Agricultural Broadcaster Explains 2021 Supply Chain Crisis: Natural Gas, Meat Packers, China

Chip Flory [00:00:00] The meat packers, for example, or even a, a, a melon producer in the Central Valley of, of California. Okay? They had an advantage. The advantage that they created for themselves was, they were always willing to pay more for that labor than Wendy's was, to have somebody come in and flip burgers.

Vance Crowe [00:00:25] I'm Miriam Hoffman, a full-time college student living in Carbondale, Illinois, and you're listening to the Vance Crow podcast. Welcome back to the podcast. I'm glad you're here today. We talk with host of Agri Talk Chip. Flory. Chip is one of the most well-known broadcasters in all of agriculture, and I really don't think I could have reached out to him if my man, Chris Bennett hadn't started poking me saying, Hey man, you gotta have Chip Flory on there. Get him to talk about what's going on with supply chain. Get him to talk about what he sees is happening with China and corn and soybeans. So that's what we did. We sat down and we had a rip roaring conversation, and one of the best things about this conversation is that Chip and I see the world a little bit differently, and I found myself being like, wow, I had never considered that. Or the people that I'm spending time with don't think like this. And Chip is so practiced and so good at explaining himself that I find him to be exceptionally persuasive. I think you're going to enjoy this podcast. Before we do that, I wanna pump up the listeners to know that we are doing Legacy Interviews. I have started booking out for people that wanna do it as a Christmas gift. So if you have thought about, Hey, I'd love to have my parents or one of my children, or even yourself interviewed by me to talk about your values, your family stories, ideas that you wanna get captured and that you'd like to preserve in a time capsule and be able to share with future generations, then you can do a legacy interview with me. People have found these to be really interesting and engaging.

Vance Crowe [00:01:58] We can do 'em over Zoom, like, just like I do this podcast right here, or if you're in the St. Louis area, we can sit down and do it live and in person. Typically, they run a little over and hour. I'll send you some questions to get you thinking and then we'll just have a general back and forth question and answer period. People find it to be a really fun experience, and it's one of those things that most of the time when people buy it for another person, I've actually had those people that I've interviewed say, Hey, could we do an extra hour? Hey, I want to do one of these for my cousin or my my parents. And so it's one of those things that's built on itself and really accelerated and I love doing it. So if you're interested in getting one of these Legacy Interviews and you want to get booked in time to have this be a Christmas gift, go to store dot Articulate Ventures, and there you can book one of these Legacy Interviews. I hope you will. Also, if you're somebody that is enjoying these kind of conversations about supply chain, earlier today I did a class on negotiations. Sometimes we get in there and practice different speeches. You might be the just the kind of person that would do great in the Articulate Ventures network. This is a group of people that came together. You know, a lot of broadcasters put out a Patreon. They say, Hey, I'm a busker. I'm gonna do these interviews, and if you find it interesting here, put some money in the hat to say thank you. But I didn't really wanna do that. Instead, what I wanted to do was to create a community away from the tragedy of the Commons with regular social media like Facebook and Twitter where people could meet in this soft space that is the internet, but also be protected from the storms.

Vance Crowe [00:03:35] To be able to have conversations where people are trying to understand your point. They try and give you their perspective, but it is always respectful, it's always enriching, and we support one another. Right now we are in the middle of sober October where any vice that you have that you think might be holding you back, you decide to give it up for an entire month. It could be alcohol, it could be THC, it could be caffeine, it could be nicotine, whatever you want. But you have a group of people that's around you talking about how it's difficult talking about what they're learning and just making better life decisions. It's great to have this somewhere community that can span the world and be anywhere that you wanna be. And I hope that you will consider joining if you're that type of person that wants to do that, go to network, Articulate Ventures, and I think you'll be surprised at how wildly diverse and interesting all of the people are. And we would most certainly will welcome you. Alright, now without further ado, let's go to host of the Agri Talk show. Chip Flory. Chip Flory. Welcome to the podcast.

Chip Flory [00:04:39] Excellent. Thank you, Vance. Thank you.

Vance Crowe [00:04:41] Well, it's a pleasure to be speaking to a host of Agri Talk because it's oftentimes, I'm talking with amateurs on here, but for people that don't know what Agri Talk is, give us a rundown. What do you do day in and day out?

Chip Flory [00:04:53] You bet. Okay. Well, it's two hours of live radio every day, and I know it sounds real tough, right? Work live for two hours a day, but there's a lot of prep work obviously that goes into that. The first hour of Agri Talk starts at 10 0 6 Central Time, and that morning hour of Agri Talk, we spent a lot of time on issues on the business side of agriculture policy side. We talk a lot about the ethanol and the biofuels industries and, and livestock issues as well. Now the afternoon hour that starts at 2 0 6 Central time we talk markets and, and that, that hour of Agri Talk is something that I started back in 2014 and it's, it's pretty re rewarding to have an A brand. Yeah. I still call it, it's seven years old, but it's, to me it's still a brand new hour of Ag radio. So really what we did with that, that second hour Vance, was we extended the Farm Broadcaster's Day, gave them another hour of quality, what I think is quality content that they can expand their day. So we talk issues and policy in the morning markets in the afternoon. We've got over a hundred affiliate stations out there. And then of course we've got the podcast and, and it, we turn our, our live show into a podcast. And you can get that off of agri talk.com. You can get that off of the Agri Talk app.

Vance Crowe [00:06:26] So I've known you for a long time, you're a well-known quantity in the ag world, but it didn't come to my attention that I should interview until my man, Chris Bennett popped up and he said, man, you have got to sit down and talk with Chip Flory. So you and I had a phone call the other day Yeah.

Chip Flory [00:06:40] Where

Vance Crowe [00:06:41] I was in Apocalypto mode

Chip Flory [00:06:43] Yeah.

