Midwest Agriculture Conference: Session 1

KATE VAIKNORAS: All right. So thank you, and good morning. I'm excited to be kicking us off today. I'll be presenting on recent trends and costs and returns of major US agricultural commodities. So as we all know, input prices have increased in recent years. Particularly, 2021 and 2022 saw really big spikes. Some of these input prices have started to fall or level off, but they remain quite high. Rising input prices affect the cost of producing crops and livestock products. Oh, sorry.

[LAUGHS]

During some of this period as input prices were rising, some crop prices-- for example, corn and soybean prices-- also increased, though, as Leslie mentioned, in 2023 and forecast in 2024, these have also fallen quite a bit. Together, these trends affect the profitability of producing agricultural products in the United States.

So to explore these issues today, first I'm going to show you some graphs of input price trends and commodity price trends. Then we'll dig into the ERS, or Economic Research Service commodity costs and returns data, which is part of my work at ERS. I'll give you an overview of that data product. Then we'll look at some trends of corn and soybeans, and then a few livestock products-- cow, calf, dairy, and hogs. And finally, I'll offer some summary and conclusion.

So the first two graphs I'm going to show you today are USDA NASS-- that's National Agricultural Statistics Service-- price indexes. So NASS surveys agribusinesses on the prices that producers have paid for recent sales of key agricultural inputs. And the price indexes are structured such that the level at 2011 is equal to 100, and it tracks percentage change over time.

So you can see here for chemicals, fertilizer, fuel, and seed, they have had recent increases kind of after 2020. Going into 2021 and 2022 for fertilizer, fuel, and seed, these have peaked in 2022, and they've since fallen down in 2023. Seed has continued to go up in 2023, which is the most recent data I have for these.

And you can see that fertilizer in particular took a huge spike into 2022 and was quite high. And that prices, although they have fallen, I think looking at the graph you can see that they're still above 2021 levels.

Here, I have price indexes for agricultural services, labor, machinery, supplies and repairs, and taxes. Now, a lot of the attention on input prices are on the inputs I showed you in the first graph, especially fertilizer. But this just shows that other input prices have increased as well. They haven't necessarily had the same spike pattern in the last couple of years, but they're increasing, and that affects farmers.

So there are many different kinds of fertilizers used by US farmers. I'm just going to show you here the prices-- price patterns for one of them. This is anhydrous ammonia. I've narrowed the time frame now, so we're looking at 2020 through late 2024 to really see this pattern in these recent years.

So you can see that early 2021, you start to see a rise. Really spikes later that year. Remain high through much of 2022 before it started to come down. And it has come down as of the last several months, but it looks like it does remain higher than it was prior to that 2021 increase.
 
Now, there are many potential reasons why input prices have increased so much. I'm not going to go really into those reasons, but one factor to pay attention to is energy prices or natural gas prices. So here we have the Henry Hub Natural Gas Spot Price, dollars in million BTUs from, again, 2020 to late 2024 to look at the recent patterns.

It looks like even late 2020, it was increasing. It had some spikes and bumps, but it continued to rise through mid-2022 when it peaked for a few months. Excuse me. And since then, it has fallen. So it had that high level around when we saw the peaks in fertilizer prices.

So input prices, of course, is just one part of the equation when looking at profitability of agriculture. So here, I have US corn and soybean prices, dollars per bushel. And I'll mention for many of the graphs from here on out, I do start them at 2010, even though most of my discussion will be in recent years. And that's just to show some sort of historical context.

So we see that corn and soybean prices were low for a few years from around 2015, '14, through about 2018. Then they started to rise, and they peaked in 2022. Both corn and soybean prices fell in 2023, and they're forecasted to fall further in the 2024-2025 marketing year. And they've fallen fairly steeply.

So now I want to talk about the ERS commodity costs and returns data. We produce estimates for costs and returns of 12 agricultural commodities. We provide estimates for the total US, as well as ERS farm resource regions, which you can see in the map. Not every commodity is produced in every region, so there's not an estimate for every single region for every commodity. But for milk, we produce state estimates as well.

We publish our estimate in May every year for the previous year, and we update that estimate in October based on updated price data. In my presentation today, I'll be showing you US numbers.

But you can see here in yellow, the heartland region is sort of our major Midwest agriculture-producing region. I think for most, if not all of the products I'll be showing you today, the commodities, the heartland is a major producing region, and its numbers track fairly closely to the US. Though I will say for crops, the yields tend to be highest in that heartland region.

So our estimates, we try to get a picture of, what does it cost to produce US agricultural commodities? What are farmers gaining in value of production? And what's some measures of profitability?

So we include income from sales of the primary product as well as the value of secondary products when calculating total returns or total gross value of production. For total costs, we split those into operating costs such as feed and fertilizer and allocated overhead costs, which includes things like unpaid labor, general farm overhead. And you will see these categories in a bit more detail in a minute. And we publish profitability measures as well, including net return over total cost and net return over operating cost.

And just one thing I do want to point out to keep in mind, that some of the costs we include are opportunity costs as part of the full economic cost of producing commodities. So these include things like opportunity cost of land as well as unpaid labor. We know that these are not necessarily costs that farmers are paying out of pocket every year, but we still value and include those as costs.
 
Our estimates are based on data from commodity surveys as part of the USDA NASS and USDA ERS Agricultural Resource Management Survey, which is often referred to as ARMS. ARMS commodity surveys are conducted every four to 10 years on a rotating basis for every commodity. So in every or most years, one or more commodities are surveyed. But say soybeans are only surveyed every few years, corn every few years, and so on.

So we develop what we call our survey year cost and returns estimates very directly from this ARMS data. You can see here, I've just put the commodities that I'll be talking about today and the most recent two-- the two most recent survey year estimates. So you can see that the most recent ones range from 2018 to 2021.

And as new ARMS commodity surveys are conducted for those commodities, we will update, make more recent survey year estimates. And then usually, there's five to 10 years in between those surveys and those survey year estimates.

Now, in between these survey years, we do produce updated estimates. These are based on prices, acreage, production changes, most data from USDA NASS. And we are essentially holding technology and things like input use constant between those survey year estimates.

And then we also produce crop cost of production forecasts made for the current and subsequent year using USDA ERS input price forecasting model. So right now, we have a forecast for 2024 and a forecast for 2025.

