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Audio Transcript

Todd Kuethe: This is our conversation series. Where we’re having a series of conversations to try to understand how the ag economy works. The previous conversation with Kyle Maple and it wrapped up, he said, you gotta get Joe Suttles in here. So, we’re today joined by Joe Suttles. Joe, say hello.

Joe Suttles: How are we doing?

Todd Kuethe: Okay.

Tell us a little bit about what you do.

Joe Suttles: I am today a consultant in the, ag investing world. I help with companies that are looking at a private equity type investment into various, um, whether it’s farmland up through integrated businesses, even through like retail products, but all ag and ag production focus.

Todd Kuethe: So these are companies or individuals that are wanting to get exposure to the agricultural sector. They see it as an attractive investment to add to their broader portfolio.

Joe Suttles: Yeah, in the back of all of it is institutional investors. So, you know, pensions, sovereigns, insurance companies, endowments, foundations. They have some allocation that they want, whether it’s, you know, for diversification, for, you know, some kind of return profile. They want some kind of exposure, this kind of area. I don’t know of any that are greater than 10% overall in this area, but some of these funds are huge and so it can be pretty serious dollars, andso I wouldn’t directly interface with most of those institutions. I would generally help, the manager, the fund manager, the GP, a general partner in those structures.

Todd Kuethe: So they’re the ones that are looking to make some investment. And you say, I can help you figure out which one of these makes sense and does not.

Joe Suttles: Yeah, I certainly help with underwriting, I’m not gonna, show up and tell somebody, oh, this is an area that you should go invest in. It’s more, hey, we’ve got this problem, we’ve got this investment we need help with, or,

Todd Kuethe: Okay, so you’re, you come in like the post right? Hey, help us manage this, figure this out.

Chad Fiechter: Post meaning after

Todd Kuethe: Post meaning after,

Joe Suttles: for clarification.

Chad Fiechter: Yeah,

Todd Kuethe: Yeah, yeah. Not, not as in giant stick that supports a fence.

Joe Suttles: Yeah, a lot of times, there’s something that, let’s say some institution or group, they bid off some investment and maybe something went wrong. Maybe it wasn’t fully thought through. Maybe they hired a manager when things didn’t go well and now they’re moving on to try something different. And so those are the kind of situations where,I like it, ’cause number one, it’s messy. It’s kind of fun. you’re there to try to fix problems. if things are already not going great, right? There’s, there’s less pressure. You can’t screw it up too bad.

Todd Kuethe: That’s true.

Chad Fiechter: Ooh, I like it. Okay. Wait, so. There’s probably lots of people like you for other sectors, like if they’re investing is it primarily just ag they would be potentially investing in and need some consultation on these kind of things? Or are they making other investments too?

Joe Suttles: Yeah, they’d be making other investments like, I’m gonna make up numbers, but let’s say that some pension wanted to allocate. 10% to, the combination of real asset allocations and private equity. That’d be kinda low in combination. But those real assets might be timber, farmland, it could be commercial real estate. On the private equity side it could be, you name it, right? Any kind of, any kind of management combination.

Todd Kuethe: Right.

Joe Suttles: it could be distressed debt, it could be all sorts of things. and so for me, whether it’s on asset investments like farmland or whether it’s,integrated companies in more private equity side, it would be production ag focused. Yeah.

Todd Kuethe: There’d similar people if you were gonna invest in healthcare.

Chad Fiechter: Light manufacturing, something like that.

Joe Suttles: Yeah. So if somebody called up and said, Hey, I’ve got this project, this business, this investment, andwe’d like some help with it, but it’s more of a, you know, maybe it’s a food business, like a CPG sort of business, but it’s not really ag production focused. I put my hand up and say, hey, I don’t, I don’t know that I can help you. I don’t have any experience there.

Chad Fiechter: Okay.

Joe Suttles: They could go find somebody to do that.

Todd Kuethe: So when we’re not podcasting, we’re doing other professor stuff. One of ’em is working with students, teaching. So we also ask like what is your background that kinda led you to this? So what if I had a student that said like, oh, that sounds like a cool job. Yeah. And they’re like, well, how do you get there?

Yeah. I probably won’t have a great answer for you,I didn’t want to go into the real world when undergrad ended, and I didn’t really get into the ag econ department until halfway through my junior year. Wait, what did you major in before?

Joe Suttles: I came into Purdue. I wanted to be a geneticist or something. I was in the school of science. Um, I piddled, I piddled around for a few years. I ended up taking, Bob Taylor’s, was it 217? Like his, his class and I loved it. That guy was just awesome. Then I took some other ag econ classes. I had like, I think I had, Joe Balagtas, Corinne Alexander, Roman Keeney, all like their first semester.

Todd Kuethe: They would’ve beenfresh off the presses.