Vance Crowe [00:06:43] Where Facebook was down and we're looking at supply chain issues, really, I think only just beginning and just wondering what the world is gonna look like as you look out in the world. How apocalyptic are things to you right now?

Chip Flory [00:06:58] Well, we got Facebook back, so things are worse now than they were when Facebook was down. No, it it, we've got Facebook back and, and there's a lot of issues that I think we're trying to figure out when it comes to social media and, and just what exactly are their responsibilities. I mean, they, they came up as a social media site and people wanna make 'em publishers and that's not what they are. They're not publishers. Pub published pieces have responsibilities, have an obligation to the public that social media, were trying to assign those responsibilities and those obligations to social media and trying to police that. I, I have no idea how they would, how, how they would accomplish that on the supply side or the supply chain interruptions. I heard a stat the other day that just gave me chills, man. It's after we talked and that was India was down India, India still produces most of their electricity with coal and they were down to a four day supply of coal. If that doesn't scare, scare you, I I I don't know what would It's, it's the, the supply chain situation and, and, and look at the co look at the issues that it's created, Vance, we've got all those boats sitting off of the, the Huntington Beach out in Southern California and one of them dropped a damn anchor on a pipeline and now we've got an oils spill.

Chip Flory [00:08:36] It, it, it's, it's, it's creating issues in getting product onto the store shelves. And there are these residual issues that are coming along with it that they're just impossible to predict.

Vance Crowe [00:08:50] Yeah. It seems like we are positioning ourselves when you get into a situation where things are stretched thin, that even the smallest little hiccup can turn into these wild backups. You know, it's kinda like when you, when a wreck happens on the interstate, it's not just the wreck that does the backup. It's all the cars that slow down to see the, the backup and then all that backing up. And so even though maybe the, the accident was cleared up in a matter of 20 minutes, that that traffic congestion can go on for hours afterwards. Well, and when you're talking about supply chain, that stack on's gonna go for months, years even.

Chip Flory [00:09:26] Yeah. The accident accident can happen in the southbound lane, but it's gonna slow down traffic in the northbound lane as well. And so that's something that we have to watch. And you know, you think about the way that the ag trade has evolved over the years, it it, when I got involved in, in reporting on what's going on in agriculture back in the late eighties, early nineties, countries that were dependent on imports, built up a stockpile and held onto that stockpile. Then it became a, a just in time delivery market. We started calling it a FedEx market. Well, that was, was transferred with Amazon over to consumer life and everyday life. Everything is, you don't order anything until you need it. Well now a lot of those products are sitting out there on boats that, and if it's, if they're not sitting out there on those boats off of Huntington Beach, the packaging for the items that you want is sitting in those boats out there and they're sitting on containers that the just in time delivery that we had had developed in agriculture and in the economy Vance, it's been disrupted and it's gonna be disrupted for quite some time. Yeah.

Vance Crowe [00:10:55] You know, I think we are gonna look back on the period of time where we said everybody should go get an MBA. We should just have all of these business students and they should study how to make things more and more efficient. I think we're gonna look back and we're gonna say that was probably an ideological mistake because I think that so much of the, the outsourcing came as a result of saying, you know, we can, we can shave this little bit of storage cost off. We can shave this amount of us having this liability on our books if we just make sure we wait a little longer. We have it produced somewhere else, or we make it say on somebody else's books. And I think that it's, it's a little bit like when agriculture, when the people are too young, the people running the farms are too young to remember when interest rates went wild or they don't remember the, the savings and loan crisis. You, you just don't even realize 'cause it's not on their radar screen to be thinking about how bad this could get. And I don't think we felt the punishment yet that we're going to feel for having made all of these giant radical changes.

Chip Flory [00:12:00] Yeah. It's been a pursuit of efficiency and as we've been pursuing that efficiency in agriculture, in the supply chain, you know, great example of it is what we we're talking about on, on a regular basis. Now it seems like, and that's the cattle market and the cattle pricing transparency and, and transparency into these alternative marketing agreements. And part of the problem with the, with that pursuit of efficiency is that it has locked us into and, and evolved us into some positions that I, that a lot of people just don't want to be part of. And when you look at those, those four big packers out there that are into these AMAs, the alternative marketing agreements, and nobody outside of the packer and the cattle producer that is the other side of the a MA, nobody really knows exactly how that price was constructed. I

Vance Crowe [00:13:04] Don't even know what you're talking about. Tell me all about this. A MA

Chip Flory [00:13:07] Oh, okay. Alternative marketing agreements. You've got negotiated cash, cattle trade that happens primarily in the northern production areas. Okay. Minnesota, South Dakota, Iowa, some of Nebraska outside of the major feedlot areas where we talk more about farmer feeders, that is where so much of the day-to-day negotiated cash cattle trade takes place when you get into the southern market, where feedlots might have 50,000 head, might have 300,000 head might have 600,000 head negotiating on a daily basis is, is kind of difficult, more difficult for those large producers for a couple of reasons. And it, and most of it comes down to logistics. You can't run 50,000 head of cattle and just decide, you know what, we're gonna negotiate by the load on 60 head per load. We're gonna negotiate that every day. You can't do it because you're gonna have multiple, multiple loads that need to go every day. Well those cattle, you need to make the plans to move those cattle. So you, you negotiate a price, you set a price based on a formula that is going to be driven by the quality of that animal as it makes its way from the hamburger into the steaks and, and everything. So the, it's, I I've had so many conversations about the complexity of the cash cattle market and the, the cattle trade that you've, you, I I've started to buy into the idea that it is a complex issue and it, it has evolved to the point that in the, in, in a pursuit of efficiency that we have got part of the part of the cattle, the, the guys that raise cattle just are convinced that it's a fixed business.

