, oh, you could just, you know, sort of knee-jerk reaction. What if around–well, what if they're totally knocked out of the market or what if they're not even want to plant, but the market has a way of figuring it out.
That's what I always tell people. It starts with the farmer and they're very economic animals around the world. Very, very similar mentality. You give them an incentive to grow something, they'll go do it. And markets like the wheat market got solved pretty quick. If you look at a price chart about a month after the whole thing started, it was nothing but down.
So markets reacted, production was incentivized, price incentivizes production, and I think those signals were thrown out right after this happened and the world reacted and prices kind of went right back. Really actually that was kind of the top, if you think about it. It's been a slow grind down ever since.
So, but again, there's always been those and there's always will be. In fact, the day that I was going to be placed after merchant training in Cargill in 1991, it was in August and it's always easy to remember when because the day I was about to get placed, there were 3 of us outside the HR office was the day of the Gorbachev coup, when the Soviet Union was really on the clock.
I knew that I was a student in the Soviet Union the year before. And we were seeing already things like in Armenia and Georgia, where, I mean, there are people shooting at each other. So it's only a matter of time. Yeah. I mean, markets were down, limit down and allegedly synthetically limit down again in that moment, again, black swan event, holy crap, so we'll always have that.
And agriculture is at the core of it, and sometimes it giveth and sometimes it taketh away from a U.S. farming perspective. But yeah, so those sort of things. I think about other global events. Obviously, who knows what will come with the actual trade policies. I have to believe that the administration that's being brought in isn't going to want to do anything particularly detrimental to the U.S. farmer, but who knows? I know, again, politics has a way. And so that always is a specter hanging over. If I had the one thing that's so universal to answer your question, I'll go back to that interest rate thing. I just think that there's just too many things going on to not have sort of that upward pressure on rates just because the marginal global buyer’s saying, “I ain't paying 4 percent,” Or, “I ain't getting 4 percent for loaning you money for 10 years. I need more.”
I think actually gold and Bitcoin are telling you that in an indirect sense. It's like I can have a neutral non-sovereign store of wealth or store of asset or reserve asset without the political BS, again, like them or not, when the U.S. confiscated 600 billion dollars of Russia's dollars offshore and all that, I think it was a huge mistake.
There's plenty of ways to try to punish them, but that was a bad one. If you're wanting the world to be the world holder of your currency. “Oh, we don't like you. We're going to take your money.” Not the best idea. So yeah, it's that kind of thing, interest rates in dollar and other assets that I think may come to play, ‘cause nothing's more universal to business function than the cost of money and interest rates. So I think that has definitely something to play here.
Brian Kearney: Yeah, completely agreed. And that's what we see in farmland values as well. You see so many people wanting to put money into farm ground and I hear all the time. That's exactly what it is.
Mike Rohlfsen: Yeah, it's my bond. I didn't, I've never owned bonds, but I bought some farm ground 15 years ago. It's kind of like a bond with a better coupon and I can go have fun on it.
Brian Kearney: And way better appreciation. You can get, we always say that's our kind of quote, you get stock market returns with bond level volatility, but it's actually even a little less volatile than bonds.
Mike Rohlfsen: Yeah. No, that's even a better one.
Brian Kearney: And you hear all the time, people will say, “Well, why are farmland values still growing when interest rates are at seven or 8%?” Like, well, for the exact reasons we're talking about. They're seeing, you know, right now the U.S. dollar is the strongest and it's the biggest on the block. And I also don't really see that changing without something drastic and the drastic things you can't foresee.
Mike Rohlfsen: I heard somebody say something yesterday, “The U.S. dollar is the absolute worst currency in the world with the exception of all the other ones.”
Brian Kearney: Yeah, exactly. It was kind of like capitalism.
Mike Rohlfsen: You're going to own the euro or the yen. And the yen is a fly looking for a windshield over and over again. And it has been splatted a couple of times this year. Chinese yuan? No. Transactionally, maybe between the Russians and them or whatever, and that dips at the dollar. So again, the dollar floating around, I don't think so. I just worry about interest rate, treasury bills, and then its subsequent impact on the dollar, but it's not that dollar-driven thing. It's indirectly.