So now I'll show you some graphs looking at corn and soybean costs and returns. You can see here, these are operating costs for corn and soybeans. This is 2023 data. And you can see right off the bat that for corn, fertilizer is really the biggest by a pretty big margin cost category for operating costs. Whereas for soybeans, seed is actually a higher cost category followed by fertilizer and chemicals. Kind of pretty close together in second and third.

So you know that that's relevant for how we are going to see the corn and soybean costs increase in the last few years. Because remember, fertilizer really had that most dramatic spike in 2022, and then followed by repairs, custom services, fuel, lube, and electricity.

And then interest on operating capital is a smaller cost category, though it has increased in the past few years. And then purchased irrigation water is a much smaller category as well.

Moving on to allocated overhead costs for corn and soybeans, you can see the categories here. The largest category for both is opportunity cost of land followed by capital recovery of machinery and equipment. And then opportunity cost of unpaid labor, general farm overhead, tax and insurance, and hired labor are sort of relatively less important or smaller costs.

So now I'll show you trends over time in what's been happening with corn, and then soybean costs and returns. So again, I mentioned, I go back to 2010 just to give historical context.

Costs here, we have total costs in the dashedbrown line and then operating costs in the dotted orange line. And then the distance between those would be made up by the allocated overhead costs.

So first, we see the spike in costs that we expect from knowing what happened with input prices the last few years. Kind of an increase from 2020 to 2021, and then a much steeper increase to 2022. After that, costs fell a bit, at least in 2023. And we're forecasting that they're going to fall further to 2024 and a little bit into 2025.
 
You'll also notice that most of this pattern that we see in total cost is really coming from the operating costs. Those are the costs that have had the spike and then the fall. And then looking at returns in the solid blue line, starting in 2020, returns really increased for corn production, peaked in 2022, and then fell going into 2023.
So here, we have the same graph for soybeans. We see an increase in total costs and operating costs in recent years, 2021 to 20-- particularly 2021 into 2022 was a bigger spike.

For soybeans, costs have actually-- they continue to increase just a bit into 2023. We're projecting or forecasting that those will fall a little bit in 2024 and then about level off into 2025. And then for returns, we see a similar pattern we saw for corn with an increase really after 2019 for soybeans and a peak in 2022, and then a bit of a fall.

Now, I'm sure you're all wondering, what has been driving these trends and costs? So for soybeans here, I've broken down the cost categories so that we can see what is driving these patterns. I only did it for soybeans just in the interest of time.

So these are operating cost categories for US soybean production. We can see that seed we saw before, that's the biggest operating cost category for soybeans. It has been increasing in recent years, and it hasn't really fallen like some of the other operating cost categories we've seen. And of course, that tracks with the seed price index that we saw earlier.

On the other hand, fertilizer costs really, really spiked up in 2022. Those have fallen into 2023, and we're forecasting that those will continue to fall. Chemicals follow a very similar pattern. I know here I've lumped a few things into other, but you can see even these other categories have increased and then leveled off. That is being driven partly by fuel, lube, and electricity. But also, it's kind of just a little bit of everything of those smaller categories included.

And then finally, repairs haven't had as interesting a pattern, but have just kind of increased. But we're projecting that those will level off in the next two years.
And then finally, allocated overhead costs, opportunity cost of land being the most important here. That has increased over time in the last several years. We're forecasting that it's going to hold about steady in 2024 and 2025, whereas capital recovery of machinery and equipment has also increased, and we're forecasting some very slight increases as well. And then finally, general farm overhead and the other categories are a bit flatter with some gentle sloping upwards.

So now, I'll move on to livestock. So we produce estimates for cow-calf production, milk, which I sometimes will refer to as dairy, but it's really milk, and hogs as well.
So for these three livestock, feed costs really dominate the operating cost category. In 2023, these made up 77% of operating costs for milk, 67% for cow-calf, and 50% for hogs. And this is historically an important cost category for livestock. It's not only an artifact of increasing prices recently.

That being said, crop prices-- we do use crop prices to estimate homegrown feed costs. And obviously, the price of crops is very relevant for the price of feed that livestock producers have to purchase.
 
For allocated overhead costs, just to give you an overview of what these look like for livestock, cow-calf producers have-- we estimate that they have very high unpaid labor and capital recovery of machinery and equipment. But for hogs and milk, allocated overhead costs are actually a bit lower than operating costs, with the largest category for both of them being capital recovery of machinery and equipment.

So now I'm going to show you some similar graphs that we saw for crops, but for livestock products. For cow-calf, I'll show you these general overview trend graphs and then show you the individual cost category trends like I did for soybeans. But then in the interest of time for milk and hogs, I'll just show you these kind of general overview graphs before we go into summary.

So this is US cow-calf production. You see that total costs somewhat similar to the crop graphs we saw. Increased fairly steeply after 2020. But actually, they've continued to increase into 2023 for cow-calf. Meanwhile, total gross value of production continues actually to slope upwards as it has been in a few recent years.

So here, we have operating costs for US cow-calf production. And you can see that the line on the top in green is homegrown, harvested feed. And homegrown, harvested feed has increased the same two years-- similar pattern as we're seeing input prices and crop prices also increasing after 2020, into 2021 and '22. But those homegrown feed costs have not come down as of 2023.

And also, I'll just remind everyone that we only produce the forecasts for crops. So for livestock here, I only have data to 2023. We also-- and then for the other cost categories, just kind of general increase for grazed feed costs. The other category, which I think this pattern is largely being driven by fuel and electricity, has sort of had that spike and then not quite leveling off, but at least a less steep spike in the last year.

Purchased feed has kind of gone up and dipped a little bit. And then finally, cattle for backgrounding has sort of very recently been sloping upwards. And you can see that actually, homegrown harvested feed also had a spike in 2012, which is-- there's also a lot going on in this space in 2012, and then has the increased even to a greater extent in the past few years.

Now, allocated overhead costs for US cow-calf production, opportunity cost of unpaid labor-- remember, I mentioned that's a really big cost category for these cow-calf producers. That has been kind of sloping upward for the duration of this graph.

Capital recovery of machinery and equipment also been sloping upward, but with that more familiar kind of steeper increase in recent years. And then other cost categories are smaller and have also actually increased a bit recently.

All right. So now on to my last two graphs. First, for US milk production costs and returns, kind of similar pattern to what we're all used to seeing by now. Prior to-- there was some increase after 2016 in costs with a very big spike after 2020, especially 2021 to 2022, but that has at least dipped a little bit, but has remained historically high for total costs. Whereas returns or total gross value of production also had that really big spike. Looks like it started just 2021 to 2022. But then that has taken a pretty steep fall as well.