Chip Flory [00:15:09] And there, there's nothing good about the, the marketing side or the pricing side of the business all the way down to, hey, this is the way it is. Because if we can't make plans to move cattle when they need to be moved, or from the packer's perspective, if we can't, if, if we don't know where those 5,000 head that we're gonna process every day are gonna be coming from, it's, it becomes a, an a supply chain issue. And the disruptions that we saw in 2020 Vance, because of the labor issues in the and COVID in the workforce, it, it just blew this, this cattle industry up and has created a situation where about half of the industry is looking for some sort of a legislative fix to, or i, I I say fix, which implies that it's broken. And I I don I'm not convinced that it's broken. They want

Vance Crowe [00:16:12] That's an, that's an interesting point because the, when you listen, so my, a lot of my listeners are kind of the edgy, edgier people, right? They're the independent ones. They want to be out on the range. They're in Oklahoma, they're out in the planes of Kansas. And to them it is so obvious that the only way to fix this is with somebody that has as much power as the four packers, which is the only thing that's as powerful is that, is the government. Because you can't get all these independent cattle ranchers to gather, to focus on something. And I think they have a really interesting point. Like their checkoff programs somehow started bringing together packers and cattlemen and they have different interests. In fact those are two different sides of the, of the bargaining table. And so a lot of 'em feel like how are we gonna join together enough interest to be able to, to push back on the packers? 'cause any one of us, any five of us, any hundred of us could just get pushed off the, off the board by the Packers. 'cause they're so much larger than us.

Chip Flory [00:17:13] Yeah, yeah. And and this all comes down to, to a question that most cattlemen ask themselves at, at some point. And, and that is, if you ask that, that feed yard operator, okay, he's finishing cattle, you ask him, are you producing cattle or are you producing beef? And about half of them will say beef. The other half will say cattle. If you go down to the cow calf producer and ask them the same question, a about three quarters of them are gonna say, well, I'm producing calves. The other quarter will say I'm producing beef. And it's that disconnect between a beef market and a cattle market that has put us into the situation that we're in right now. And we've got these, you know, the, the, the, the cattle industry and the cattle herd goes through about a 10 year cycle. And, and that 10 year cycle can be disrupted by things like drought. The, the, the cattle market can be as much of a weather market as the corn market can be. And we, we, but basically there's a 10 year cycle to the, to the size of the, the, the cow herd that's out there. Well of course that's gonna correlate with a 10 year price cycle out there as well, because when we've got the smaller ca calf crops, we're gonna have a higher price in the years following. So it's all about the balance between processing capacity and the size of the, the market, the, the, the market cattle that are out there and available to the processors.

Chip Flory [00:18:56] So, but the question is then have the big four reduce slaughter capacity to the point that they will have leverage and have leverage forever. And you, you, that's why the industry may be the best answer to what's going on out there is to add slaughter capacity. The problem is if you add the slaughter capacity and the government's doing what they can, they're putting $500 million into advance in grants and loans to, to increase slaughter capacity primarily for beef. If we do that and then all of a sudden we start to cycle down on cattle numbers, those two things are gonna collide at some point. Vance And, and all the, the, the leverage is gonna be with the feed yard at that point. And we're gonna be looking at packers that are losing money big time because they're gonna have to pay too much for the cattle compared to what the retail price can be out there for, for the steaks and the hamburger. So

Vance Crowe [00:20:01] The 500 million that's out there that you're talking about with grants is this to create the, you know, the Muncie meats of the world where you have a tiny, you know, slaughtering facility. Yeah. Maybe you're doing 20, 30 head a cattle a day, something like that.

Chip Flory [00:20:15] Oh. Or even smaller than that 20 head a week. That money is available to, to all sizes of processing facilities. You know, the old Mol Muncie lockers out there that, that are available. I just had a conversation on agri talk with Todd Herzog, who is running the beef plant down in Butler, Missouri. They're doing about 50 head a week and they've got a branded product that is available in retail locations. They've got the, the online ordering system they're doing, they, they, they are doing processing for other small outlets in Nebraska, in Iowa. So there's a lot of potential there, but we don't need one hertz, sog meat company or, or moan livestock company. What we need is about 15 of them. Then it starts to make a difference. Vance, we're only talking about 600, 700 head a week. That's 10 loads, that's 10 loads of cattle a week. But if we can take those away from the, from the packers at a time when they're set up to handle those 10 loads, all of a sudden they start to compete a little more aggressively for the loads that are out there. We, we could see some increase in negotiated trade.

Chip Flory [00:21:47] It, it's a slaughter capacity issue right now is, is I think what we're dealing with.

Vance Crowe [00:21:52] So where do you think two years from now the cattle markets will be, will it be in the same spot? Will it be radically different? No. Yes.

Chip Flory [00:22:00] I think we're gonna be radically different in two, two years advance. We're gonna have more slaughter capacity in a smaller supply of market ready cattle. And the, the leverage will be with the feed yards. And I think packers the money that the packers have been making over the last 24, maybe 30 months, they're not gonna be making that money. And, and the, the, we, we, we tend to ignore the retail side of it as well because the retailers out there, they know that if they put a price out there, say, you know, ribeyes at the meat case in, in Iowa right now are 18 bucks a pound. We, that's the highest I've ever seen 'em. Now if the beef price backs off, is the retailer gonna back that price off when they're selling all the re all the ribeyes that they can get at $18 a pound, are they gonna back that off? No way. No way. So the, the goal of, of everything that, that we need to see happen is we need to move more of that retail dollar through the processor back to the feed yard, back to the background or back to the cow calf guy, back to the seed stock producer. And right now too much of it is sitting with the packer. We need to move more of it down the chain.

Vance Crowe [00:23:20] So, you know, when you think about what happened with COVI, there was suddenly it revealed that things like pork, you know, you have 48 hours between when that pig is killed and when it's in the grocery store. And if you stop slaughtering, then almost instantly you start running out of, out of pork products.

