Dinner With An Iowa Commodities Broker

Gary is an expert grain and meat trader in Sioux County’s farming community. Gary knows everyone in town. He has a big family and he’s well integrated into the tiny community. As a broker, he helps the local farmers put on their hedges. He places the trades and tells them where he thinks the markets are going. He’s done this for 50 years.

Hedging decisions are just about the most important financial decisions farmers make. The decision to hedge or not makes the difference between feast and famine. So as the farmers’ trading advisor, Gary is a very important man in this community.

On a side note, the farmers I met on my trip to Iowa understood speculating better than any banker I ever met in New York or London. To pick up live futures prices, my host had a satellite dish behind the farmhouse. Everywhere I went, markets were the No. 1 subject of conversation. And as for swinging large positions, these guys use six figures to discuss profits and losses.

Take Gary, for example. Last week, he took a big loss when a short hog position didn’t work out. You’d think big money trading would have taken its toll on Gary. When he first started, they told him he’d never get past 10 years in the business because of the stress. Forty years later, Gary still clearly loves the market.

Gary is one of those guys who succeeds in every business he tries. He’s been the head cattle buyer in three major stock yards, he’s built and sold 150 homes in the last 15 years, he owns huge tracts of land in the Midwest, and he’s owned several car dealerships. He obviously has a great eye for value and opportunity.

I don’t need to say it, but Gary is a millionaire many times over.

I had dinner with Gary and two local hog farmers at a Sioux County steakhouse last week. He told me he’s very bullish on corn and beans... as bullish as he’s been in very many years.

“The grain farmer will be king for the next three years,” he said. “People just haven’t grasped how cheap corn is at $3. And $2 corn is a thing of the past.”

Gary advised the two hog farmers we were eating with to make sure they had enough corn purchased in the futures market to feed their pigs next year.“This move will catch a lot of farmers by surprise,” he said. “It’s going to cause a lot of pain.”

Why is Gary so bullish on corn? There simply isn’t enough, he says, and the market doesn’t know it yet. Dozens of new ethanol plants are soaking up all the corn and now there isn’t enough to feed the animals. Plus, the human population is growing and the crop acreage is shrinking.

“If any of those neighboring farms come up for sale,” he added to the hog farmers, “you make sure you buy them.”

Gary says corn is going to $5 a bushel, up from its current price of $3.33. Soybeans are going to $9, from their current $6.45. And Iowa farmland is a bargain at $5,000 an acre.

DailyWealth advice: Buy corn. Buy beans. Buy Iowa.

Good investing,

Tom

P.S. The markets are so hard to beat, you can be right and still lose money. Corn moved from $1.50 to $3.50 in 1973. Gary caught the move and made $700,000. Expensive corn hurts pig farmers. So Gary took the money and shorted hogs, expecting hog prices to fall from $1 to 50 cents a pound. He started shorting at $1.03.

He shorted more at $1.06 and then more at $1.08. It moved up to $1.12, and Gary flew all the way to Chicago just to liquidate the position. He ended up losing $500,000.

A few months later, hogs fell to 49 cents. Gary would have made $2 million.