Al Kluis drives a Lexus, wears cufflinks and kicks around in tasseled loafers. And all day long, this Minneapolis businessman talks to farmers. On his cell phone, his desk phones -- he has two -- by e-mail and by text message, Kluis, 55, counsels a few hundred farmers who pay for his advice. He reaches out to thousands more who attend his seminars -- both real and online -- read his website or pick up a copy of his weekly newsletter.
The subject?
How and when to sell their crops.
Amid one of the most lucrative periods in agriculture, farmers have not abandoned the financial brokers and consultants who tell them when to capitalize on the markets. Today, perhaps more than ever as prices soar one day and dive the next, farmers turn to market wise men who study the gy- rating prices of corn, soybeans and wheat to find the best time to unload.
They use complicated financial instruments that sell crops months before they're even planted or others that give farmers the right to sell at a set price sometime in the future. Insurance and old-fashioned cash sales at the local grain elevator are part of the mix, too.
What farm advisers don't do, Kluis says, is predict the future.
"There's not a crystal ball," he says, seated in his office on the fourth floor of the Minneapolis Grain Exchange. His desk is cluttered with reports, charts and three computer monitors blinking with the latest prices of corn and soybeans.
The agriculture markets today are beset by a storm of forces, from surging global demand to biofuels to shortages caused by bad weather to the influx of billions of dollars from hedge funds and index funds. The result has been higher commodity prices marked by wild volatility.
Prices at the Minneapolis Grain Exchange for hard red spring wheat, for example, shot to $25 a bushel earlier this year before falling back to $9.70 today. That's still more than twice the average price.
Such price swings make everything riskier. Even federal regulators are looking at ways to protect farmers.
Eight months ago, a farmer who signed a contract to sell corn in July got $3.75 a bushel. Today that same contract would pay $6.43. That's a difference worth $413 per acre for the average Minnesota farm.
Soybeans and wheat prices have moved just as wildly.
Kluis runs his business from the grain exchange, although he doesn't visit the trading floor just down the hall where brokers shout buy and sell orders. He runs every decision through electronic markets, trading corn or soybeans for his customers with a mouse and a password.
He usually advises farmers to mix their sales, with some sold ahead of time in the futures market, some on hand for sales the day they come off the field, and to buy options, a pricey financial instrument that gives farmers the right, but not the obligation, to sell at a fixed price in the future. He also advises them to buy insurance for 80 percent coverage of their crops.
The formula should protect farmers whether prices go up or down.
"It's a good plan, but it does cost money," Kluis said. "You're writing out checks to me as a broker, you're writing out checks to your insurance agent."
The weekly newsletter costs $390 a year; the newsletter plus twice daily updates via e-mail or texting is $780. A few hundred farmers subscribe to his service.
Earlier this week, the phones rang steadily at Kluis' office.
"Hey Steve, how're you doing," Kluis says. The chatter continued before he got to his point: "I've just gotta step in and get some of that stuff bought, looking at the weather," Kluis says. "I forwarded you the weather update just a little bit ago. Yeah, it looks wet."
A native of Chandler, Minn., Kluis grew up the son of Dutch immigrant farmers. His mother, 91, still lives on the family land near Worthington, Minn. He left the farm after high school, earning a degree in agricultural economics and crop production from the University of Minnesota. He started his first commodity trading business a year later.
A phone rings and it's a radio show on agriculture prices, using Kluis for a live interview. Halfway through it, another phone rings. Kluis holds two phones to his head.
Moderating risk, in theory
Since the first corn futures contract was signed in Chicago in 1851, some farmers have used financial markets to sell their crops before they're harvested. It's why futures contracts were invented. The idea was to avoid coming to the market to sell at harvest time, when supplies were so plentiful that prices dropped to almost nothing. Futures contracts moderate the price fluctuations and ease a farmer's risk.
Or, at least, they should.
A stunning rise in commodity prices over the past year, coupled with an unusual pattern of futures prices not matching the actual, or "cash" price of a commodity, sparked a broad review of the U.S. commodities market by the Commodities Futures Trading Commission. The commission, the regulatory agency that oversees the futures markets, last week called for a thorough study of the markets' most troubled areas.
Futures contracts and their more complicated cousin, options, have come under scrutiny before. Options contracts were outlawed for several decades because they were so easily manipulated. They were reintroduced step by step in the 1980s. Today, half of Kluis's customers use options, but it's difficult to know how many farmers nationwide consider them useful.
"All we have is anecdotal evidence," said Ed Usset, an agricultural economist at the University of Minnesota. "Options are a funny animal. They have some interesting aspects to them, but they're also quite costly."
Options may cost a farmer 10 percent of the value of his crop, money that won't be refunded if the option goes unused.
The agricultural financial marketplace has also become more crowded. Farmers have more places to turn for market information, from subscription services like cashgrainbids.com to Cargillag.com, a relatively new website of streaming market data assembled for farmers by the agribusiness titan Cargill.
DTN, a private company based in Omaha, recently unveiled a new website that functions like an online store for farmers who want to sell grain without using futures or options.
"It's more like ebay or Craigslist," said Tamara Kass, a spokesperson for the company. "It's private. They pick who they're doing business with."
The site claims sales of millions of bushels, with about 13,000 farmers and 700 farm businesses signed up.
Waiting for summer
It should be a good year for the $10 billion Minnesota agriculture industry, maybe even better than last year, when Minnesota crop farmers made an average of $90,612 after paying their expenses, a 37 percent increase over the year earlier.
Not everyone's happy. Many livestock farmers are losing money because pork and beef prices haven't risen enough to account for the high price of feed for the animals.
Costs for crop farmers -- fertilizer, land rents, fuel and seed -- also continue to climb. The cost of anhydrous ammonia, a necessary source of nitrogen for corn, has climbed from $300 a ton two years ago to $580 a ton last year, and $850 to $1,000 a ton is expected next year.
Yet overall, the crop farmers that Kluis advises are optimistic, especially if the weather warms up.
"People are feeling good," said Kluis. "If forecasts are right and we get into the high 80s and low 90s, this stuff will come on like gangbusters."
Matt McKinney • 612-673-7329