Chip Flory [00:23:38] Right.

Vance Crowe [00:23:38] Is that ever gonna get solved or do we just live in a world where we're doing just in time and that's just the way it is?

Chip Flory [00:23:44] Dude, when in the hog industry, when, when they decide that they're gonna feral that pig, if they're in a far to finish operation, which not a lot of producers are, but if, if they're in a far to finish operation, the day that they decide to breed that hog, they're booking the truck to take that hog to, to market five months later. Okay. Wow. Actually

Vance Crowe [00:24:10] Four months and two weeks or something like that.

Chip Flory [00:24:12] Yeah. Gestation period is three months. Three weeks and three days it, but to hack another five months on top of that, so go eight months out, they're booking trucks to take that, that pig to market. That's how finely tuned the hog side of things are. And I don't know how we can bust that up. We're we're, we're killing 2 million head a week, processing 2 million head a week. I to, to be able to do that. I'm not sure that we can go backwards and if we do go backwards, there's gonna be regional shortages and it, the efficiency is incredible. We

Vance Crowe [00:24:57] Don't, you know, when you're living in the city I live in St. Louis, you don't see the pigs at all. I mean, you probably don't even really if you're in the, in the countryside because it's just so vertically integrated. Yeah. It's so removed from everything. But it is shocking when you come to realize pork meat is actually the most consumed meat in the world. Right.

Chip Flory [00:25:14] In the world. And

Vance Crowe [00:25:15] I mean that, that includes two different religions that have complete, you know, abstinence. You can't have it if you're Jewish and you can't have it if you're Muslim. And yet it is super high demand. And when you start looking at those numbers, if you have a, a chink in the overall pork production, scary things happen real fast. Like, you know, I I used to study under a, a Chinese professor

Chip Flory [00:25:38] And

Vance Crowe [00:25:38] He always talked about one of the reasons that the current Chinese regime is in power is because in people's lives they went from eating meat once during holidays, you know, maybe two times per year to then doing it once per month and once per week. And he describes like, you know, wealth is, is one part in your bank account, but a whole nother thing is when you start eating meat more regularly Right. That makes you feel wealthy. So if you have a country like China that realizes the stability of the government relies, it's completely dependent on can you continue to give people meat not only regularly, but more regularly in the future, you know, continue to drive that price down. The, the the amount of power that rests on the shoulders of agriculture is really almost indescribable, but it's water. Right. We don't even see it in our day-to-day lives. Right?

Chip Flory [00:26:30] Right. That's exactly right. So enter African swine fever in China and the disruption that that created to the supply their sow herd is five times the size of, of the US sow herd.

Vance Crowe [00:26:43] Oh, I didn't realize that.

Chip Flory [00:26:44] Yeah, it was, it was at, at one point it, it was broken down because of African swine fever to, you know, they, the, the estimates are that they lost about 40% of their total herd. They've been building that back up, but they've lost some of the efficiencies that they had established. They are westernizing modernizing their, their feeding system so that instead of having the, the small farmers with backyard operations scattered all over the country, they've even, they've even gone to hog finishing condos where there's five levels of, of hog production in one facility. If I'm working in that facility, I think I wanna work on the top level by the way.

Vance Crowe [00:27:30] I'll just

Chip Flory [00:27:31] Mention that. But the, they, they are modernizing it. They're not feeding sw or scraps or garbage to it in those commercial facilities. It's, it's very much a, an Iowa style feed that they are feeding those hogs in those commercial facilities. Now. So look at, at this, what's happening in China is making your point Vance and, and when it was, when it is so important to the Chinese people that supply of pork, when it is disrupted to the point that it was, and they are bringing it back under a completely different production method and it is being done with the level of government support that it is being done with. That proves your point, just how important agriculture is to a political structure like they've got in China to maintaining a happy citizenship or citizenry. If, if, if those people aren't happy, you get one guy standing in front of a tank on Tiananmen Square again and raising all kinds of issues and then boom, you, you, they can't lose control. Well,

Vance Crowe [00:28:49] So this brings me to a conspiracy theory that I've heard. I'd love to run it past you, which is the reason that we are so behind on nitrogen and some of the other, you know, the, the phosphate that we need to be able to keep growing corn is because the Chinese are trying to gum up that system because they want the American farmer to grow more soybeans to send it over as feed. What do you think of that hypo or that conspiracy theory?

Chip Flory [00:29:15] I think that the amount of investment that China has made into the South American soybean system would probably argue against that. The, there's also the fact that China, in, in just the 2020 21 marketing year, they've always, they've been a buyer of small amounts of, of us corn, I would call it very small amounts leading up to that two, 2020 21 marketing year. That's when they stepped in and they bought like 26 million ton a a a huge amount of corn, 700, 800 million bushels. I think that China, China for, for decades has had a mission of being self-sufficient on three crops. Rice, wheat and corn soybeans. They just farmed that out. They, they, they sent the investment dollars to, to South America and built up that, that production system in Brazil. They're to the point now where they will continue to support the Brazilian system as much as they can and, and they'll go as far as investing in their, in, in the Brazilian infrastructure, railways, barges, ports on the Amazon, do whatever they can to make sure that they're giving all the incentives possible to the Brazilian producer to, to continue to expand their production. But they're going to have to rely on countries other than Brazil for corn.