Joe Suttles: Hang on, do you remember Bob Taylor’s book for 217, I think it was,Life, Love and Economics. Do you remember this?

I don’t remember that. No.

Todd Kuethe: it was sort of like guide to living through economics.

Chad Fiechter: Yeah. But it was, he wrote it.

Todd Kuethe: Yeah. Yeah, yeah, yeah.

Chad Fiechter: Yeah, but I loved that it was, anyway, sorry to,

Joe Suttles: The thing I remember about his classes, I don’t even recall a textbook, we probably had one, but he had you print out a binder full of documents that he wanted you to read through the semester. A lot of printing resources

Todd Kuethe: A lot of the old days of the copy shop where you go to the copy shop and I’m like, I’m in this class. And they’d be like, here’s the stack of papers for you. Good times.

Joe Suttles: I love AgEcon. I didn’t wanna go into the real world. I stayed for an MS here. I think it was my first semester Alan Gray came to me and he said, hey, would you like to help me out do an assistantship after that? ‘Cause before that I wasn’t on anything. then I started working with CAB. Really enjoyed time with him and Mike Boehlje. And then during one of the CAB meetings at the Union. Alan Gray said, hey, I want you to meet a guy. He’ll find you. and so Zarrell Gray, who’s the guy I worked for, for like a dozen years, he, he found me, went down and had a smoothie in the basement and, and I had a job. I was fortunate I didn’t go look. It just kind of showed up. I loved working for him.

Joe Suttles: Zarrell was an amazing guy to work for, and I was at Teays for, 12, 13 years.

Todd Kuethe: That’s a similar sort of ag investment space, right?

Joe Suttles: It is fully ag production focused. It’s like a permanent vehicle, that invests on behalf of institutional investors. A good number of them. so that’s what I did for a long time. Then I took a break, spend time with kids, and then now I kind of just, do the same thing hourly at this point.

Todd Kuethe: Alright.

Chad Fiechter: How do people find you? How do they know? Let’s call Joe.

Joe Suttles: Uh, Zarrell.

Chad Fiechter: Really?

Joe Suttles: Yeah, that’s pretty, pretty, commonly that’s the connecting thread. I’ll go have coffee with him, tell him I’m kind of bored, and next thing you know, there’s somebody that needs help with something. And, yeah, I’ve been more than busy, more busy than I’d like to be.

Chad Fiechter: So is that just because that world of people investing into production ag is so small. Zarrell knows everybody. So it’s like, hey, we got a problem here. And Zarrell’s like, hey, Joe’s not busy.

Joe Suttles: Yeah, that seems to be how it goes.

Todd Kuethe: I think in general, if you want to be a consultant, one of the best things to do is know somebody who’s good at what you do and is very busy. At least that’s been my observation of them saying I can’t do this. So, or if they’re, or if their expertise is just slightly a skew of yours. Right. So if your specialization was in picking NCAA tournament brackets, you’d wanna make best friends with a guy that runs an NFL pick ’em league, and then somebody’s like, oh, I wanna do, some brackets and you’re like, I don’t do college man, you should talk to Chad. Right. That seems to be.

Chad Fiechter: I wanna go back ’cause like I feel like I meet people who want to be consultants.

Joe Suttles: And one of the things you didn’t say is you spent 12 years doing the job that you do now,and then you left that place and the person who hired you is still recommending you. So you were obviously very good at what you did for, because you could have left that for 12 years and that cat’s like, thank God gone.

Whatever you’re call, do

Chad Fiechter: Don’t, don’t call Joe. I think there’s two parts that I would say for the consulting world, if I was giving students advice, it’d be do something for a while and be really good at it. That probably will lead to you having opportunities afterwards. Would you say that?

Joe Suttles: Yeah. I mean. Yeah, I’d, I’d like to think I’d worked fairly hard at that job. Screwed up a lot of things. that was the biggest benefit I had. being a good boss, he let me screw stuff up left, right, and center. From day one, I have no idea why he permitted me to do that, but it led me to have experiences that a lot of people don’t have. And that’s not true of just me, like everybody at Teays. That’s how it was handled.

Chad Fiechter: That’s cool.

Joe Suttles: There’s a general shortage, of people with experience in this area. Over the last 15 years, a lot of capital has been allocated to ag production space and farmland in particular. When you’re trying to put hundreds of millions of dollars to work, you know, and billions in aggregate and trying to find people with that kind of experience, like you’re gonna have a shortage with that kind of growth. It’s been a pretty incredible amount of allocations.

