How To Go Bankrupt Even Faster
- Grant Wiese
- 6 days ago
- 5 min read
SW Financial Literacy
How To Go Bankrupt Even Faster
Money is really tight for a lot of operations right now. Operating notes have been maxed out and additional funds were needed to get the crop to harvest. This makes sense. After all, many cash flow projections for 2025 were negative to start the year, and that was with a $4.60 cash corn sale in the projection and without an extra pass of fungicide.
Another extremely concerning trend that I have seen, losses from cattle operators. WHAT!? I thought cattle prices were at record highs!? I thought profit was through the roof!?
They are, and that appears to be the problem.
Producers are getting greedy and trying to get as wealthy as possible. They are speculating in the market and trying to earn profits on cattle they don’t even own. They have been gambling with the profit already in hand, and some of them will lose their operation at the end of this year as a result. Losing the operation at a time of PEAK PROFITS.
Let this be a massive lesson to grain operators who are struggling right now. You are dealing with losses, why would you speculate in the market? The possibility (and likelihood) is that you end up doubling down on your losses, not ending up breakeven. If cattle guys who should be making it big, aren’t, I don’t have confidence speculating is going to play out well when you are starting from a losing position.
The better approach would be to put floors in place and start looking toward your 2026 crop. There is a carry in the market and future prices aren’t bad. Instead of speculating with what has already been sold, why not lock in what you haven’t yet raised?
Now, what to do with your lack of cash today?
Here are 3 options that are out there for you. 2 are viable options, and 1 is speculative which you should run away from.
Scenario: You are out of cash to pay for any year end expenses or prepay for 2026 inputs. You believe commodity prices will go higher and don’t want to sell your grain off the combine. What do you do?
Option 1: CCC loan.
You could look to ‘sell’ your grain to the USDA. How this works is the grain is stored in a bin (either on farm or at an elevator) but is still open to the market. You sell the grain to the USDA to get a CCC loan in return for the grain sold. The USDA takes a lien position on this grain. The size of the loan is determined by your crop type and county you reside in.
Example:
In my area you can get $2.20/bu of corn through the CCC loan program. 10,000 bu corn gets you a $22,000 loan.
$6.00/bu soybeans sold through the CCC loan program for 10,000 bu gets you a $60,000 loan.
The interest rate on this loan is around 5% and you can use those proceeds to pay down a higher interest rate operating note or prepay for future expenses.
Once you capture a carry in the market and sell your grain, part of your sale proceeds go to paydown the CCC loan while the remaining proceeds come back to you. The advantage of this program is interest savings, quick cash, and the ability to wait for carry in the market to sell your grain at a higher price. There is limited downside risk with this approach.
Option 2: Buying a Call Option (premium only, no margin calls)
With this option you pay a premium upfront, like an insurance policy, and that premium is the maximum you can lose. If the market goes up, the option gains value and offsets the grain you sold earlier. There are no margin calls. Once you pay the premium, you’re done with cash outlay. This approach is frequently referred to owning on paper.
Example:
You sold corn at $5.00 cash. You buy a $5.20 call for $0.15/bu.
If corn rallies to $6.00, your call gains roughly $0.65 ($6.00 – $5.20 – $0.15 premium).
If corn falls or stays flat, you lose just the $0.15 you paid.
Option 3: Buying Futures (margin calls required) (NOT A VIABLE OPTION if you are out of money or dealing with losses. This is SPECULATING if you don’t have the grain)
Buying futures has no upfront premium, but the grower must post initial margin (good-faith money, a deposit). If the market moves against you, you get margin calls and must deposit more cash. There is no cap on loss, the risk is unlimited if the market falls. If the market rallies, you gain dollar-for-dollar.
Example:
You sold corn at $5.00 cash. You buy back Dec corn futures at $5.10.
If futures go to $6.00, you make $0.90/bu on futures.
If futures drop to $4.50, you lose $0.60/bu, and you’ll be asked for margin money along the way.
Why do I bring this up and am sharing a strong opinion?
Co-ops are actively SELLING Option 3 to farmers right now. They are playing on fear and the belief farmers have that the markets will go higher. They are encouraging you to sell your grain to their co-op and take part in their buying futures program. What does this look like?
Example:
You sell your grain to them and enter those sales into their buying futures program.
You get a grain check for 70% of the grain sales. The co-op retains the last 30% of your grain check to post for the initial margin.
If markets move lower, your 30% of grain sales disappear through margin calls and you may have to send more margin call money their way.
Let me get this straight:
You had a negative cash flow projection at the start of the year.
Commodity prices moved lower, you didn’t have a floor in place, and you sell near the bottom, deepening losses.
Instead of taking that grain check, you let someone else keep your money (already at a loss) with unlimited downside risk?!?
This is how to go bankrupt even faster.
I don’t really care if you believe markets are going higher. If you are out of money (or have sound business practices), don’t speculate.
This is as blunt as I have probably ever been in this newsletter. Please don't let poor marketing decisions spiral into terrible speculative risks.
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.
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Have a great week!
Grant