Chip Flory [00:30:53] US is the number one spot they can look to Argentina, but Argentina's so screwed up anyway, fans, I mean, I don't, I don't know how how we anybody could rely on getting supplies out of Argentina, Ukraine. That's another source. China has done deals in the past with Ukraine where they've sent goods into Ukraine in exchange for corn. So they're willing to barter on a global basis for corn out of Ukraine. And I I just think that there, I don't think that China would want to gum up that utilizer system and supply chain too much because if they do, they're gonna be threatening their own corn supply and the, and the corn that they can buy from the, from the United States. I don't, I don't think

Vance Crowe [00:31:46] They do that. Okay. So if not that, what in the hell is going on? Why are nitrogen pli prices flying through the roof and where, where does this take us in? If you can't, if you can't get enough nitrogen to grow good corn,

Chip Flory [00:31:58] It's natural gas man. It's natural gas. We've gotten to the point where we have discouraged the production of crude oil and, and natural gas and the use of those products to the point that we've created some real issues out there in Europe. They, they went as hard as they could after wind energy and after solar energy and in the summer of 2021, they found out that wasn't enough and, and they had to tap into their natural gas refire, some of those shuttered electricity plants that, that would burn on natural gas and, and refire those plants. Well that got their stocks sold low. We think natural gas prices are high in the United States right now. They're three times, four times the price in in Europe. If, if you would take the natural gas price that they are paying in Europe right now and make it the equivalent in crude oil prices, it'd be like $175 a barrel crude is what they're paying for natural gas. It's shocking. You can't do that. You have to make decisions at that point. Do we continue to use natural gas to pull the nitrogen outta the air and make anhydrous or do we stop doing that and they've stopped doing that. The issue then becomes what kind of a winter are we going to look at? There are some forecasters out there that are predicting a, it may not last a long time, but there's going to be some very harsh conditions this winter because of the La Nina and, and the weather trends and the way that the polar vortex has been flowing and blah blah blah.

Chip Flory [00:33:45] If for an example of what might happen, just go back to February of this year Vance and, and what happened down in Texas. If, if, if we get that big push a cold air that far south again, and we've got a, an energy system, an electricity system that is as stressed as what they dealt with down in Texas, now take that and put that overall of Europe. What are we gonna do? What are we gonna do if something like that happens? So they've got to start to stockpile natural gas and rebuild it for heating use. That means shutting down nitrogen production in a lot of cases, not only in Europe but but in in the United States as well.

Vance Crowe [00:34:30] So what does this do to corn production? You know, if you're a farmer, you're sitting on let's say 2000 acres, you gotta decide now whether you're gonna be locking in prices on nitrogen and buying corn or you're gonna, you're looking at beans. How do you make that decision?

Chip Flory [00:34:44] Yeah, it's not easy, that's for sure. I mean the, the guys at Purdue University, Jim Minter is Ag economist there at Purdue University. He and Michael Langemeier put together with the CMEI should say, they put together the ag economy barometer. And in that ag economy barometer, it's a monthly survey of 400, I think it's 400, might be 600 producers across the country, not always the same producers. They mix it up. So they get a, a a, a wide representation of views out there. The, there's about a third of the producers now 34% think that input costs on their 2022 corn production is going to be up more than 12% from one year to the next. The normally Jim told us that they're looking at a, normally the the increase is about 1.8 to 2%. So this is six fold. The increase in cost of production from 21 crop to 22 crop, it's gonna have an impact on acres. It's, it's got to, it's got to.

Vance Crowe [00:36:03] Yeah. I mean I, I regularly put out on Twitter questions about supply chain and the other day I put one out about how much has it impacted prices for you? And I'm hearing things like I'm paying 17% more for, for nitrogen than I did last year. Some people saying, you know, even way bigger than that. And, and you look at that and you say, okay, part of this is natural gas, part of this is inflation, right? Yes. What we pumped up the, the monetary supply so much that there is so much liquidity in the market that people have money, they just don't have goods. Yeah.

Chip Flory [00:36:36] And

Vance Crowe [00:36:36] It doesn't matter how much, how much now all if you're gonna get those things, you can start charging what you want for it. And I think, I think the general consumer is not, oh, you just

Chip Flory [00:36:45] Said, you, you just said advance for, for, for a long time there was a, a direct connection between the price of natural gas and the price of nitrogen fertilizers. All right? Then the guys producing nitrogen realized, well, you know what really what we should be doing is pricing nitrogen according to what the, the buyers farmers are willing to pay for it, not so much what it costs to produce it. So it's what the market will bear. We've, we're, we're, we're reconnecting production of nitrogen to the price of natural gas. Now, are we going to be willing to pay a thousand bucks a ton for anhydrous in the spring of 2022 to plant corn at $6 corn, probably at $5 corn? Nah, I'm backing away from it.

Vance Crowe [00:37:40] And what are the futures at right now? And so today is 30 Thursday, seventh 30. Okay. About

Chip Flory [00:37:45] About 5 35. Yeah. Yeah. So gotta waste to go to, to hold onto all those acres that we need. But demand for bean acres is going up too vance. We can't forget that.

Vance Crowe [00:37:56] I, I think that people, so, you know, the first to react to higher prices or to actual inflation are actually the ones that people that benefit the most. Right? If, and I think, you know, economics 1 0 1, the, the cure for supply chain problems is just higher prices. Right. If you have supply problems, just start ratcheting up that price and eventually people that aren't willing to pay. And I mean, I think if we look at why is it that the local Panera or the, the, you know, restaurant or gas station near me doesn't have employees, it's because people have not been willing to increase the prices to be able to compensate for the labor costs. Right. And I think that that's coming and it's something that we as Americans are resisting. 'cause you, you say we've, we've had relatively stable prices, certainly they've gone up 3% for, you know, year after year after year after year. But I think we've got a huge bump coming and it's gonna be sticker shock and nobody wants to raise prices so much because if you raise them up in the grocery store down the street or the restaurant down the street doesn't then, then you've got problems. But eventually you're just not gonna have the employees you need to be able to get the things done.