Brian Kearney: Right. Which is interesting when you go back to the crypto market too, seeing, I just saw a chart today, actually that showed the foreign bond purchasing kind of dropping and other was going up and it didn't dive into it in the article, but I'm like, well, others, probably things like U.S. Dollar Coin, U.S. Dollar Token–
Mike Rohlfsen: Tether I think is the seventh or eighth largest owner of U.S. Treasury Bills now.
Brian Kearney: And I think USDC with circles right before or right after them, it's insane. But what that shows is that people still do have trust in the currency because most of that purchasing is Sub-Saharan Africa, it's South America, it's Eastern Europe.
Mike Rohlfsen: It’s that guy in Malawi that pockets 200 bucks a month. He can't trust his local bank. His currency, you can blow your nose with it. And so that's the way he banks on his phone for–a simple 15-dollar LG smartphone. He can bank his digital dollars through something like that. And to me, that's a wonderful thing.
And part of the reason why I love Bitcoin and the blockchain, it's sort of this ultimate progressive global access to dollars and banking that most of the world, quite frankly, doesn't have. And sometimes when we say, “Well, I would never buy Bitcoin. I'm fine with my dollars.” Well, that's fine.
Understand that 55-ish percent of the planet has a heavily depreciating currency every single year. So we have that luxury and God bless the fact that we do, but a lot of people don't. So I was in Ukraine through two currency depreciations and it is an awful feeling to be immersed in a populace that knows their entire store value is dropping 10 percent a day. That's a bad feeling. So, yeah, easy for us to say.
Brian Kearney: Right. That's very true. Well, tell us a little bit more about AgrisAcademy. What that looks like, full transparency, paid for it and I'm doing it, in December. Super excited to really–I hope so. I hope so. But tell me a little bit about it.
Mike Rohlfsen: Yeah, so we started very strategically by taking–with a pretty good idea of say, 75% of what we were gonna teach. And again, we intentionally avoided being an advisor. We intentionally avoided being a broker 'cause we know we're gonna be wrong as much as we're gonna be right, but we wanted to really drive home the things that we know over and over again.
So we teach, we started off with a handful of what we refer to as retained relationships. And in that case, we will teach literally at the whiteboard in your kitchen or in your coal barn or whatever, which was some work and some travel because we got some folks in Ohio and we got some folks in South Dakota and everywhere in between.
But we learned a little bit more about kind of the challenges or the things to emphasize a little bit more or a handful of things meeting for meeting that we didn't think of that were additive. And what's great about the market is every day something new happens. So you have a lot of good examples that just sort of come up that you hadn't thought of yet.
So we got smart that way, but then we realized we couldn't splice ourselves. So we needed to figure out a more ubiquitous platform to do this. So we started our winter, what we call our Merchant Masterclass, which started last year and this will be year two of it. Basically runs from right after Thanksgiving to through the end of February.
You can watch it live or record it. We kind of function like professors and that's why Brian, I encourage you to sort of book some office hours with us when you have questions. Yeah, because we like interactions. We like feedback even when we're, maybe we're screwing something up. And then also we really, you know, when someone has a specific question about a specific topic, we're here to answer that for you. So that's the heart of what we do. And again, we have an entire commercial process practice to where we deal with, we've got a couple of examples. We have a regional multinational grain type that's trying to get a little bit more present in the U.S. and a little bit more diverse in their offering to farmers and wanting to, you know, that's a recent example of a group even working with.
We also have a specialty canola group that we work with on some of their hedging and risk management and market development. Because we are green guys with business development experience as well. So it's a good combo and things like that. So, yeah, and we love giving back, the ag sector was really good to us.
We really love being in this. Maybe I'll speak to one thing on the financial side. one thing that's been kind of frustrating, I'm not going to lie is, we've beaten the heck out of the ag banks to get more involved in. In this we even, full disclosure, even past, we had some spots open a week or two before the class last winter, and we're like, “Pick one person in your team,” and these are kind of the who's who of some of the ag banks. “Pick one, we'll give them a free class.” And then we'll build on that and think how can we make maybe your banker smarter, or how to identify problems or how to leverage best practice or whatever. We didn't get one taker, not one.