Todd Kuethe: I think the challenge in working with students and knowing, I mean, I’ve known Joe and I were in school together, so we go back a long ways. I don’t think I’ve had a conversation with Joe that he hasn’t said. Do you know anybody that would want to do this? They’re always looking for people that are willing to work hard, that are smart. Know about the ag sector. Or know about investing and you’ll teach one or the other. It seems like, it seems to, is sort of the sector in general, right? Like people either come from investments, institutional investing side and learn about agriculture or they come from the ag sector and learn about investing side.

Joe Suttles: Yeah, I think that’s right and it’s very hard to find folks that have experience, in ag production, have an interest in staying in ag production, but also really have an interest in finance. Right? ’cause if they go to school and want to be on Wall Street, that’s the direction they’re gonna head.

Todd Kuethe: I think there’s a lot of people that want to go into ag production, but they would love to talk to you about chemical rates or, weed emergence. They don’t wanna talk to you about balance sheets and present value and cash flows. That’s the issue we have as professors often with students when people are really interested in ag sector and they’re like, oh, I’d love to work in ag. And it’s like, they would almost rather be a sprayer than be an accountant. Two extremes.

Joe Suttles: Which I get right. That can be a pretty satisfying job.

Todd Kuethe: I assume you’ve also worked across a variety of commodities and a variety of locations. Yeah. I think there’s a lot of times people interested in agriculture are interested in the commodity that they grew up.

Joe Suttles: Yeah.

Todd Kuethe: My family grew up growing hogs and so I wanna work in hogs. Right. and it’s like, whoa, there’s this great opportunity to do like, be like for work at a wheat farm and like dakotas and they’re like, I’m not doing that. I’m staying here in my county doing this thing. So touch on a little bit on the variety of ag companies or subsets of the ag sector that you’ve had to learn about through the course of your job.

Joe Suttles: Every, I guess just to make a list, right? Chip potato production, carrot, organic veg production, organic milk production, seed corn, seed soybeans, and other seed production,row crop commodity businesses, both those integrated into, for example, the dairies where I used to work, and also on its own, right. You know, it’s a standalone business and different kinds of partnerships. Today I’m involved with a pistachio ranch, a coffee farm in Hawaii, hog business, which to your point, I grew up on a hog farm and I never touched hog until basically a year ago. I was really excited to be part of it. And that’s an amazing partnership. And then, continuing to look at additional deals, whether it be, you know, there’s a lot of distress right now, particularly in California, both because of water and labor, and general commodity prices for especially tree nuts and grapes, both wine and table. And so, looking at different kinds of deals and opportunities there for one of the clients.

Todd Kuethe: The other thing that went like as professors that we often deal with is the students that are not from the ag background. Their exposure to agriculture is driving to campus. Right. And they’re just like, yeah. I’m just like, I don’t, we just wanna work with like corn and soybeans forever. I’m like, no. There’s a whole variety of things.

Chad Fiechter: Yeah. so here’s a question for you.

Joe Suttles: Mm-hmm.

Chad Fiechter: If you’re looking for someone who would be good in production ag, you’ve hired people to do roles in these farms, right?

Joe Suttles: Yeah.

Chad Fiechter: How worried are you about their specific production knowledge versus their experience in some production system? If you got a really sharp corn and soybean kid from just north of town here. Are you thinking, hey, if we need someone to come into the coffee farm, there’s transferable skills or is it pretty,

Joe Suttles: I guess it depends on the job they’re being asked to do. For example, a guy that that works for a another chip potato company that I don’t have anything to do with. He had virtually zero ag background, but he was in the Army and was used to managing people. His role is managing a team of people across a multi-state, production system. That’s his skillset that matters. He kind of grew up on a farm. He didn’t go to business school. He didn’t go to college, but he developed a real skillset of managing people in the Army. And that’s translated really well to him playing a very important role with a very large, potato company.

Chad Fiechter: That’s cool.

Joe Suttles: For me, every time I go to Todd and say, please find, you know what student. I don’t have any advice. Like, hey, do you have anybody, I don’t ask for somebody who grew up in some major production system, or, the son of some,

Todd Kuethe: Joe has never said, get me a chip potato guy.

Chad Fiechter: Yeah.

Joe Suttles: Find somebody with a brain with good judgment that works their ass off.

Chad Fiechter: Mm

Todd Kuethe: So, the other thing we do is economic research. We build models of the ag economy. But the first thing we always want is what do you actually do in terms of your tasks? What is a day at your job? What are the tasks?

Joe Suttles: The tasks? I spend a lot of time talking with the managers of these companies. Making sure they’ve got what they need, making sure they’re on task, accomplishing whatever initiatives have been set out for them, giving them the right kind of support.