Chip Flory [00:39:02] Yeah. And it's, the increase in competition for that laborer is we're, we're seeing a shift because the meat packers, for example, or even a, a melon producer in the Central Valley of, of California, okay. They had an advantage, the advantage that they created for themselves was they were always willing to pay more for that labor than Wendy's was to have somebody come in and flip burgers. Well, Wendy's is now paying what the meat packers or the melon producers were, and they either have to take a bite outta their margins and pay more again to bring those workers in. Or we need to figure out some other way of doing it. Now, I think in many ways we're gonna figure out different ways of doing it. And this is back to the disruptions of, of the, the processing that we saw in and the, and the availability of labor in 2020 because of the pandemic. There's a big push going on out there to, you know, automate the processing of, of cattle and automate the processing of hogs. The problem is they don't always, they, they don't all fit in the same cookie cutter. And you, it needs, in many ways, processing those animals still needs the human touch in many ways.

Chip Flory [00:40:41] Still picking only the ripe melons takes a human touch. And it, it's, it's what it means is there, we're gonna take a bite out of the margins all the way around and and gonna have to pay more for labor in agriculture. That's the bottom line. And it's gonna be, it's, it's gonna make its way down the supply chain to the retail side and higher grocery bills. But bads, we're, we're talking about inflation, but energy and food don't count for inflation because it's just stuff that you need.

Vance Crowe [00:41:14] Yeah, yeah. The, the way that it inflation gets counted in the US is, is so absurd is to be a, a farce. Right. Like, they aren't even including healthcare. Like it's, it's like that's, you know, the hardest

Chip Flory [00:41:25] Everything you need, they don't

Vance Crowe [00:41:26] Count. Yeah, exactly.

Chip Flory [00:41:27] Yep.

Vance Crowe [00:41:28] So let's talk about, you know, what's going on in the ag media world. It's, it seems as though I think if you're out on Twitter or social media and you're in the ag space, you think, hey, the modern media giants, you know, your CNN's, your, even your foxes, but your M-S-N-B-C, they all seem to be pretty woke and the messages that you hear on TV does not resonate with the ground truth of what people on the ground believe. Is this going on in in ag as well? Is there a, a push for kind of a, a like a woke mentality?

Chip Flory [00:42:04] Oh yeah. I, I I think it's, it's definitely happening. And whether, I don't know if you've even got a choice Vance to decide if you're gonna come along for the right or not. I, i, I think it's, it's a movement that we're, we're, we're everybody is, is kind of caught up in. And the thing is, boy, you, you make a mistake, it, it can be completely innocent, it can be be unintentional, but if you make a mistake, somebody's gonna call you out. And it, it's part of the woke movement is the cancel culture, right? Where if you make that mistake, they're gonna, somebody's gonna try to cancel you. And it's too much fun for people. It's almost turned into sport to say, did you see what Vance said? We can't allow that to happen. As a matter of fact, we can't allow Vance to even talk anymore. It's those kind of movements that take place that just kind of scare you. And the thing is, you, it, it's, I don't out on social media, everybody's got a voice, which is great, but that doesn't make everybody a journalist.

Chip Flory [00:43:37] It it, as there's responsibilities, there's obligations as we were talking about, and the responsibilities and the obligations of a journalist like I I I'd put you obviously into that category because you're having conversations that, that are based in realities in in many ways you get out on social media sometimes Vance and reality has nothing to do with, with what they're talking about. And it as, as a a journalist, we, we've got to stay in reality matters. That's the bottom line is reality matters. And we just have to continue to remind people about that.

Vance Crowe [00:44:25] Yeah. I mean, I, I remember on social media not that long ago, there was a young woman, she just recently gotten married, I've known her for quite a few years. She was kind of complaining about the old boys network, which really the old boys network doesn't benefit anybody but the old boys, right? So you could be a man or a woman, but if you're not in the crew, it doesn't benefit you. Right. So I had made some kind of comment that I, you know, in my mind it was something like, you know, very complimentary. I was like, you know, you're, you're really tough. You can take it, you know, you can handle this. And it was like me, I, you know, I wouldn't say anything that I thought was offensive or was like trying to put her down. And man, I, I got all these people that were just delighted with the fact that I had maybe made some implication that a woman should have to take crap from men and that she should just, you know, suck it up and deal with it. And it was like, you know, the, the, I didn't take the bait, but I definitely got dms from people that were like you, I want you to tell me right now what it is that you meant when you were saying this to her. I, I wanted, I demand to know, you know, why she should have to take it. And I'm like, at one, I don't have to take the bait 'cause there's nobody you can afford on Me too. But like, you just saw the glee and the excitement that people had Yeah. That they gotcha.

Chip Flory [00:45:39] Yeah. Yep. The, the gotcha conversations and, and the thing is there, as I said it, it feels like it's more of a movement now than, than everything and I, and sometimes a movement. You would like to think that it's that that that movement is part of evolution and we're all moving in the right direction at the right time for the right reasons. But when it's sport to just Gotcha, I don't think that's moving in the right direction.

Vance Crowe [00:46:18] Yeah. Progress for progress' sake is a little like Yeah.

Chip Flory [00:46:21] You know,

Vance Crowe [00:46:21] Going hiking without a map or without a compass and not really having a goal, you're just, you know, going out into the woods, you get pretty lost.

Chip Flory [00:46:27] Yep, that's right.

Vance Crowe [00:46:29] So as you look out, you know, the ag world, you've been in the game for quite a while, what do you think is gonna be different about farms in the next 10 years? Do you think we're gonna see a huge consolidation? Is China gonna own all the land? Is it gonna just be run by farm managers? What do you think?

Chip Flory [00:46:48] Obviously there's gonna be changes. We keep talking about the average age of farmers and how it's at the point now where there's gonna be this huge turnover in land ownership at some point. We've been talking about this huge turnover in land ownership for 30 years. And in reality, it in Iowa, when you think about landowner and, and who it really is, in many cases it's the widow at the nursing home.

Vance Crowe [00:47:20] Yeah. Some, like 60% of all the land right now is owned by women widowed over the age of 65 or something

Chip Flory [00:47:26] Like

Vance Crowe [00:47:26] That. Right?