Brian Kearney: Really? Wow.
Mike Rohlfsen: No. Now, that has changed. We've got some proactive signups this year, but still it's kind of interesting to us. It's like with the rigor and risk management and measurable things that we–the tools we've developed to measure, I think it enriches the relationship and makes it better, but it's just been, it's been interestingly kind of hard and a bit of a slog.
I, again, I think that'll change. I think before you know it it will probably be doing classes just specific any old time, for like a, whatever, a two-day seminar with folks, with Bank X or Bank Y, but interestingly enough, have not had many takers yet.
Brian Kearney: Huh. Have you thought about doing a like evergreen course as well where you're on, I don't know what the teachable or whatever these different platforms are, where it's something they can go through kind of async, or do you think there's too much value in the kind of question and answer and the off the cuff? Do you think that's something that might be coming?
Mike Rohlfsen: No, we've actually expanded. So what I described was kind of core, but we've expanded in a somewhat tangential sense, both one is what you just described. We had some people who heard about us. It was like middle of January. They're like, “I'm too far behind. Can I just buy the recordings?” And ask, so yeah, we leverage our recordings for those who want to learn specific things, or we have every single class every single minute recorded. So, topically, too, if you want to really dive down into something, we can say, reference, you know, class 7 between hours 1 and 2, we really talk about this.
So, yeah, that's been there. And then we've had people that have come out of our class and go, “I would love–I don't want, I don't need like the whole shebang in terms of the fully retained relationship. But if I could have you around for X hours a year to help me just get my stuff together, help me think a little better, help me kind of leverage my assets a little bit better. Some farm management stuff…” Because that's the other thing too. We have a lot of what we refer to as intersections in the farm management sense where there's an intersection between agronomy and merchandising and in your world, obviously, just about anything infrastructure on the farm. I mean, at the end of the day, you are making a hardcore strategic decision around changing your merchandising plan forever when you're adding space.
And if you're not doing the math, by the way, that kind of surprised me too. We had a whole class last year on financial metrics. So don't just take credit because the banker gave it to you. think about its best use, NPV, IRR, whatever. We'll walk you through it and how to measure it. But I mean, universally, and again, remember we were still sort of on the tail end of a very good run, but most people say, “Oh, I just get money because they say I can, I'm credit worthy.” And like, okay, it sounds like it might be a work still it doesn't trade for some of you out there. If you're not careful. Right? Yeah, we merchandising intersects with so many things with logistics, with storage, with really understanding what might spin off the lan–and if we can figure out a way to get an extra 100 to 150 bucks an acre every year by just doing it better, well, that by itself is going to allow them a more easily cashflow thing.
Brian Kearney: Yeah, absolutely. Land acquisition is such a, like you said, it is a permanent change, or you should be thinking of it as a permanent change, and hopefully, it's a permanent change in how you will be looking at your grain.
Another one, particularly in our area, is tiling, and that's part of how we've set up our structure, so we don't have to try to explain that to the investors because farmers typically know, like if it's a wet farm, tiling is going to pay itself off pretty darn quickly.
Mike Rohlfsen: I learned that through, and all the credit to my renters, they're great guys, back them, wearing their hat, they're like, “This is great dirt, but let's make it better through tiling and let's figure out a symbiotic relationship to make that pencil.”
I knew nothing about it. I'd heard about it. Again, I'm sort of, farmland for me is a pure spectator sport and a chance to kill deer. But yeah, perfect example.
Brian Kearney: Yeah. Perfect. Well, I'm getting pretty close on time and I've taken up quite a bit of your time, but I have kind of a fun last bit of this podcast.
I'd love to know some of the crazier trades that you're able to talk about. I think there could be some really fun ones to dive into.
Mike Rohlfsen: I'll throw us a promo. I think where you and I are kind of promo-ing ourselves, Jeff and I could have half dozen sessions on tales from the trade that be like, “Whoa, really?”