Another important job, which anybody that I work for, I’m sure doesn’t like, but its reality is kind of controlling the chaos that comes from the ultimate, interested parties in what’s going on. As you get further away from decisions that matter on, on those, in those businesses, right, you’re gonna get these shifts in the winds that can cause major problems. It’s a job that I fail at continuously. But you strive to. keep the messages clear, make sure that we’re all rowing the same direction. Make sure we’re all synced up. Make sure that message is getting down to the team and not causing people to go, what do these people want? Or feel like, they’re on an island, rowing against the current.

Todd Kuethe: And one of ’em literally is on an island, as you mentioned.

Chad Fiechter: Can you give an example, like maybe even hypothetical of what you mean by that?

Joe Suttles: I would say it’s, it would be like, imagine this. So like there’s an institutional group, right? That has some ultimate decision makers. It starts with allocations, right? And then it goes to some subgroup that’s gonna make specific decisions and approve or not approve of different deals and money that they’re gonna allocate to it. And they’re gonna get to those decisions today. And then you’re gonna get, you know, a a, a sponsor that’s gonna give a commitment to, to go and put money to work in this area.

Two years later, somebody with influence changes their mind. They read an article in the Wall Street Journal and decided this isn’t somewhere we should be invested in. Well, that’s not how production ag works. These things take years and decades, to build things of value.

That was always the philosophy of Teays, to be, long-term focused. you’re trying to build these unique businesses because of the scale of capital available and the ability to stay on that path. That’s not to say you just put the blinders on and don’t adjust, but if you adjust, it needs to be deliberate. It can’t be chaotic. so that’s not a very specific example, but that’s kind of the crux of it, right?

Todd Kuethe: So it would be like somebody allocating the capital tries some kind of new apple and they’re like, we’re in apples. We should switch to this variety ’cause this is delicious. And then they say Hey, we wanna switch all of our apples to this variety today.

Joe Suttles: That would be a very, like in the weeds example where you’re just like, ugh.

Todd Kuethe: And you’re like, oh man, we can’t just get all new trees today. We can’t have thousands of these apples for you by September.

Chad Fiechter: How much of the role would be you talking, in this case, the hypothetical person who just had a honey crisp apple for the first time? Versus you being the farm manager’s, just been told by somebody that they need to replace all the trees and you’re like, hang on, just take a minute. Let me go have a conversation. How does that normally work?

Joe Suttles: I would say my time is like 60 40 between talking, down toward the businesses themselves and the managers of those businesses. And then 40% back up. And that’s communication flow back up. Let’s make sure everybody knows what’s going on. Nobody gets surprised. If some new idea comes, I don’t want to be a funnel, but like, hey, let’s make sure we talk about it before that makes its way down to chaos at the ground level. Where there’s some CEO of some business who’s got dozens or hundreds of people working for him or her, and all of a sudden he’s got some new mandate and it’s like, wait a minute. Three weeks ago we were doing this and we can’t just turn this big shift, overnight.

Todd Kuethe: Sounds like we could use Joe sometimes at the University, to be like, hey, here’s what we’re doing. Right?

Chad Fiechter: Yeah.

Todd Kuethe: We need more those roles. Probably everybody’s listening.

Chad Fiechter: Is that why it works really well for you to be a consultant? Because you’re not directly in the system.

Joe Suttles: It’s been something that I’ve personally enjoyed In these last couple years because it allows me to say, Hey, I’m an outsider here. I don’t have a dog in the fight. But I recommend you don’t do this. And I sleep better knowing that if they still do X, at least I did my best and it wasn’t ultimately on me to make that decision.

But yeah, it’s easy to lose sleep over things that impact people’s lives and jobs. Right? Something that you don’t, agree with. It sucks if I can’t make something happen the way I wanted it to, but there’s plenty of times that I got my way and we did things I wanted to and it was a dumb decision. That’s true as well.

Chad Fiechter: I think farm, I’m gonna call ’em farm folks.

Todd Kuethe: Okay. I like that.

Chad Fiechter: I’m putting myself in that group. We like to think, Wall Street could never possibly understand the nuance of what we’re doing.

Joe Suttles: Hmm.

Chad Fiechter: Can you talk to that at all? Do you think that these institutional investors are a little more savvy than people would like to give ’em credit for? Understanding sort of the opportunity and the challenges of being in production agriculture?

Joe Suttles: I doubt they’re more savvy than they get credit for. I’m using that very broadly. There’s an attitude I’ve run into plenty of times of it’s farming. How hard can this be? The reality is it’s more complicated. Most of these businesses are more complicated than any other type of manufacturer. Like if you think about manufacturing plant, right? Like it’s in a, it’s all inside. It’s a controlled environment. Manufacturing, like food manufacturing is an important part of these supply chains But when you’re ultimately residing on a supply chain that is subject to weather, season, geography and logistics major movement of serious volumes of product. it’s a whole nother animal. And the amount of science that goes into, growing even the most simple like corn and soybeans, right?It seems so simple. You plant it, you combine it, you fertilize. It’s incredibly complicated. And what goes into those chains all the way through that system? I think it’s. as complicated as it gets.