Chip Flory [00:47:27] Right. Okay. So we need to keep that in mind. But there's another generation of kids coming behind them that have probably learned and seen the advantages of land ownership and what they can do for you. Now, will those kids do, do they all have the same attitude and if the farm is, is passed down one third, one third, one third to the three kids, do they all have the same attitude of, yeah, this is great, we've got this wealth and this ground that it, it's passive income for us. We don't have to do anything. The rent check shows up. Are they gonna have that attitude or are they gonna have the attitude of land prices are bumping records, if not at records, let's go ahead and cash this thing out before a Biden tax plan comes in and makes it impossible for us to hold onto it. Anyway. A lot of issues on in farming that are tied to that wealth that is stored in the ground. So what happens to this ground over the next 10 years and will there be this big transfer of ownership if that transfer of ownership happens? Vance, then farming's gonna look a lot different, I think in 10 years to, if, if it transfers to farmers, to active farmers. Look at how the ground is sold now. It, it used to be that if you had a 320 acre farm, you sold 320 acre farm.

Chip Flory [00:49:03] Now when that 320 acre farm goes to auction, it's, it's divided up into 40 acres here and 80 acres there and 60 acres here and 20 acres there. So it's, it, it's done in all these parcels there, those farms, you, it may go to one buyer all the parcels, but the availability of 20 acres here, 80 acres there, does that start to spread out ownership to some of the smaller farmers and create, not consolidation, but actually diversification of ownership in, in the land out there with the desire of consumers to, and I I think this is still accurate. It was very accurate before the pandemic. And I think it's still accurate that, that consumers are wanting to reconnect with the source of their food if that's the case, local is gonna be, is gonna be a, a, a, a real thing. Again, at least regional is going to be a thing again. And I think that that may actually break up some of the farm ownership, put it, put ground in more hands and give us smaller, more localized marketing farmers in the future.

Vance Crowe [00:50:35] Wow. That is a very different perspective from everything I've heard. And it's an interesting one to consider. I, I agree. You know, you don't, if you're gonna start gr growing for the farmers' market, you don't need 300 acres. You need, you know, you need 10, you 10, 15. Yeah. Yeah.

Chip Flory [00:50:49] Like,

Vance Crowe [00:50:50] And, and too much more than that becomes really unwieldy for a, for a vegetable farmer.

Chip Flory [00:50:55] I think

Vance Crowe [00:50:56] A lot of the go

Chip Flory [00:50:57] Ahead, but Vance, if, if you're talking about some of those farmer markets, some of the revenue potential on a per acre basis at those farmer markets and in, in the specialty markets, the revenue potential is outstanding. Can that, that person that is farming for a very local market, can they afford, if all they're doing is buying 20 acres of the three 20 that's offered, they can maybe go in there and afford to pay more on a per acre basis than a commercial farmer.

Vance Crowe [00:51:30] Wow. That is super interesting because the, the, the big concern that I hear people talking about all the time is just consolidation, consolidation, consolidation. And when I look at something like A-S-F-M-R-A, you know, the, the Society of Farm Managers, I mean, they are growing hand over fist. They have more and more members because there's so many more acres being run by farm managers as opposed to farmer owner occupied. But I, policy, policy is gonna

Chip Flory [00:51:57] Have, so tax policy's gonna have so much to do with this fans. If, if the, if, if tax policy gets in the way of putting ground on the market, then consolidation is the way that it's gonna be okay. Because it's gonna take somebody that owns ground outright and a lot of it to be able to buy a piece of ground at the price, it's gonna be required on that piece of ground to help the sellers pay the taxes. Now, if the tax policy encourages those, that ground to move to the market, then I think it gets broken up. I think it gets broken up because I, I, I do believe that, that the pandemic has been a disruption in, in so many ways, but I think it's also been a disruption in the consumer's wants and desires. And I think we will get back to the consumer wanting a locally sourced meal on their, on their plate in the future.

Vance Crowe [00:53:01] It's funny because my wife and I, we moved from DC to, to St. Louis and, you know, got much more in touch with agriculture as I got involved with Monsanto. But now all of the friends that I had that were still living in the major cities, at least on the coast, almost all of them have decided to move away from the coasts and try and move closer to places where they can, can, they can be a part of the, whether it's the food system or the local community. And I'm not sure if that's just a function of, hey, this is what my generation is doing, or the pandemic or some part of it. But it it, it seems like the motion has started moving towards like an internal, you know, movement. But, you know, the coasts are still growing. There's still people out there.

Chip Flory [00:53:46] Yep. Well, if, yeah, th that's, that's exactly true. But there is a, a migration. You look at what's happening in Billings, Montana, for example, they can't build a house fast enough in Billings, Montana to keep up with it. Boise, Idaho, there's another one. Des Moines, Iowa, Urbandale, Iowa Kinney, Iowa. The, the movement is definitely happening. Now, I will say this, if you're coming from the East coast or the west coast to the middle of the country, it remember that hog manure has a smell. All right? Re remember that dust flies in the spring and in the fall, remember that, that the very, very heavy loads that are going up and down county roads move slowly. The, the conflicts have been well documented over the years, but what you're talking about Vance is only the potential for even more conflicts in, in the future. So,

Vance Crowe [00:54:50] So tell me a little bit about, you know, the, the publishing world that you're in, you know, yeah. You're doing live radio all the time, you've gotta stay up on things. How do you, how do you stay up with it and how do you keep it from consuming you,

Chip Flory [00:55:03] Man? Well, number one, you, you really don't stop it from consuming you it on the air for two hours and, and prep time never stops. It, it, I mean, I find time, don't get me wrong, I find time. I've got three grandkids and I love spending time with those grand babies. So I find time for that. I find time every evening to, to take a break. And I do that by cooking supper. I, I, I'm the cook in, in our family in my household. And, and I love it because it gives me a chance to take a break. But when I'm done with it, you know, I might sit down in front of the tv, but I've got my computer open. I'm, I'm looking at, at different reports, trying to stay on top of, of everything that's, that's going on out there. So you, it, it's, it's, it's two hours of live radio and, and away from sleeping. You're prepping and that's, that's the bottom line.