And now last graph, hog-- excuse me, hog production. Very dramatic increase in both cost and returns after 2020, but both peaked in 2022 and have fallen steeply as well. And for hogs, you can see that returns and costs kind of hug each other pretty closely.
 
So I have just a couple of things that I want everyone to keep in mind when looking at this data and when interpreting this data. The first is that technology and production practices do change over time. These trends in costs and returns are not only being driven by input prices, though those are, of course, very important.
And just as an example, for soybean production, the share of soybean acres receiving nitrogen, phosphorus, potassium, and fungicide, as well as the use of most precision technologies, increased during the time period of 2006 to 2018, which is a time period we looked at in a recent report on soybean production.

And the other important thing is that costs and returns are heterogeneous. I've just been showing you US average numbers, but costs vary widely. They can vary by region, by type of operation. And just to give you, I think, a pretty illustrative example for cow-calf production-- and this is data from 2018.

For operations-- for the smallest operations, those with only 20 to 49 cows, total costs averaged over $2,000 per cow, whereas for the largest operations with over 500 cows, total costs averaged $910 per cow. So that's less than half as much. So we're always going to have some farmers who have higher costs, lower costs, and are more or less profitable.

So now, just a couple of slides to summarize the data we saw today. Input prices have risen, which has led to higher costs of producing agricultural commodities in the United States. This includes in particular very large spikes in fertilizer, as well as chemicals and fuel, in the 2021 and 2022 time period.

This growth in costs has slowed down. In some cases-- or rather, I should say prices. This growth in prices has slowed. In some cases, prices have fallen a bit. But prices and costs still remain very high for US agricultural producers. And relatedly, our cost forecasts for 2024 and 2025 for corn and soybeans also have slight declines going into these next two years, but they also remain high.

During some of this time period of growing input costs, we also had growing corn and soybean prices from around 2019 to 2022. So that helped sort of offset some of this growth in costs. But as we saw in 2023 and then forecast into the next year, those prices are falling, so returns have fallen and will likely continue to fall.

And of course, all these agricultural commodities are highly related to one another. High crop prices in recent years have contributed to higher feed costs for livestock, which is a very large and important cost category for livestock producers. In 2023, in many cases, input costs fell or at least started to level off in line with some of those falling crop prices.

Returns also rose in some of these years for some of these products, but at least for hogs and milk, they fell in 2023. And as always, future profitability for all commodities will depend on ongoing trends in costs and returns.

So that's all I have prepared today. Please, if you're interested in this topic, see our Economic Research Service Commodity Costs and Returns Data Product website. We have estimates going back in some cases to the 1970s for those 12 agricultural commodities. And I'm happy to answer any questions you have at this point.

SPEAKER 1: So I will help moderate questions. And we can do them from the mics. Each one of you has a little mic with the red button you can get turned on if you have a question. There's also an app. If you want to use the app to submit questions, feel free to do so. For those online, that's particularly useful. And anyone want to lead off with the first question?
 
AUDIENCE: Hi, I'm Emily Balsamo with CME Group. I saw on an earlier slide that you had that the opportunity cost of land for corn was higher than for soybeans. I was wondering what's going into that estimate. Thank you.
 
KATE VAIKNORAS: Sure. Opportunity cost of land. I don't know exactly off the top of my head, but I do know the specific counties that are surveyed for corn and soybeans are not nec-- there's a lot of overlap, but they're not necessarily the same exact counties being surveyed. In fact, they would not always be the same. So I would suspect that might have something to do with it, if that makes sense. Good question. Thank you.
 
SPEAKER 1: Next question.

KATE VAIKNORAS: Mm-hmm?
 
AUDIENCE: I was curious. Why are dairy feed costs so high compared to hog feed costs as a percentage of inputs? And this is just a naive thing on my part of the livestock industry.
 
KATE VAIKNORAS: The livestock estimates are not my particular expertise, so I don't know. I don't know. But if you want, I have the spreadsheets-- I'll open on my computer. I can look at what other cost categories are included to get an idea of what else is included for hogs as well as--
 
AUDIENCE: I mean, it was a big difference. It was 70% for dairy versus 50% for hogs, so I thought that was very striking.

KATE VAIKNORAS: Right. Yes, that is true.
 
SPEAKER 1: I guess I was wondering a little bit on the opportunity cost of labor. When you're thinking about that, obviously it's the farmer or rancher that's putting their time in. And how are you valuing that? Is there a process you go through about how many hours and what wage you want to generate for them?
 
KATE VAIKNORAS: Yeah, that's exactly right. The ARMS survey collects data on the hours different people have spent on different farm tasks. And then we use that data and we place a value on it.
 
AUDIENCE: Thanks-- thanks, Kate--

KATE VAIKNORAS: All right. Thank you.
 
AUDIENCE:  --for the presentation. A quick question about the different topics of costs in dairy specifically. So the feed costs, sometimes we use differentiated for the adult cows and for raising young stock. It seems like in your data are all together, feed for the whole herd. Is that correct?
 
KATE VAIKNORAS: Yes. Some of the livestock products-- and I know for hogs are split into different categories, so you can look at them separately. But we also produce just an aggregated estimate, which I presented today, kind of for simplicity. But we may have those numbers separately for different stages of the production cycle. I'd have to look.
 
AUDIENCE: Sure. Thanks.

SPEAKER 1: Any other questions for Kate? I guess she'll be around, so let's go ahead and thank her once again.

SPEAKER: Next, we'll have Brian Briggeman who is from Kansas State University. And he'll-- did you-- you have a mic? So there you go.
 
BRIAN BRIGGEMAN: Thank you. Is the sound check ok? Everything sound good? Great. Too high, Todd? So you can hear me too well. All right. Great

Well, thank you all for the opportunity to come and speak. David, thank you very much, everyone here at the Federal Reserve Bank of Chicago, for an opportunity to come and share some of the work that I do at Kansas State University. My name is Brian Briggeman. I'm a professor in the Department of Agricultural Economics at Kansas State, and also the Director of the Arthur Capper Cooperative Center. And in a previous life, before I came to K State, I actually worked at the Federal Reserve Bank of Kansas City. So in some ways, it's kind of a homecoming, a little bit, to come back to Federal Reserve bank territory.