Oh, anything from animals somewhere in the system to, ladies of the night working in the truck lines in Houston that were an hour long and guys selling beer and just, you know, you get when you're in like far-off supply chains. I got one in fact, I was recently telling this one. So going back to Ukraine, you know, there's like it or not, and I kind of understood it in a post-Soviet sense. You got skimmed every single step. You get skimmed on quality. You get skimmed on weights. You'd get skimmed on whatever, but it was just sort of a you could manage it best you could, but you had enough margin structure to support it. Well, Ukrainians and Russians are sweet tooths.
And there was, there is now again, but in the post-Soviet sense, there was a huge sugar beet industry. But it was the first to run into trouble because it's very capital-intensive. And so domestic sugar production was falling off a cliff. We kind of got some thoughts around that. We put some distribution infrastructure in place, and we got a couple of sweet tolling agreements with the mills that were still working both in Ukraine and Russia to basically process Brazilian raw sugar.
And so we basically bought 4 or 5 Panamaxes, so these are 50,000 metric ton boats of raw sugar that are going to be transloaded into rail cars and brought into the interior. And so we had obnoxious margin structures. First boat we unloaded, we're like, "Wait a second. It was like two and a half, 3 percent shrink. That's just stupid.”
But we were making 25%. So it's like, we'll get better next time. Well, we got a little better next time and a little better, but by about the third boat, we get a call from Nemerov, which is the largest spirits producer in Ukraine. And they're like, “It's our understanding you guys are bringing in sugar through Odessa.”
And I'm like, “Yeah.” And he's like, “Well, there is so much home hooch being made from all this sugar that's being stolen that you are literally screwing up the supply and demand situation for the entire country. So what are you going to do about it?” I’m like, “I ain't going to do anything about it. There's nothing I can do about it, but you being Ukrainian, go find out in Odessa who's skimming us and problem solved.”
And, yeah, you'd go down there, every farmer's market, every, whatever you'd see all these like nice little grandmas with their pies and their pierogies and all this stuff, and then two huge things of homemade hooch and it was everywhere.
So, yeah, that was one of my all-time favorites. Yeah. I mean, I've got a million. instances of kind of people wink-wink saying, “I think we're done here,” or maybe something bad is going to happen when I was there. And working for a major multinational, if you keep your nose clean, you'll be fine.
But I got threatened a couple of times. I can tell you crazy stories of a raccoon somehow surviving his way through 2 bins and up about a 300-yard belt and then a hard right turn and all the way through the spout and then into a hold of about a million bushels of wheat and made it all the way.
I'm sure he ultimately perished, but I don't know if he was able to get a water source, he might have made it all the way from, I think that boat was going to Bangladesh from Houston. So maybe he nibbled on wheat the whole day and there's a whole bunch of happy little new species of raccoons flying around in Bangladesh.
I don't know. So we could set aside an entire thing if he gave us some time and do nothing but the trade, so.
Brian Kearney: Yeah, that'd be really fun. Perfect. So yeah, this has been really helpful for the audience. I think they've all learned a lot. I've learned a lot. The last question I want to ask you is, let's say pretty selfish, but it is if you were starting out again, what area of ag would you be wanting to go into, would you go back into the trading world? Or do you think there's somewhere else now that you've seen that might pique your interest a little bit more?
Mike Rohlfsen: I think it kind of depends. I'm going to answer it in a halfway to two ways. I think it depends on how you're wired.
Trading, selfishly, heck yeah, do it again. And it's a universal skill set that's applicable to so many other things. I mean, what we do you could apply to crude oil or you can apply to life, you know, how I buy insurance is due to my understanding of options, how I, you know, do a lot of little things, an earnest money discussion we just had on a house was built in options in my ability to negotiate around that.
So, but I think good traders, there was, what was wild about Cargill is you could, the top traders you could, like in the Geneva office too, in Switzerland, you could ask them, what was your major? What was your major? “Oh, history. Art History.” “Pol Sci.” And there was the one guy that was Ag Econ from Nebraska or whatever.
But you kind of find a person who's wired that way. Just like, again, like in the engineering side and automation. I think automation is going to massively disrupt farmland and all the precision that's going to be built around it. So, yeah, if you like that, oh, man, that's permanent job security.
