I love this about farmers. They are the polymaths of our age and folks dont get it. Farming YouTube is a trip because there's more tech in a tractor than in some startups.
> and if you're doing properly, crooked accountant as well.
Yea, most people dont get what a "future" is, and why corn and lumber have them (but not onions... thats a lesson too)... The farm has the support of a lot of high finance and hedging exists not just as an instrument but has a purpose.
Ask a farmer about a grain/pork "Marketing Plan" and who they are hiring as advisors and where that person got their degree...
It's a complicated world and there are some interesting intersections out there.
That was too enticing to not look up. Wow, the story behind that is something: https://en.wikipedia.org/wiki/Onion_Futures_Act
Edit: There's a Planet Money with more on this story (which I've not listened to): https://www.npr.org/sections/money/2015/10/14/448718171/epis...
Then again... this was the 1950s and paper contracts, so US market intervention or not was more stark.
And also Eisenhower was likely more concerned about whether the USSR was going to nuke the US and if China was going to try to invade Taiwan for a third time.
Not many farmers I know (in an ag community) understand what a future is either, or would even know how to trade them. That's the domain of hedge funds, not farmers. (And, if they tried, they'd probably lose. It's not much different from me trying out day trading.)
The fruit of a farmer's work is not futures trading. It's trying to keep things alive long enough to make a small profit.
Payment date can be decoupled from delivery date... So it can be a "loan" as well.
As a producer you're betting on yield. If you expected 140 bushels an acre and got 130 your on the hook for the rest. Regardless of price on thee market ... even if its 10x what you were paid. SO your negotiating VOLUME on a product you haven't made yet, and could have a shortfall of.
There is a whole set of quality issues with the product as well... Too wet, to dry, wrong type, misses the mark on grading...
You can sell options on futures... some smaller amount of money today and agree to sell at a price at a later date, maybe... if the actual price is lower than your offer price then you get the money and the crop.
There is more to the futures market than HN learned from the Duke Brothers.
I can see that, but they do know about how pricing might be fixed. Obviously subsidies make a huge difference, so some crops might have a fixed price (ie things that are used to grow biofuels) vs stuff that has a free market vs single large buyer.
(Just make sure your futures broker accepts delivery, otherwise there's funny stuff happening)
If you grow corn: It can be sold as a future, and you can have crop insurance on it.
IM not sure you grasp what a future is in the case of a farmer...
Now if your in construction, or buying fuel a future can be insurance. Or a risky bet.
None of that is like your heath or home owners or car insurance.... unless you dont have them.
How an Iowa farmer pushes through less-than-average crop yields - https://www.marketplace.org/2023/07/27/how-an-iowa-farmer-pu...
> Ryssdal: Yes. What about prices? When you take it to market — or when you’re going to take it to market — are you selling futures?
> Hemmes: Well, a lot of people do that. I forward cash grain, or forward contract. Right now, I could sell delivery in March and set my cash price, or set the basis. A lot of people do options to set that bottom. But I’m telling you, Kai, I need some kind of collar because of the whiplash I’ve been getting from these markets — they’re up one day 50, down 40 the next, and everything adds to it.
Farming is “not easy and it’s a lot of risk,” says Iowa soybean producer - https://www.marketplace.org/2024/05/28/farming-is-not-easy-a...
> Ryssdal: Have you sold your futures yet? Have you sold any of this stuff that just got in the ground?
> Hemmes: I have. I’ve sold about 30%. Our co-op gave me a heck of a bid. But it’s kinda like wait and see because this market just keeps going. Like soybeans are down 18 cents today and then they could go up 50 tomorrow. Who knows?
Having home/car/health insurance protects you against it being destroyed. Buying fuel futures protects you against the price of gas spiking. Having crop insurance protects you against your crops being destroyed. Selling crop futures protect you against the price of your crops falling.
It's all protecting you from events that would seriously hurt your finances, aka hedging/insurance.
Price contracts are a thing. You can do this in new england with fuel oil for heating. It is fairly common.
But futures pay today for a product at some later date. It's a loan as well.
And as a producer it's not just a hedge on price. What happens if your expect to yield 140 bushels of corn an acre, and only get 130? Your crop came in, so no insurance, how do you make up the missing bushels? You're buying those futures back or delivering the contract even at 10x the price.
That isn't an outcome one expects from a hedge or insurance.
There is a reason that there are specialists in marketing and delivery of products with futures markets that help them plan.
> But futures pay today for a product at some later date. It's a loan as well.