Todd Kuethe: That brings to the next question,

Chad Fiechter: That’s a beautiful answer for our audience.

Todd Kuethe: which is, that we always think about. So you have things that you’re doing. What are the constraints, what limits or could potentially be limits for, the ability for these businesses you’re working with, to hit their objectives?

Joe Suttles: To be more general and to speak to where I would be involved, I would say those constraints are alignment and agency problems. Synced up decision making. Those are the hard things to do. Those are the more high level things to think about, but in reality, a lot of businesses fail. Even if they are in an area that they should have been successful. A lot of times it has to do with partners or management that just aren’t aligned with what they’re trying to get done, where you don’t have people all rowing the same direction to achieve what they should. Things start to break down. if you’ve got a management team that feels like ownership doesn’t have their interest in mind, all of a sudden, they’re not working To accomplish the goals you wanna have accomplished.

Todd Kuethe: In microeconomics we generally call that principle agent problems, right? And those come because of asymmetries of information. So like, somebody knows a bunch and somebody doesn’t know as much, or there are things that are not observable, right? If you’re investing in a business that’s somewhere else geographically, you can’t necessarily observe is this person actually doing the things that they’re telling me?

Joe Suttles: Mm-hmm.

Todd Kuethe: Right? It’s tricky for production agriculture. You can do all of the right practices and then something outside of your control prevents you from realizing that potential like weather or a bunch of people quit on you. That’s often a problem in general, across the economy, are these principal agent problems with what is actually observable? And then are there asymmetries in terms of objective functions or knowledge base.

Joe Suttles: And production ag, I think, is even more complicated in that way, right? ‘Cause the feedback loops are more difficult. Information flow can be more difficult. You’re in the middle of nowhere, on a large potato farm, and the ultimate owners, the ultimate economic interest in that deal aren’t gonna see it or touch it or feel it very often. They don’t really know what’s going on. let’s say you have a bad year in ag, you gotta wait another year for feedback. Was it really the weather? Or do you not know what you’re doing? You get these questions and decision making where, somebody just throws in the towel. And it’s like, no, no, no, no. You know, not yet I know it was a bad year, but these guys really know what they’re doing. And that’s hard. You gotta really trust people. You gotta build systems where, folks are aligned to you.

Chad Fiechter: Do you think, in January I went down to Florida and it was the Aliko orange groves.

Joe Suttles: I’ve heard of it.

Chad Fiechter: So they announced that they were shutting ’em down. They were gonna do some development. It’s crazy. Like 50,000 acres of juice oranges, like big, you know, big deal. And so we’re driving in and I was in a bus with a bunch of farmers and it was kind of the, overheard a couple conversations where it’s kinda like, oh, this is a corporate run farm. You can tell it by like the intentionality, like the grasses in mow blah blah,

Joe Suttles: Mm-hmm.

Chad Fiechter: Do you see that difference between family run where someone’s pouring their heart and soul into making sure everything looks perfect versus these corporate where an investor from somewhere else who’s owning the operation?

Joe Suttles: Yeah, I would say all else equal. If you took the best of the best, family operations and compared them to your average institutionally owned operation, they’re gonna run smoother, right? When you’ve got that like leader that, or, or maybe a series of in a family of, of leaders that, you know, there’s that continuity That certainly matters. I don’t think it’s crazy, the loyalty to, that family or that individual they work for. But institutional capital plays an important role as well. For example, one of those families has been wildly successful and done incredibly well, and now this business is so large that they have a huge problem. How do I maintain that kind of wealth that I’ve created for my family and not destroy this incredible business that we’ve built and this legacy we wanna maintain? You can find plenty of investors that’ll show up and give you a bid with zero promises. Or they show up with, hey, we’ve got our playbook of how we chop these things up. Or we bring efficiencies to these businesses and they pay, you know, a bunch of consultants to give ’em ideas on what they should do and whatever else. And, and that rarely goes well. Continuity to the extent institutional capital can bring that solution in those kinds of cases and maintain this amazing business that’s already been built under that model. I think that’s why it’s done that way.

Todd Kuethe: So speaking of these institutional managed farms, one of the things when we, do extension events stuff, there’s, there’s a belief among a lot of people that like there’s be a world in the future where that’s basically all there is with the ag sector. What do you think about, do you think it’ll continue to grow or have you seen a steady state you mentioned before, labor in terms of qualified people that work in the space is kind of binding, right? That’d be one way to limit the growth.