And you're getting in front of a curve of a massive adoption wave. So that mean, again, if I were more of the, again, for lack of a better–kind of left-brain engineer type, build it, figure it out, break it, build it again, anything in the automated precision aerial drone, the terrestrial, whatever. I got so far to go, which by the way, I think that may reprice farmland globally.
Where I'm going with that is if, you know, Elon Musk says, what are those optimists robots? He thinks he'll be able to make them for 10 grand. Well, what does that mean 10 years from now? If you've got a fully automated situation, that's fully precision planting, does it mean you need all this farm ground around the world?
I don't know. Or does it mean Central Illinois and the best of the best next to huge market outlets and all that stuff might marginally crowd out like part of my stomping grounds as a kid in West Central Kansas? Orr does that forevermore just forget the whole corn and soy thing out there?
You'll go back to wheat and maybe fellow and feed more cows, whatever. I mean, it'll find a value, but I think things like that are going to fundamentally–that was great about being in venture capital for 5 years. Genetics is another one, by the way, and AI is going to help genetics.
The challenge with genetics is being so iterative and being stuck with the realities of the field and field trials and seasonality. You'll speed up the challenge in figuring out genetics. And there's a long, long way to go on genetics, believe it or not. It's my opinion, but from what I saw and what I invested in, there's a long way to go.
Brian Kearney: Yeah, agreed. And that's part of our core thesis is exactly what you're talking about at Farmland Stocks. We are investing in the quality ground, is a little bit more expensive right now than ground in other states. Yes, ice states are more expensive, but there's a reason for that. The market knows what it's doing.
Mike Rohlfsen: Yeah, another one. Chemistry. Okay. Over time, are you going to need a herbicide? I don't think so. You're going to have a mechanical solution for that. That solves it for you. So there's going to be a lot of displacement in ag that, you know, you're going to have some little wind-up toy that just runs around hundreds of acres at a time unbeknownst to you, zipping and snipping and goes back to its little charge portal and then charges up and then keeps going until it–and you can be–follow you and give it a name and it'll be going in all before you know it. Little things like that'll, I think, disrupt some of the big existing markets in ag right now.
Brian Kearney: Yeah. Oh, agreed. Agreed. Perfect. Well, this has been a great conversation. Looking forward to our next one. Sounds like we have a lot more to talk about, particularly the tales from the trade idea. Also love to learn, we didn't have time in this call, but dive a little bit deeper into your time and venture. You've had a really interesting progression that I want to dive deeper into.
Mike Rohlfsen: Yeah, let's do it. And by the way, in venture, the one thing I will say is guys like me are often people's worst nightmare because if you come from a cents per bushel, dollars per acre world, a lot of dreams get smashed because you can immediately say, “This is a really cool toy, but it's never going to work.” And I tell Jeff all the time we could make a living doing nothing but advising venture capital funds because so many ideas just, “Farmer ain't going to buy it. And here's why.” And they don't have enough of those people on their teams. Super smart folks, great investors, great track records, blah, blah, blah. But they just don't get the final points of that. And it's smacking them right in the face, but they'll find out eventually.
Brian Kearney: Yeah. Completely agreed. This is the last little anecdote. And then I'll, I won't take up any more of your time, but I was talking to someone who was saying almost that exactly about some of the automation, and I'm trying to think exactly how to put this. They're going about it the hardest way, not the easiest way sometimes because the hardest way is so much cooler.
It's like, “Well, yeah, but it might not pencil out. The energy it takes to do that is way higher than this, this, or this.”
Mike Rohlfsen: Yeah. and the market will solve that sooner or later.
Brian Kearney: Yeah. Well, perfect. Well, thank you, Mike. It was great to chat. And, I'll leave in the show notes a link to AgrisAcademy. Anything else you'd like in there? Thank you.
Mike Rohlfsen: No, any questions, very easy to find us right on our website. And again, I really appreciate the time, Brian, and let's do it again.
Brian Kearney: Yeah, thank you.
And that’s a wrap on this episode of The Land Ledger.
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