But since I've been at K State, I've had the good fortune to lead and direct the Capper Center. And one of the things that's really unique with that is that I sit very closely and work very closely on extension research programming with farmer cooperatives. And when I'm talking farmer cooperatives, I'm talking about grain marketing, farm supply co-ops, primarily at the local level, kind of like my local farmer co-op that I grew up with in Iuka, Kansas. By the way, Iuka has 200 people. And I don't know where they got the 200 from, but that's supposedly how many people we have in Iuka.

But the co-op is very an integral part of that community. Iuka has a skyline because of the two grain elevators that's set in that small community. So working closely with many of the CEOs, leaders, Board of Directors on this really informs a lot of the research programming. And I'm going to share some of that with you all today. In particular, talk about how the co-op landscape is evolving. And more importantly, what are the implications of that for our topic for the conference today? What does that mean for agricultural input markets?

So we're just going to go through and certainly we'll have plenty of time for questions and discussion at the end. So as I work closely with these CEOs and hear and learn from them, I constantly hear a number of forces that come out and shape this co-op landscape. But none is more important than the future farmer. As you think about the cooperative business model, co-ops are in that unique position where their customer is also their owner. So how they think about adding value to this changing agricultural producer is extremely important.

Of course, growing global economies, persistent market volatility, supply chains, inflation, monetary fiscal policies, all of that flows through and affects them, as well, as it does many of us in this room. But also, too, weather has a pretty distinct impact on the financial health of farmer co-ops. And that varies by region. As we think about how these different co-ops face different challenges, we're going to see some of the differences that occur across the United States.

Another topic that always comes up beyond the future farmer is talent management. It is a highly competitive labor market. Many of these cooperatives operate in very rural areas, where there's not a large labor pool in which to draw from. So getting that talent, not only recruiting, but more importantly, retaining, and retaining the right talent, is something they think a great deal about.
 
And another thing that's shaping this overall landscape is retiring managers. As we have a CEO that is moving into retirement, not only is that's part of the talent pool, who are we going to bring in and lead some multi- million, even billion dollar organizations in some pretty rural areas? Where is that talent going to come from? And a lot of that retiring managers really helps motivate and lead to mergers and consolidation within the cooperative community. As a manager announces a retirement, the board of directors sets and says, well, let's look at all of the options that are available to us on the table. And one of which, is to consider merging and being acquired.

So there's many more forces that are out there that affect the cooperative landscape, but I want to just at least put some of these and highlight what I think are two of the most critical, the future farmer and then, of course, talent management. But one of the things that I track at the Capper Center is just to think about, well, what are the implications of this changing landscape?

USDA does a good job of tracking some of this data, where we look at the number of agricultural cooperatives going back to 1929, sitting at about 12,000. And there's been considerable consolidation within the cooperative market, going down to about 1,800 today. But at the same time, while we have this consolidation, fewer co-ops are handling a great deal more of business volume, where we see business volume has shot up to record high levels here of late. And of course, that accounts for adjusting for inflation.

And so for me, as an economist and working with these co-ops, two things really kind of come out to me, right. First of all, there's some scale economies that are going on here. So I would envision that as we have fewer co- ops and more business volume, we have probably quite a few more larger cooperatives today. But also two, there has to be tremendous amount of efficiency. As we have, maybe potentially fewer assets, fewer people in which to work. We need to be more efficient in order to handle this amount of business volume.

But cooperatives were created in order to have a market presence. So we want to make sure that these farmer cooperatives, where are they at in terms of market presence within our rural communities? And one of the ways that, at least, I track this through the Capper Center is a mapping project that I started back in 2016, to at least, in Kansas, track this evolving landscape.

And if you want to go to our website, the address is there, you can pull this up. It's on Google Maps, so you can zoom in, even in Iuka, Kansas, and see all 200 people that are there, look at the different things. But what this map is showing is the market presence for the country elevator system for farmer cooperatives. The large purple dot, and yes, I chose purple intentionally. And by the way, David, thank you for keeping the purple slides. As K Staters, we love our purple. But the large purple dot, dark purple dot, represents a local co-op's headquarters, and in particular, a local co-op in Kansas.

And then as we look at the starburst map, going out to the lighter purple, that represents a grain location, whether that's upright grain storage, a bunker, a flat storage system. And one of the things that you see, at least within Kansas back in 2016, there's quite a bit of market presence. In fact, about 50% of all of the grain that is stored in Kansas is tied to a local cooperative, with the remaining 50% being roughly split between farmers and multinational companies, primarily terminals, that you would see there. So the presence is quite significant.
 
But we've seen this consolidation trend in Kansas is no different. So we track this and update this throughout time. And I'll jump ahead to the most latest that we have is in September of 2024. And you can see the landscape has changed considerably. So if we look in the southwest part of Kansas, we see cooperatives that are merging into co-ops down in Texas as well as in Oklahoma.

If we look up in the north central part of the state, as we go back to '16 and then flip ahead to 2024, Nebraska cooperatives, we're seeing some mergers coming in within Kansas as well. But it's not just larger cooperatives merging in, we also have other co-ops. For example, in southwest Kansas, SEK Co-op and Yates Center, merging in with some other local co-ops that had incidentally had retiring managers. So we're going from 81 local co-ops in 2016 to 52 in 2024. And I'm here to tell you, I need to update my map again, because that number has already dropped. So we're seeing these numbers continue to decrease, right, with the consolidation, mergers, acquisitions.

So where is this all heading, at least for within Kansas? If we look to our neighbors at the north in Nebraska, Nebraska has about 25 local cooperatives. They have experienced a much more rapid consolidation trend within Nebraska. If we look to Iowa, similar kind of starburst map, they have about 40 different co-ops. And Iowa probably looks a bit more similar to Kansas, in that there are some very successful single location cooperatives, or smaller cooperatives, that are operating and doing very well financially, providing great value to their member owners. We have a number of those co-ops in Kansas, as well.

So where that is going, as far as the evolving landscape, one thing that, if I look at the data and thinking about the scale and how things are changing, there's a shift that is occurring across different revenue classifications, or total revenue classifications. So here, one of the things I have access to is data from CoBank. So CoBank is part of the Farm Credit system, a primary lender to Farmer cooperatives. And with this data, I just went in to look see, well, what do some of the trends suggest? What does it show?

And if we look at these sales classifications of less than $55 million in sales, $55 to $200, $200 to $425, and then greater than $425 million, you can see that these bars are shifting across from the lower $55 to the $425. Each of these bars represents a particular year and the number of co-ops in the data that fall within that year. So for example, the far left is 2013 and less than $55 million. There were 486 cooperatives in that year that fell under that sales classification.