Joe Suttles: That’s just been kind of a symptom of this incredible growth over the last, 15 years of institutional money coming into the space. Do I think farms using that term loosely are gonna continue to consolidate? Yeah, I think there’s a lot of drivers toward economies of scale that aren’t going away anytime soon. Everybody wants to talk about AI these days and all these things that it’ll be able to do. I don’t know, I don’t have an opinion, but it’s hard for me to see how that reduces. Or the extent it has any impact. It seems to me that that’s one additional driver of economies of scale, the ability to manage larger and larger, platforms. So yeah, it’s hard for me to see those drivers going away.

Todd Kuethe: So do you think you will retire from an ag sector that’s very different than you started your career in? Or do you think it’ll be roughly similar? If you had a crystal ball?

Joe Suttles: I would say roughly similar, but just continue to consolidate.

Chad Fiechter: Do you think that, there’s been these stories that Wall Street has a desire to interact with production ag, find some way to gain exposure to production ag. Do you think there’s potential that some of these family farms could try to work with institutional capital as partners? do you think there’s opportunity for that, even like Midwestern farms?

Joe Suttles: Yeah. I mean, it’s difficult on a, corn bean sort of farm. it doesn’t have that kind of sexiness that a lot of more integrated type businesses can. But, I think you see more value add approaches for a lot of different companies. it’s hard for, your typical family business, even a large scale family business. Like, let’s make up a number. So you had 25,000 acre corn and soybean farm in Indiana. You know, that’s difficult, right? To have a real partner in the decision making on that farm. But I think a lot of ’em have been very successful courting, land focused investment groups. And leveraging that capital to grow their operation. Just like any business or any corn and bean business, that’s leasing a higher proportion of their land, there’s risk to that, like off balance sheet financing. But can they leverage those capital relationships and, and focus on farming and not have to be plowing, as much dollars into the land itself in order to grow. I think there’s been a lot of that that’s gone on,with a lot of success it works the other way too.

In my opinion, a lot of the most successful like farmland and you know, focused funds, they’ve just identified incredible operators and they’ve said, we’ll invest behind you. Here’s our parameters. You’re our guy in this region. Let’s go grow together. Now you’ve got alignment. Right? These guys want

Chad Fiechter: Specifically on land,

Joe Suttles: That’s land in that

I think that’s a model that’s worked for a lot

Chad Fiechter: I just think it’s interesting ’cause I think your point of some of these are growing so large that it does become really difficult. Even from understanding, the finance part of it. Like you’ve got a lot of exposure. So being able to diversify if somebody else who’s investing in the business would be sweet but thank you.

Joe Suttles: But yeah. in that 25,000 acre, corn and soybean farmer, like back to constraints and what you’re solving for, like managing people and the equipment fleet and logistics of that kind of operation. I don’t know that there’s a need for a capital investor it’s not that kind of scale where that’s logical and you don’t wanna muddy up that decision making. When you get into more integrated businesses that need to spend 50, a hundred million dollars on some major plant and expansion those become major capital problems that you’re trying to solve.

For your corn and bean farmer in Indiana, the capital need is the land, ownership. I think that’s the constraint. Other businesses that are more integrated have bigger capital needs through that chain. I think, you know, then there’s logic in those kind of partners. Because if you’re gonna find somebody that’s gonna write those kind of checks, they wanna say and what’s happening to, to their money.

They don’t want a lease, like farmland, you can find alignment there.

So, so it sounds like there’s, uh, the, what I would say, it sounds like the, the areas that are most ripe for continued maturation or growth in these kind of spaces would be things that would be not just a commodity producer. Not something where you just take it to the elevator and sell it.But would be things that you’re gonna wanna see through the supply chain either directly to the consumer in a food product or maybe in a industrial product or something, but something that you are producing that’s a little bit more specialized that has that sort of supply chain interactions throughout.

Yeah. Especially when you go so far that those supply chains touch customers that need long-term security in an inherently risky business. As soon as there’s that pull from the other end of that system for consistency. For certainty through time. I think that becomes a major driver of the need for that capital and the need for that permanence in those sorts of relationships.

Todd Kuethe: I was gonna sell french fries globally, I’d want to get all the way down to the potatoes in the ground figured out from that company’s perspective.

Joe Suttles: Yeah. In the case of, fry potatoes. Most of that’s still done, the level of integration there is like grower agreements, the same with FritoLay and other chip potato companies. They’re still solving for that. I might get a call from a customer that says, hey, over the next three years I need you to be doing 5,000 acres in this region because I have a couple of retiring producers. And need replacement. And it’s been great working with you. When you have that kind of pull from a customer, the checks that need to be written to go out and execute on that, get bigger and bigger.

Todd Kuethe: So you’re buying tickets on a full plane, essentially, right?

Joe Suttles: Yeah.

Todd Kuethe: Trying to buy a seat on a plane that is already booked up.