This does not compute. You say forward contracts are common but futures give you money today? Futures are standardised forward contracts, you don't get any money when you open them unless your futures are different than mine?
> And as a producer it's not just a hedge on price. What happens if your expect to yield 140 bushels of corn an acre, and only get 130? Your crop came in, so no insurance, how do you make up the missing bushels? You're buying those futures back or delivering the contract even at 10x the price.
Exactly right hence why I said 'some'? You hedge when you can to lock in e.g. aforementioned 30%.
> There is a reason that there are specialists in marketing and delivery of products with futures markets that help them plan.
Completely agree - but it isn't that complicated with futures. Now options...
Futures are technically different than forward contracts... the former is public the latter is private.
But a lot of the people doing cash forwards, trade futures on the same products, and call and put options on those futures.
Then add actual insurance in on top of all that...
There are farms that look more like Wall Street Banks with how cover and leverage.
I guess a better way to put it is: In the right package, selling futures can be a part of an effective insurance strategy for farmers.
Not sure how commmon this is anymore. The age of the family farm with a mix of livestock, rotating crops, and woodlands are long gone in the developed world. Each of these tasks would be handled mostly by a professional in any serious farming operation.
Some cattle for dairy, meat and market. Some crops. And often some woodland for tax or grant reasons or under forestry contracts. Maybe some chickens or pigs or similar - usually for local markets.
It’s actually quite neat: I can easily obtain actually free range eggs at relatively low cost, produced within a few kilometers of where I live (a city). Same for pork products, etc.
All of that requires big machinery, and that breaks or is expensive. So it needs fixing. specialist fixers are there for expensive things, like combine harvesters. but for unfucking a plough or much spreader, thats a you problem.
He also has a lot of really practical videos on the business of small farming. He’s very adamant about not going into debt before you start, doing market research in your area, and starting very small but rolling over the proceeds from your first sales back into the farm.
Plenty of farmers (who are super savvy) have embraced social media, and are showing not telling what they do.
[1] https://www.nifa.usda.gov/about-nifa/blogs/study-reveals-agr...
Letting it get too complicated risks losing all of the small-scale farms because then only large companies will have the scale and aggregate skill and money to farm. Tight margins means they might decide to quit and go do something else given the amount of skill and work required for so little profit.
Being a farmer and not owning the land that you work is soul crushing.
Barn Talk is... something. IF you're liberal it might offend you at some points, but there is a ton of gold in there. They also have a channel about their day to day farming.
Welker Farms, Millennial Farmer, Cole the Corn Star and Larson farms are all "interesting"... They are all very different.
especially as all that work in the first year meant he made something like £900
Don't know if it was intentional, but this maligns some of the hardest-working and down-to-earth people that I've ever known as crooked.
But perhaps this is just referring to taxes, but farmers are also not incented to fudge too much on their taxes: they receive subsidies, and very little is paid with cash anymore, so is easily tracked.
Sadly, most farms today are huge corporate operations, so perhaps that's what you're talking about, but out of the less than 25% of the remaining family-sized operations, most are not wealthy by any stretch. Perhaps that's what they're doing "wrong".
I think one of the reasons you can't really be crooked as a farmer is because it's a small community and everyone knows everyone else. If you rip someone else off, everyone will know. It's much easier to be crooked in a bigger city where there's another sucker born every day.
you misread me.
I don't mean, they rip off other farmers, I mean subsidy farming.
In the UK there were such things as flying herds, that were bussed in when inspections were due. Do they get rich from it? fuck no, does it allow them to survive, it did, until the UK government threw them under a bus.
The farmers I know in my family all struggled mightily because every year was about accumulating a little more capital so they could rent some more land or buy the next piece of equipment they needed to grow in a few years.
The people who do it as a semi-retirement after a different career often come in with funds to buy land (as an investment) and have some working capital up front. When the goal is more about getting any positive number out of the farm to offset property taxes and you’re not running it like a business where squeezing every penny out of rented land with rented equipment is the only way to make it to next year, it’s a very different experience.
Hopefully this person is lucky enough to be in the latter group and have this be more hobby than bootstrapping a farming enterprise.
I grew up in a farming community, and whist it can be rewarding, if you are trying to make money, or be self sufficient, its fucking hard work.
Is it harder than programming? thats a subjective call. Objectively its physically harder work, mentally its way more varied. You need to be a welder, plumber, vet, horticulturist, builder, metrologist, and if you're doing properly, crooked accountant as well.
Would I take up farming? probably not. Would rather become a water mill owner? hell yeah.