And as you see, as we move across the years, going from '13 to 2022, you can see the decline and the less than $55 million. And then, also seeing that's starting to rise in those other sales categories. So we're seeing this shifting that is starting to occur. Which, if we go back and think about the overall graph from USDA, makes sense about what is going on within the data. So what are these implications of this evolving cooperative landscape on agricultural input markets?

So as we think about what the data has shown and suggests, where are we at today? So first of all, the ag input market is highly competitive. There are some participants in there that, and especially in today's environment, as we heard from Kate, going through the narrowing of margins, higher input costs, lower commodity prices for farmers, price matters. So today, this input market is very, very competitive.
 
And if we look at it, one of the things that farmer cooperatives think a lot about is that economies of scale. So there's an excellent report put out by CoBank, the Knowledge Exchange division for CoBank, kind of their research arm, that went through and looked at crop life's top 100 ag retailers. And they put together this graph that shows the percent of revenue represented by these types of retailers, according to their revenue size. And so for the retailers that are in there that have over a billion, which was roughly about 10, they represent 68% of the overall revenue within the ag retail space. And then you see those get a little bit smaller as we look at the different revenue classifications.

One of the things that come out to me, we have some concentration that's going on there. We have a few, some of those retailers that are in there are manufacturers that are operating within the retail space. We also have some cooperatives that fall within that over billion dollar category. And my guess is, as we continue to move through, we'll see more cooperatives move into that over billion dollar category.

The other thing beyond concentration that sticks out to me, and things that I hear a lot about is volume discounts. For those cooperatives that move more volume of inputs, or farm supply, there are different volume discounts that they have available to them, relative to other cooperatives that maybe don't have as much volume. And that creates a lot of tension, a lot of discussion. Some of the cooperatives, some of their biggest competitors are their other local co-ops that are nearby. And that creates-- I've been in those meetings, and there's some feelings that are going on within that space. So that volume discounting is part of what goes on here. And they think a lot about these co-op managers.

The other piece of this is, we do know that manufacturers are in this ag retail space. But are they growing? Are they expanding their footprint? I know we've seen some of that happening from some manufacturers. But at least anecdotally, what I have heard, that maybe doesn't go over as well for some of those manufacturers that are expanding that footprint.

For me, when I think about it, retail is a relationship business. And if we have that connection, as the farmer cooperative, and built that up with that member, even that price, we'll give some, as long as you're competitive. But I want to stay with you. So that retail presence and expansion, is that going to hit a point where it maybe will slow down, stop? If the ag economy stays down, I guess we'll push that and we'll find out, as farmers continue to think more about price.

So economies of scale is certainly something that's top of mind. But in this down farm economy, probably the number one thing that cooperatives that have a farm supply or an agronomy department, they think a lot about the small independent ag retailers. And I chose this image, specifically, because this is how it's referred to in the industry, a tin shed. Small independent retailers throws up a tin shed. They have extremely low overhead cost. They can provide products and services at a much lower price. And in today's economy, that sells. That is probably one of the biggest competitors for even those co-ops that fall in that over billion dollar mark. Small independent ag retailers are pretty significant.

Another thing that's going on within the channel is just different products that are being offered through these small independent retailers. And in particular, these small independent ag retailers being able to sell generic branded products, when the co-op is not allowed to do so. They have to sell the private label, the branded label product, which is more expensive. And that creates some significant challenges and ongoing discussions that are going on right now, with regards to these small, independent retailers.
 
But the future farmer, that's really top of mind. Where are we thinking about, how can we position ourselves as the cooperative, to continue to add value to them? And technology is a big topic, right. Technology, thinking about, what can we as the farmer cooperative provide value and service to our member owners?
And here I have a graph, or a figure, taken from CB Insights, just showing all the different technology companies that are there, that are impacting and trying to add technology onto the farm, so from smart irrigation, farm management software, looking at marketplaces. But really, where a lot of that happens at the farmer cooperative level is in that area of robotics and drones. Cooperatives are working extensively with the utilization of drones. Also, one co-op in Kansas is starting to utilize more robots for weeding, fertilizer, herbicide applications in a more scale size, as opposed to smaller areas.

But the one piece of technology that has a lot of discussion within the ag input space is See and Spray. See and Spray technology really could to transform this ag input marketplace. If we do see those cost estimates being reduced, of up to roughly 60% of those reductions occur at the farmer level, that will have some real impact and adoption of the technology. But this technology is not cheap, right. So farmer cooperatives are having discussions of how can we be part of that value proposition, of providing that service to our member owners.

The other piece with the See and Spray that I've heard consistently, the groups and individuals I've engaged with is, if this technology comes in and we really do see that kind of adoption, what does this mean for manufacturers, the Helenas, the Nutrients, Syngenta, for everybody within that whole marketplace. What does it mean for them? As we think about using less CP, crop protection products, how is that going to impact them? The upstream and downstream implications of this type of technology could be pretty significant. And the future farmer very well could be something that they demand.

The other piece of thinking about the variability across the US for these co-ops really goes to their financial position and financial strength, which is largely driven by weather. Weather plays a significant part. So I have here, a subset. I went into the CoBank data, calculated some fairly standard financial ratios to look and compare and contrast, how things have changed over time.

So looking at southern plains states of Kansas, Oklahoma, and Texas, versus a select few corn belt I-States, of Iowa, Illinois, and Indiana. So from a profitability standpoint, looking from 2019 to 2023, you can really see the effects of weather. In Kansas, we have had two, if not three, consecutive wheat crops that have been completely lost throughout the state. That adds up. And it has an effect on the farmer cooperative, as well. So when we look at return on equity from '19 to '23, going from 9.6% down to 1.1%, that creates some challenges.

But conversely, looking at the I-States where haven't seen-- yes, water issues are present. Derecho affected, came in there. But we just haven't seen a lot of that. Actually, we've seen some of the big increase, rather, if we look at the ROE for those corn belt I-States. If we look at a debt service coverage ratio, very big decrease for many of these southern plains cooperatives, even going into negative territory. You're going to see here in a little bit, a lot of that is emphasized by the lack of cash flow. Operating cash flow, in particular, had a really big significant hit, especially when you go into a debt service coverage ratio calculation.

But on the I-States we see it being fairly stable, actually, holding from a debt service coverage standpoint. Liquidity, and here to try to account for size, do this division, working capital to total sales in southern plains, we see it being relatively flat, where in the I-States, it actually went down.
 