Chad Fiechter: When you’re thinking about a production business, a lot of times with farm management, we talk about benchmarks and I think the benchmark discussion is around, did I pay more for seed than my neighbor? What you are talking about is a level of what’s the return to these businesses, regardless of if it’s a dairy farm, a carrot farm, a potato farm, we’re literally evaluating these businesses on the potential to money, not how are they relative to other potato farms.

Mm-hmm. Well, ultimately you’re competing with your neighbors using that term pretty broadly. Those key indicators, KPIs, certainly matter. If you’re in a corn and bean business, like what’s your cost production, right? That’s what matters over the long term. And it’s not just against your immediate neighbor, it’s against whoever you’re competing with globally. Can you compete, can you make money at this kind of long-term price of corn? For livestock businesses, now you’re talking about, how many pigs you’re weaning per, year. How many pounds of milk per cow, per day or per year. And what kind of cost does it take for you to maintain that herd? What are your parameters around disease incidents and how’s that impacting your production through time?

Todd Kuethe: These investment managers that you interact with, they’re closer to what Chad is saying, right? Which is sort of saying, look, we want to hit this sort of return target, and I don’t care if it’s carrots or cows. I want that return target.

Joe Suttles: Yeah. It, it certainly starts with their goals. They’re gonna start buying, almond farms, or they’re gonna go Greenfield, you know, new, new almond ranches. They have some expectation in mind, but ultimately they’re gonna be looking at how is this farm doing relative to its neighbors, these benchmarking approaches to try to say, are these the right guys or not? Maybe I was, brilliant that now’s the time, let’s go buy a bunch of land and develop almonds. ‘Cause you know, we’re at the lowest some cycle or whatever the idea is. But then if you signed up with, whoever’s running that for you, whether that’s an outside, farm manager, whether it’s your own team that you’re building. If they’re not performing well, then you got halfway there, but now you’re flailing ’cause you don’t have the right team.

Chad Fiechter: Okay.

How much of it is driven by these relationships when you have an established farm, there’s a customer who’s working with you, and they’re like, you’ve made our life a lot easier. Can you make our life even easier by growing another 5,000 acres? Like how, frequently do you see that kind of thing happen?

Joe Suttles: Yeah, a fair bit, especially in pretty consolidated, areas. Chip potatoes is an easy one to pick on ’cause it is so consolidated at the customer level. FritoLay is the biggest player by far. When they need to solve a problem, it’s always a big problem. When you’re doing things at that scale. You’ve seen it with their supply base, like consolidation, consolidation. It can go too far. They can get uncomfortable with too much exposure to one grower. But when they have those relationships and they have that trust and there’s kind of this history of execution, you know? It wouldn’t be surprising that they lose some grower in some part of the country. In a company like FritoLay, they’re so spread out, right? The logistics of chip potatoes those plants are everywhere. They’re produced close to population centers. They need potatoes grown close to those plants and population centers.

Unlike the fry potato business, that’s pretty concentrated in the Northwest, here in the States. Frito calls and says, Hey, I need 2000 acres in the southeast, they’re not just, putting out a request for proposals. They’re going to those suppliers and saying, can you help me? Can you help me? It’s a ton of risk. A ton of work. Ton of just logistics and everything on top of it to try to execute on that.

Todd Kuethe: I never thought about how much our potato chip system is similar to electricity. Right, it’s like the electric grid.

Chad Fiechter: You can produce all the electricity you want in Manitoba. But if there aren’t people there to use it. I dunno, it’s fascinating.

Todd Kuethe: Now, I’m gonna my day thinking about chips all day.

Chad Fiechter: So I teach this farm management class. And I think I’ve struggled a little bit on communicating why we have a specifically farm management class as opposed to business management. You seem to have some insights into why we would have a farm management class versus a general business management class. So I’m asking you can you help me?

Joe Suttles: I would go back to, I mean, I’m biased, number one, to agree with you, like, yeah, of course farm management is special and different than general business management. But yeah, I think it relies there’s such a breadth required to run a successful farm.

You’ve got to understand a ton of scientific principles. You’ve got to deal with all sorts of suppliers and vendors to support that business. You’ve got to understand incredible complexity to truly understand your cost of production. Depending on what kind of business you’re in, you know, you’ve gotta deal with customer relationships. That can be everything from your integrated contract environment to an open commodity sale process, and you’ve gotta be able to manage that. I mean, there’s classes here at Purdue, at least there used to be about just marketing commodities. There’s a whole lot of businesses that you could be managing, If you’re out,managing the local Home Depot, you don’t need to understand anything about hedging. You don’t need to understand long and short contracts or long and short puts,

In addition, you’ve got all of the government policy influence in farms and that’s incredibly complex and difficult to navigate. That has to be managed, right? And you have to play that game in order to be successful. Whether it be insurance products, payment systems or NRCS, related conservation programs, it’s really complex.