Vance Crowe [00:56:10] Were you born to do this? Were you always destined to get into broadcast or is this something that you had to build your way to?

Chip Flory [00:56:20] My mom was a journalist for 70 years, believe it or not, 65, we'll call it. And I never, she was a rural correspondent for, for county newspapers, stuff like that. And I, I never, I don't remember a time that that journalism and reporting wasn't part of my life, because it was, it was right there in front of me all the time. Mom worked at home, worked on the typewriter, worked on, and eventually on a computer. But, so from that perspective, I was, I, I come by it pretty naturally. It's always been a part of my life. The farming side of things. Again, I grew up on a farm, but we, we were a pharaoh to finish operation. We had a cow calf operation, corn, soybeans. My brother is 10 years older than me and got, he and dad got caught, caught up in the crisis in the late seventies, early eighties, had a farm sale in 1980 when I was a south, when I was 15 years old. And, and you know, 15 years old, you're just kind of old enough to, to understand what's going on. But you had to make an effort to really understand, well, I kind of made that effort. And, and when you see what, what happened in so many cases in, in the late seventies, early eighties, the, the farm crisis was very real. The, the, it, it amplified it, whatever.

Chip Flory [00:58:00] When it became a rural banking crisis, if the banks would've stayed in good shape, the forced foreclosures wouldn't have happened. And I know that this, this may sound obvious, but the banks at that time got themselves into the problems and made it a bigger problem for a lot of farms out there, farms that were generating revenue, they were making their payments, they were making payments with 16, 18% interest, and they were making the interest and the principal payments. Okay. So it was happening. But when the banks got in trouble, that's when they transferred their problems to the ag business and, and to the farm businesses as well. So that's when it, you know, farmers, farmers in the late seventies, early eighties, Vance, they would have a conversation one afternoon with their bank president or whatever, bank owner, and they'd say something like, Vance, you're doing great. Look at this. Let's go over your books. Wow, that's fantastic. Everything is going just fine. The next day after a board meeting, you might get that phone call, Vance. It says, Vance, we need to talk because you're upside down. You're upside down. And we're calling it now, the way that the, the, that the rules changed overnight for so many farmers out there, it, it was, it was just heartbreaking.

Chip Flory [00:59:32] So I grew up on a farm. I loved everything that there was to love about farming. But after seeing that and understanding how fast the rules can change on you, I really didn't want anything to do with that side of it. What I wanted to do was to help farmers understand the risks that they face, how to manage those risks, and, and to how, how, how to be better businessmen out there. So the journalism side, the broadcasting side, did it come natural? I'd love to talk. You, you can, you can see that the, the journalism side comes to me natural. The interest in farming comes to me natural, but it was very much by design. How I ended up, where I ended up, when I was a senior in high school, I had a conversation with an editor, Bob Kaufman at Pro Farmer Professional Farmers of America, because a couple of years before that, dad and I were going to town. He was driving and, okay, I'll have to take a moment and explain all this, just, it won't take me long. My news anchor on Agri Talk is Davis Michelson. Okay. His dad was Ron Michelson, who was an editor at Pro Farmer back in the late seventies and early eighties and into the nineties as well for Ron. But in the eighties, Ron did something that was called the Proformer Minute.

Chip Flory [01:01:03] And it was one minute of pro of Proformer perspective out there on the different radio stations out there. We heard it as we were going down the road. Dad turned around, went home, did something in his risk management plan. It had that much of an impact on him that quick. I thought that's really cool. I had a conversation with Bob Kaufman about, if I want to be the Proformer editor someday, what do I need to do? He said, go through the journalism school at Iowa State University Ag Journalism School, do it in broadcasting because it's a very conversational style that we write in and, and stay in touch. I didn't have to stay in touch my last week, finals week at Iowa State University. Bob called me and they had a job for me in Chicago. I spent three and a half years in Chicago, made my way back to Pro Farmer in Cedar Falls in 1991, and for 17 really, really cool years. From 1997 to 2014, I got to be the editor of Pro Farmer and it was awesome. Awesome. Now, I'm the host of Agri Talk. I'm taking what I learned at at at that time and I turned it into a a, basically a daily newsletter. The four pages on the outside of of the Pro Farmer Newsletter were all about the issues and the business decisions and crop insurance and farm policy and ethanol and RFS and all of that stuff that that impacts your bottom line.

Chip Flory [01:02:40] That was the four outside pages. The four inside pages were markets, market analysis, risk management strategies, what to do about it. Morning Hour of Agri Talk is policy and issues. Afternoon hour is markets, so it's proformer every day. I love it.

Vance Crowe [01:02:59] Wow, man. That is said with so much passion and energy, that's actually probably a great place to, to wrap up Chip, if people wanted to learn more, how, where would they find you on social media? How do they find Agri Talk? Okay.

Chip Flory [01:03:11] On Twitter, it's at Agri Talk or at Chip Flory. That's about all the social media that I do. I don't do facebook@agritalk.com. If you wanna learn more about what Agri Talk is, we've got all of it out there. Agri talk.com and of course where all the apps are available. You can search for the Agri Talk app and you can listen to it live, and it's a complete archive of all of our shows right there.

Vance Crowe [01:03:40] Well, Chip Flory, thank you so much for taking an extra hour of your day and coming on to talk on the podcast.

Chip Flory [01:03:46] Vance. This was fun. I'm a big fan of yours, buddy.