So if we look for, in the southern plains states, it holding, basically, that is just, hold on, right. With the profitability downtrends and things that are going on, the discussions that I have a lot with boards in this particular area is, well, what is that working capital made of? Have you properly counted for the shrink in your grain inventory? How are you on your ARs? Are you up to date on that?

One thing on the AR list we haven't seen in the data bad, those uncollectible ARs increased significantly yet. But that is the data. Most recent data I have is for 2023. My guess is when I get the 2024 data, we'll start to see an uptick in that. On the I-States, actually, I don't have this in here. But a big reason why you see that draw down is investment in property, plant and equipment, net fixed assets. So using that working capital in order to invest, you see more of that going on there.

And then finally, just to look at debt usage. And again, just to try to put it in some sort of scale, to take total debt divided by EBITDA, we see it really shoot up within the southern plains. And a lot of that is driven by the lack of cash flow. So EBITDA is dropping pretty significantly. And then conversely, looking at those corn belt I-States, pretty much holding fairly flat.

So this financial strength, weather has a big impact on it. And it has implications for the ag input markets. Probably most notably is AR risk, so thinking about accounts receivable. Like I said earlier, we haven't seen in the data an increase in those uncollectibles, those late accounts more than 90 days. But this is a trade credit. So this is something that farmers will start to utilize. And how much they want to stretch that, will we see them stretch it out beyond that 120 days?

Does that mean we need to leave? We're good? It means I'm on fire. I'm going to take that as a compliment. That's good. You always wonder whenever the fire alarm goes off, should we leave or what? Second Tuesday testing, there you go.

But if we think about these accounts receivable, this is certainly a risk that is very much top of mind. Reviewing of a credit policy has become standard.
 
FIRE ALARM RECORDING: Attention. This is your [INAUDIBLE]
 
BRIAN BRIGGEMAN: Did you plan this, David? All right. Sorry, I got to do a side story. One time I was running a conference in Manhattan. We were on the fifth floor of a hotel, and they did this. And it was somebody had burnt popcorn in the main floor, and they made us all exit. And of course, you can't use the elevator. So all these co-op employees were walking down 5 flights of stairs. And they didn't get the elevator up in time, and so we walked all the way back up. Anyway, glad we don't have to exit the building.

But this accounts receivable risk, with what Kate shared on the margin compression going on at the farm level, is real, something that we need to continue to monitor. And in fact, a former PhD student of mine, who's now a professor at the University of Illinois, we did a paper looking at a stress test model where we just simply increased the uncollectible accounts receivable, really stressed it, raised it as high as 45% goes to uncollectible. How resilient are farmer cooperatives?
 
And then, in all fairness, just to reveal everything, it was in 2019 data, when things looked better. Cooperatives were well capitalized. They were able to absorb that. But the co-ops that were diversified, that had grain marketing and farm supply, a mix of both, were able to withstand that stress a bit better. Those that were most exposed were those that had less than $50 million in sales and were primarily farm supply.

But given everything we've talked about up to this point today, these challenges are definitely going to be present. If we were to rerun the stress test, I don't think the results would look as good, especially if I was to focus in on different geographic regions, in particular the southern plains states.

So with given all of this, agronomy departments really could experience some significant change at farmer cooperatives. And in particular, these stress co-ops could move away completely from an Agronomy Department, sell off the agronomy division. In fact, I know of one cooperative that has already done that, that sold it off. Now there were, beyond financial stress, there was the talent issues and having labor in order to work within that department also motivated that. But the bottom line is, I think many of these cooperatives are going to have to rethink how do they manage that Agronomy Department.

Some cooperatives in this depressed net farm income era are utilizing input financing through Cooperative Finance Association, CFA, as a way to help drive demand. To be able to provide that service, that product to their farmer owners, as well, to move not only just the inputs, but also to hopefully have that grain come back at harvest time as well. But again, it really boils down to talent management. At the end of the day, this is the most important thing for agronomy, for the co-op period, is making sure they have good talent, and they are able to retain and keep that talent.

But from a capitalization standpoint, co-ops, on average, are in a pretty good position in order to absorb any losses that might be coming this way. So when we saw the stress in the southern plains area, the balance sheet is pretty strong. And one of the ways that I like to look at it from a co-op is to bring in co-op finance.

Equity is a little bit different within a cooperative. We have equity that is tied to the cooperative itself and retained earnings, as we all think about retained earnings, reinvested profits back in. But it has the co-op's name on that equity. It's not subject to any sort of equity retirement program. You also have allocated equity, that equity that is tied to the member. It is going to be retired at some time in a future date. It's that retained patronage income, has the member's name on it.

But this graph shows the retained earnings to total equity. And the big takeaway from this is, across the US and even on average for the average for the US, we see it increase. So the purple bar is the 2008 retained earnings to total equity ratio. And then the gray bar adds on the additional amount of retained earnings, as it's made up a larger composition of equity for cooperative. To put it into banking terms, this is tier 1 capital. If we have losses, this is what they're going to fall back on to absorb those losses.

So across the US, we do see that increasing. And a lot of that actually has been driven by tax policy. Section 199A is a big topic. It's a way that it has allowed cooperatives to add additional amounts of retained earnings in this case, other things as well. Non-member business has also contributed to this increase in retained earnings. But the takeaway across regions, we see that going up to where on average it's above 50% for all of the states and the average for the US.
 
So just to wrap up, the landscape is changing. It's evolving. There's a lot going on. I don't think we've seen the end of consolidation. I really feel that it's going to continue to happen. Agricultural input markets certainly competitive. And for those co-ops that are facing financial stress, it's really that much more competitive, as they begin to think and maybe have to make hard decisions about what they need to do with their agronomy departments.

But the key, it's the basics of business, the meat and potatoes, the boring stuff. Build up your balance sheet and focus on cash flow, and in particular, operating cash flow. How can we continue to ensure that we have that positive and that it is growing? And then, of course, the last two, thinking about the future, technology use. It's going to have a big impact, I think, on the ag input market, as well as for farmer cooperatives that operate in that space. And then talent management is just very critical.

So with that, I want to make sure I leave time for any questions. Those are my preparatory remarks. I will open the floor to any questions.

AUDIENCE: Hey, Brian. How about market share? When you have the volume of business growing, do you see that they're expanding the market share, as far as the way they're interacting with farmers with inputs or, I don't know if there's anybody tracking that.
 
