Al Kluis
- Commodity advisor since 1976 and introducing broker with R.J. O'Brien.
- Author of the weekly commodity newsletter, "The Al Kluis Report," and also the "Your Profit" column in Successful Farming magazine.
- Expert columnist for 13 years for Corn and Soybean Digest, which featured his "Marketing Strategies" column weekly.
- Has published two books on commodities trading. His co-author on the first book, Loren Kruse, is the now-retired Editor-in-Chief of Successful Farming magazine.
- Frequently quoted in major publications including the Wall Street Journal, and a frequent market analyst for the Linder Farm Radio News Network.
- Former executive director of the Minnesota Soybean Association before entering the markets full-time. Alan's family still owns a farm in southwest Minnesota and Al enjoys helping with fieldwork when the markets allow.
- All 7 Best Practices
- Pre-Meeting Discovery Process
- One-on-One Call with Expert
- Meeting Summary Report
- Post-Meeting Engagement
Agriculture Commodity Trading - Hedging and Risk Mitigation
Key Trends
- Younger family members or managing partners are more conservative in their risk management strategies.
- The newer partners and family members coming into agribusinesses or farms – under 40, and certainly under 30 — are reluctant to take on debt. They’re very much familiar with the use of spreadsheets. They are more willing to lock in profits when available, as opposed to "good old days" when we used to just ride the wave. The younger generation doesn't care if it leaves a little money on the table, to ensure profitability. They have much more discipline than most had a generation ago.
- The internet has given rise to huge amounts of questionable data and information.
Far too often farms and businesses that are struggling got there because they base too many decisions on bogus information. It was easily available and free, but, as they say, it's worth what you pay for it. What’s the background of the person who wrote it? Is the information even applicable to your specific operation?”
Further, there’s a tremendous amount of data, big data, around, but there’s not always analysis of that information. With all this information companies often make two mistakes:
- Not managing risk: They don't sort out the actionable information that fits into their strategic plans.
- Overtrading: They are constantly repositioning based on the latest piece of information.
- Not managing risk: They don't sort out the actionable information that fits into their strategic plans.
- Younger managers are looking for where to learn more about risk management.
The younger generation in agribusiness is very creative and ready to learn. They probably have more bank debt and are more concerned about profits next year and for the next decade. They are willing to engage with you and learn from you, and use the tools that you give them.
They make good use of computers and spreadsheets so that they are more aware of risk and are more willing to look at different methods to lay that risk off. This is creating more opportunities to provide training and education in economics and marketing. This is happening in both public institutions and through private companies.
- Margins are getting tighter, and it’s getting more difficult to pass on increased costs in a competitive environment.
Managing margins is very difficult. It was easier in the 1970s and early 1980s when you had some inflation. People would say: “OK, this year I’m going to increase my prices by 3 percent or 5 percent.” The folks on the other side wouldn’t like it, and they might negotiate and haggle with you some, but they wouldn’t flat out say no.
Now, with low interest rates and low inflation, it is really tough to increase what you’re charging somebody once you’ve established that initial price. In this environment, if, all of a sudden, one of your inputs jumps substantially in price your margins are going to evaporate pretty quickly.
As competition increases, too, raising your prices certainly will encourage your customers to shop around. There always is someone willing to do it at a loss for a year or two just to get their foot in the door.
- The food and agriculture industry is consolidating.
The big players just keep getting bigger. When you look at companies like Cargill or General Mills, you see giant firms that keep on buying up small food companies. Also, farm sizes continue to increase.
As farms and companies get bigger they tend to become more efficient. There may be fewer total companies to work with, but the volume that they’re trading or the number of dollars they’re turning over is growing in total as well as for each company or farm.
It's a way of increasing revenues in an environment of shrinking margins. It used to be if you turned over $1 million and netted 20 percent you had a sweet business. You’re making $200,00 a year. Now if you’ve got a $1-million business and you’re operating at 8 percent, you’re left with $80,000. That’s pretty skinny. If something happens — you face unexpected expenses — you practically give up your margin.