Todd Kuethe: Well, and then we have the other side of that too, which is all of the ways that you face regulation, right?

Joe Suttles: mm-hmm. Yeah, yeah.

Todd Kuethe: Things coming onto your farms, things going off of your farm, how people and things are treated when they’re on the farm. It’s incredibly complex. So Chad, this is why we want you to keep teaching that class.

Chad Fiechter: Yeah. That’s a good answer. Thank you.

Joe Suttles: Yeah.

Todd Kuethe: Are we close to the wrap up point?

Chad Fiechter: I think we are.

Todd Kuethe: As the longtime listeners to all of the many, many episodes we’ve recorded at this point know I to wrap it up with a lightning round. So this is for the people on the treadmill, given that last push to get through, or the people out working and they’re just like, I’m falling asleep. I wanna really, so the key is with the lightning round as these are, you have to answer quickly.

The first one I’ll ask you is, if you had a magic wand that you could only use for work to be able to observe something you can’t currently observe, what would you do with that magic wand? What would you want to be able to see?

Joe Suttles: I suppose I would, I would wanna see what the folks on the ground actually think, like, have full transparency how they really feel about the relationships with, owners or the partnerships they’re interacting with. Because you spend so much of your time, you spend a ton of time dedicated to people to really understand, they’re gonna tell you what you want to hear sometimes, and I’d rather hear the stuff they’re really thinking that maybe isn’t as pleasant.

Todd Kuethe: Okay.

The last time that you’ve had trouble sleeping because you were preoccupied about something you’re thinking about with work, what were you thinking about? You don’t have to get too specific.

Joe Suttles: It would’ve been fairly recently, a few months ago, it would’ve been about a business with some struggles that were kind of a sudden, realization and, frustration to not have seen it sooner.

Todd Kuethe: Caught off guard.

Joe Suttles: Irritation at myself for not having made harder decisions sooner, which may have, avoided some exacerbation of the issues. If I lose sleep, it’s usually because it becomes clear that some decision that should have been made that maybe been thinking about for a while and like all of a sudden it led to a bigger problem.

Todd Kuethe: Okay. If you were issued at work a time machine you could only use for professional purposes, when would you go?

Joe Suttles: When would I go? Am I like staying there permanently when I go there?

Todd Kuethe: No. You’re just gonna go visit that time period. It’s a time machine. It works both ways.

Joe Suttles: Can I go back to myself and give myself advice?

Todd Kuethe: You can do whatever you want. That’s what I would, you have to use it for work. You can’t be like, I’m gonna go see, Guns N Roses, 1987. You have to use it for work.

Joe Suttles: I would go back to the day I left Purdue and went to my first job and I just have a list of advice. Do this, do this. You know, that was dumb. those kinds of things. Yeah. I’d have a long list.

Chad Fiechter: I also feel like you kind of put Joe in a box because you said you can’t go back to Guns N Roses concert, but should he be related to

Todd Kuethe: If a work related reason,

If you can write that off, if you can get it through corporate,

Chad Fiechter: Well, there’s people who do.

Todd Kuethe: Yeah. No, I know. You have to

Chad Fiechter: I just felt bad ’cause I felt like Todd kind of put you in a box. If you did want to go

Joe Suttles: He gave me a time machine and then he restricted me.

Chad Fiechter: Exactly.

Todd Kuethe: It’s a work issue time machine. This is like,

Chad Fiechter: You’ve left out an entire group of people related to Guns N Roses as an industry.

Todd Kuethe: For Joe, that’s not Joe’s industry.

Chad Fiechter: But I don’t want to take that away from

Todd Kuethe: If Izzy Stradlin wants to come on the pod, talk about Izzy Stradlin does, then he can it to go back to old Guns

Joe Suttles: To be clear, I don’t want to go to an old Guns N Roses

Todd Kuethe: Okay. I didn’t think Joe I just thought, no. Is it weird that was the first

Chad Fiechter: I was concerned that the listeners maybe thought we took that away.

Todd Kuethe: Yeah, I should have said something smart like the signing of the Declaration of Independence or something, right? But no, Guns and Roses was the first thing.

Chad Fiechter: Anyway, feel like we’ve covered the ag economy.Thank you for listening. Make sure to join us for future conversations where we learn about the ag economy, Guns N Roses, chip potatoes, Fried potatoes.

Todd Kuethe: What else have we covered here? I think we can, we can wrap it up there. Uh, so thank you for joining us. If you think we could learn from you and you happen to be coming through Purdue, let us know. Uh, ’cause we would love to learn more. Make sure to subscribe, tell your friends, and come back next month and we’ll have another conversation for you to enjoy.