BRIAN BRIGGEMAN: Yeah, that is a topic that comes up a lot, as we see the consolidation that's going on within farmer cooperatives. All of a sudden that, hey, the big co-op is coming in and merging in the small co-op. And now we have fewer options that are there, that somehow, they're extracting extra rents, right, from us. That's the concern. Because we have those small independent ag retailers that are there, and then also, too, cooperatives compete with other co-ops. And then you see the manufacturers that are in the retailer space. We haven't seen that occur.

Just within the cooperative landscape, looking at different prices, different conversations with not just co-ops, but farmers, I just have not seen that happen. So I haven't myself done any of those market share studies. It would be interesting to do. Not sure exactly how we would get to that data, but at least anecdotally, have not heard tha any of those negative things coming from that.

If anything, one anecdote I heard from California, from a manager, a CEO of a predominantly farm supply co-op was from, I won't name names, but a particular manufacturer expanding their retail footprint. And as they were doing so, they were trying to raise those input prices. However, but because, at least according to the CEO and other farmers, the co-op was there to help combat and be able to keep those prices more competitive. Again, take it for what it's worth. I don't have anything data, but at least from an anecdote, we just haven't seen that. Yeah?

AUDIENCE: Can you pull up your awesome map again? The star map, I think you called it.
 
BRIAN BRIGGEMAN: Yeah. Yes, the starburst map. And thank you for calling it awesome, Todd. That's fantastic.
 
AUDIENCE: I could stare at this thing all day.

BRIAN BRIGGEMAN: This one.
 
AUDIENCE: We haven't talked much about Kansas. Where is it, so that's a grain storage facility, correct?

BRIAN BRIGGEMAN: Correct.
 
AUDIENCE: Where does that grain go?

BRIAN BRIGGEMAN: So a lot of the grain goes to terminals. There's a lot of shuttle loading facilities, as well, within Kansas, that get ships to the port. Some, not most of it goes to the ports and heads down south on the Mississippi.
 
AUDIENCE: OK.

BRIAN BRIGGEMAN: Most of it goes there, to the Gulf. I don't know if, so CVA up here, CVA in Nebraska, they do. You can see, they have locations here, up in the north as well. They might send some out west. Because I know they have a shuttle loading facility over here in Northeast Nebraska, Iowa area.
But most of the grain in Kansas, if it's being exported, is going to go to the Gulf. But a lot of it, because the livestock presence is so significant within southwest Kansas, there's a lot of feed yards. So a lot of it goes there. There's also a number of ethanol plants that will take in the grain as well. AGP up in Nebraska, a lot of soybean crush goes there, as well.
 
AUDIENCE: I was wondering if the market shift that [INAUDIBLE]
 
BRIAN BRIGGEMAN: It can.
 
AUDIENCE: Foundation [INAUDIBLE] Because again, like Minnesota, you can see a basis pattern. This is going west. This is going south.
 
BRIAN BRIGGEMAN: Right, right. But in Kansas, a lot of it, like especially in southwest, I haven't seen basis maps currently for corn. But feed yards have been extremely aggressive because of the drought. It just hasn't been as much. And it's a lot cheaper to source it from there, than railing it in from somewhere else. No, good point. Yeah.
 
AUDIENCE: So what's going on with your co-ops in Kansas, in regards to carbon programs and climate change and farmer payments for all that? How active are they in that arena?
 
BRIAN BRIGGEMAN: The short answer is not much. There really has not been much. There's a lot of talk. There's a lot of conversations that are being had. But in terms of implementation of the program and payments going to the farmer for whatever type of adoption, there's really not much going on at all. Yeah.
 
AUDIENCE: I hope this isn't a stupid question, but could you discuss the cash flow of a cooperative.

BRIAN BRIGGEMAN: So for a-- the question is, I don't know if you're able to hear, but the question is on the cash flow for a cooperative. So you want me to talk about it from an operating, financing investment cash flow perspective or--
 
AUDIENCE: You mentioned that they have accounts receivable issues. Who owes the money?
 
BRIAN BRIGGEMAN: So on the accounts receivable side, it would be the farmer.
 
AUDIENCE: All right. So we belong to a cooperative. Practically speaking, it's the only place we can sell our grain. So we take our grain there, and they pay us for it. If we owe them money, we're not going to get that payment. They'll deduct that from the money they owe us. So who's not paying them?
 
BRIAN BRIGGEMAN: Well, I might, OK, so from the grain side, I don't know your specific example of a cooperative and how they're intermingling the accounts payable on the grain side versus the accounts receivable on the input side.

But what happens within a cooperative, typically, on that trade credit is, it's usually the same suspects. It's usually the same suspect who is wanting to stretch it out. They understand the cash conversion cycle, that they want to stretch out their accounts payable as long as possible. And until the co-op comes and enforces their credit policy to say, no, you need to pay us Oftentimes what it is, it's the CEO who has to come in and say, look, we're cutting off other services, or we will come and collect this.

So I think the trade credit is something that many agronomy representatives, field representatives who are out there working with farmers, they need to realize that this is credit that we're extending to you for 30 days, 60 days, but we need to collect that. So to say there's a big problem with that cash flow, I don't think there's a big problem right now. But it could, especially as farm incomes, if they remain consistently low for a long time, it could become more pervasive.
 
AUDIENCE: Sure.

BRIAN BRIGGEMAN: Hope that answers your question.
 
AUDIENCE: Sure

BRIAN BRIGGEMAN: OK. Yeah.
 
AUDIENCE: I'm relatively unfamiliar with cooperatives, Brian. And maybe this is the wrong venue, but is membership in a cooperative the equivalent of equity in a corporation, like shareholder ownership? And can a farmer add value to their personal financial statement based on the value of the cooperative?
 
BRIAN BRIGGEMAN: So, it's different than a publicly traded or privately held entity, where the ownership that comes in for the farmer when they buy in to become a member of a co-op, it's just the common stock. And usually it's 100 bucks, maybe as high as $1000, in order to become a member. And the membership is just based off of that. So it's one member, one vote. I have one stock. And it doesn't have any appreciation in value at all.

Where the connection for the value in the co-op that they have is that the equity that is built up, that has their name on it, that they could report onto their financial statement. But if you do business with me and I'm the co- op and we have grain and I'm going to hold, let's say $0.10 back of however many bushels you sell with me. And I'm going to have that as equity with your name on it. Let's say I retire it back in 20 years. It's the same dollar amount. There's no appreciation in that value. It's just whatever that dollar was 20 years ago.

