Jerry Gulke: My Top 3 Farming Investments

I’ve farmed for decades – sometimes full time and others part time while also working as an engineer or adviser. Looking back, there are a few actions I consider essential with excellent ROI in a successful business ag venture.

1. Education.
After graduating from North Dakota State University with a degree in engineering, I took advantage of an employee benefit by working toward a master’s degree in business administration and majoring in marketing and finance. It was there I learned to appreciate what Einstein called the eighth wonder of the world: understanding what compound interest rates can do for or against. It helped me focus on self-finance in working capital and not under the thumb of a bank. Debt free is even better.

2. Capital Investments.
Without a doubt, the best investment I made early in my career was on-farm storage and drying. In those days, government programs offered low or zero interest rates for building 120% of harvest production and paid about 26¢ per bushel in a farmer-owned reserve program that isolated corn, soybeans and wheat off the market until a certain price was reached. Today’s marketplace has replaced storage benefits with market carry, where prices paid in later months are higher than at harvest.

For example, my local elevator charges the following for corn:

After doing the math, that means off-the-combine corn is quoted -35 under December futures ($4.18) and -44 under March futures ($4.36).

Here’s an example if I decide I want to store for the market carry from December to March, which is currently 18¢:

The total cost is -55.5¢ versus cash market carry gain ($4.36 – $4.18) = 18¢. Net loss would be 36.5¢ per bushel, or $73 per acre. The bottom line is on-farm storage offers flexibility and opportunity to capture the market carry forward. The decision is whether you are going to invest in yourself, clip the coupons once storage is paid for and benefit from profit enhancement moving forward.

3. Price Outlook.
My education was and is essential to my farming success by understanding both the fundamentals (supply/demand) and the technical (price action) in developing an outlook in the backdrop of the price-discovery system, known as the CME, where thousands of traders analyze global fundamentals and discover a price commensurate with known and perceived-to-be known fundamentals.

Perception, better known as market psychology, helps create a buy-or-sell scenario that moves prices and develops bull or bear markets. The price discovery system is like a poker game. Participants all gather around market prices and vote yay or nay. At the end of the day, for every buyer there is a seller. It is a net some game — some winners and some losers by the end of the day’s closing of trade. That price discovery is depicted plainly in a chart like the weekly continuous chart included. The continuous chart depicts the lead contract traded from one month to the next. The front month is viewed as the demand month.

The chart depicts three analyses:

1. The price itself, in this case December is the lead contract.

2. Personal priority technical study I have used as a guide to decision making. It takes the emotion out of decision making and depicts cash flow in or out of a commodity.

3. The bottom shows the net position of the large speculator. This is often a precursor to what is coming. The large speculator was to be where the price is going and where it has been.