Now, depending on how you put it in, we could get real deep in the weeds here. Taxes come into play, as well. So this is a relevant question, as you see, and this has come in the news here recently, where private companies are coming in and making offers on cooperatives. And then how do we value that equity, right? What is that value?
 
And from a cooperative finance member perspective, it's not the equity that we did in the past. It's what I'm going to be doing in the future. That's where I really need to value it at. And then, am I going to continue to have those same services and access in the future? Because maybe I only have one or two places in which to sell with this cooperative. But if somebody comes in and buys it, are they going to seasonalize it or just get rid of it altogether? So yeah, as far as the value of it, it's for the co-op, the equity, it's for the future business that they'll be doing with the company.

AUDIENCE: Understand. Thank you.

BRIAN BRIGGEMAN: Yep. Yeah.
 
AUDIENCE: So I agree 100% where you stand on a lot of the co-ops consolidating [INAUDIBLE] the last year and a half or so. [INAUDIBLE] do you see that [INAUDIBLE] flushed out or [INAUDIBLE]? And the other question is, who backs those larger co-ops? Are they able to back themselves, when they're over a billion here or there on sales? Is that an issue down the road, or is that, are there going to be other investors, you kind of mentioned it there a little bit, within those co-ops to help that backing?
 
BRIAN BRIGGEMAN: Right. So the first part of the consolidation, where is this going? I mean, in Kansas, you can see from 16 went to 81 to 52. And I already told you, I need to update my map again. That's clearly, we haven't hit the bottom, right. No, Nebraska is at like 25 or so, local co-ops. But even conversations that you hear with some of those local co- ops, maybe that's not low enough.

So to say where it is going, I don't know. But there's going to be fewer co-ops. That overall map of going down, maybe it's starting to level off a little bit. But I think that'll continue to go down.

As far as the backing for all cooperatives, one of the reasons why you see a vibrant farmer cooperative system within the US, and you don't really see it anywhere else in the world, is because of their financial backing from the Farm Credit System, CoBank, in particular.

I mean, you think about what happened in 2008 and 2009 with the commodity price run up and the margin calls that were coming. It was, one day, you got a call at 10:00 AM, hey, you need $10 million margin call right now. And then at 10:30 another call, we need another $10 million. I mean, that was happening just very rapidly. And CoBank was able to meet all of those margin calls. So that helps a great deal.

But when you get into these much larger cooperatives that are up over a billion, $3.5 billion, it's more the syndicated loans, right, that you see that and having those connections with other lenders that participate within that. So I think from a backing standpoint, having CoBank has helped a great deal, in terms of being able to get through some of this and turbulent times. But as they grow, there's a lot of education that has to go on about, well, what is a cooperative? Because co-op equity is very different. And then how the whole business is run is different as well.
 
So yeah, from a backing standpoint, I personally don't know if you would ever see an investor come into a co-op and have a particular stake. I think probably our, well, I would have to go check with some of my lawyers, but there might be bylaws that would not allow that to happen. But the investor that would come in would be more to say, no, we want to acquire the entire company. And it recently happened in Minnesota. So at least, an offer. 

Yep. And actually happened in Kansas, currently, that's one of the things. Yeah, Nate.

AUDIENCE: Hey, Brian. I was curious if you have a sense of how significant the rising interest rate environment was during the run up here the past couple of years, and just generally how co-ops are positioned strategically with where they see interest rates headed? Where does that show up in the kinds of things that you think they were developing strategy on and consolidation and some of the trends you're describing?
 
BRIAN BRIGGEMAN: So where interest rates rising, a lot of it, where it really hurt was on the short term borrowing. So financing the inventories that they have from grain and supply, it became much more expensive for them in order to finance that.

And then go back to the cash flow discussion. We need to make sure that we're able to pay this off. Maybe we have a position in the market, in order when we get to when we can move out of that commodity position, we can pay that off. But the interest charges were beginning to mount. So that was a topic of discussion.

On the long term borrowing side, it did have a dampening of demand. It did kind of slow that down. But many of the co-ops that, at least that I have talked to, as far as that rising rate environment, just go back and start really building working capital. We need to make sure that we build up that working capital position.

To say it had an impact on consolidation mergers, I don't think we were there long enough for it to have an impact. But certainly, cash flow demands on short term borrowing and then CapEx type expenditures, there was a lot of discussions about, well, maybe we need to use more of our working capital as opposed to borrowing it. Yeah.
 
AUDIENCE: Could you go back quick to the CoBank bar chart?

BRIAN BRIGGEMAN: Yeah.
 
AUDIENCE: With that chart, with that largest segment, what did it effectively look like, what was behind that 48 to that bottom at 29, where you saw those depart the market?
 
BRIAN BRIGGEMAN: So some of that was just purely because of commodity prices. So commodity prices coming down, and we saw them hovering around that $425 mark. So going up and then moving back down, kind of drove that down, and then leveled off. So I don't have the distribution around $425.

But my guess, well I did look at it, it was moved down and then started to move up. And so as we've seen commodity prices go up in '21 and '22, that also helped push more up. So if, when I get to updating with the '23 data, my guess is that 68 number is probably going to be about it for '23, as well. But yeah, so we're seeing it just start to rise up.
 
I think the bigger thing is, looking at that drop in the less than $55 million-- and to be fair, this is CoBank data. This is only their borrowers. So whether or not for whatever reason, people can go in and out of the data, whether they choose to go borrow from somebody else. That certainly can happen as well. But a lot of it is just because a lot of it's centered around that $425 number. Yep. Any other questions? Yeah.

AUDIENCE: Go back to that simple ratio slide you had.
 
BRIAN BRIGGEMAN: Yeah.
 
AUDIENCE: So I'm just curious, non-provided weather, how do those southern plains states get into a better [INAUDIBLE]. It doesn't seem [INAUDIBLE]
 
BRIAN BRIGGEMAN: Right. And that's the big challenge that they're facing right now. A lot of the discussions, how long can we continue to operate at that? The one thing that they do have that they can fall back on is a fairly strong balance sheet. But how long can they go through those losses?

I mean, at some point, they're going to have to have the realization and the conversation of, we are financially stressed. This cannot continue on. Should we look at a merger? Should we look at an acquisition? What is it that we need to change? Do we need to sell off assets that are underperforming?

Those are the discussions that will happen within the boardroom, especially if this weather continues. It's not an easy choice. And at some point, it will come around. Unless, of course, things bounce back, which always could.
 
SPEAKER: Well, I think it's time for a break. Thanks a lot, Brian.

BRIAN BRIGGEMAN: All right. Thank you.