4 Factors Driving the Continued Demand for Tile
- Karl Guetter of Prinsco, Farmer and Agricultural Segment Lead
Jamie has an insights-packed conversation with Karl Guetter, an active farmer and current leader of Prinsco’s agricultural segment. Karl leverages that dual perspective to share what he believes is driving the continued demand for tile despite uncertainties like late springs and delayed planting. Karl defines and dives into these key factors:
1. Farmers need to improve efficiency
2. High inputs reinforce the need to take care of what’s below ground
3. Land changing hands is triggering tiling investments
4. Installation practices & system designs are being optimized
Listen to the full episode, now on YouTube!
Episode 53 | 30 min
Karl Guetter has nearly 20 years of experience in the ag industry and, being an active farmer himself, is a true advocate for managing water on the farm.
Michael is an active farmer and the Agricultural Segment Lead at Prinsco. He’s passionate about issues facing rural America and the ag community– his experience gives him a unique perspective on what pushes farmers to manage their water, how the demand for tiling has changed and increased over the years, and why tile is critical for the sustainability and profitability of farms in the future.
Jamie Duininck (00:02):
This is The Water Table.
Kent Rodelius (00:05):
A chance to hear the agricultural side of these issues.
Jamie Duininck (00:09):
Place for people to go find information and education.
Matt Helmers: (00:13):
Water management is just going to become even more critical into the future.
Jamie Duininck (00:17):
How misunderstood what we do is.
Kent Rodelius (00:22):
I would encourage people to open their minds and listen to this dialogue.
Jamie Duininck (00:32):
Welcome back to The Water Table podcast. Today, I have a guest with me, Karl Guetter. Karl is the segment lead for Prinsco on the agricultural side, and he’s also a farmer, he’s been in the industry for many years, has a good grasp of what happens with agricultural water management. He’s been around a lot of the conversations with the need for it. He’s been around a lot of the conversations around some of the environmental side of things of what’s going on, and just thought it’d be a good opportunity as we’re just entering the fall season here of 2022. And to just talk for a little while about what’s driving demand, what the demand is like this year, we can get into a lot of different things here today, but welcome to the podcast, Karl,
Karl Guetter (01:21):
Thanks for having me.
Jamie Duininck (01:22):
Yeah. Thanks for being here. And let’s just talk a little bit about 2022. I’ve described it at different times to different people as a little bit schizophrenic. We’ve had stops and starts this year. Just a lot of that due to weather, but what are you seeing going back to the beginning of 2022 and then what’s happened for demand just from the industry standpoint?
Karl Guetter (01:48):
So if I look back at 2022, specifically back to November and December of 2021, as we were getting ready to go into 2022, I think there was a lot of uncertainty. And for a couple of reasons, there was uncertainty from a pipe manufacturer standpoint because we didn’t really know for sure how much leftover pipe was still out there from the maybe different buying habits in 2021. There was a lot of pipes sitting behind guys machine sheds. There was a lot of pipes sitting all over the place where guys were just taking pipe in 2021, just so they could have it. So we didn’t even know how much pipe was really out there. From a farmer’s perspective the uncertainty was based largely in the Northwest corn belt around weather, right? Weather was probably the main one, we had certain areas of drought in 2021, Southwest Minnesota, Northwest Iowa, parts of South Dakota.
There was also some uncertainty with pricing, whether it was lumber, steel. I mean, all the commodities had gone up in 2021 at probably unprecedented levels, and for most of those commodities, plastic, probably not quite as much, but there was still some escalation there. So both farmers and or contractors were just nervous about getting on the wrong side of that slope. We had a late spring, a late spring from a farmer standpoint that just didn’t get in the field, but also late spring from the contractor standpoint, I mean the frost didn’t go out in parts of Minnesota and North Dakota until May, right? So they could not get in the field. Springs are always tough. You never know what you’re going to get, but this year spring was unusually tough, or unusually late. So uncertainty coupled with a late spring really made for some uneasiness early in the year, but things have definitely picked up. We rolled through spring. Most places got planted. We’ve got a little bit of prevent plant in North Dakota, Northern Minnesota, but for the most part, things got planted. It’s been warm, things have been catching up. So once we got past that spring season, confidence grew and people started entering in more of a normal or a traditional buying pattern. It’s been a very, very strong summer so far and looking for a very strong fall.
Jamie Duininck (03:51):
And I tend to go off script a little bit on these things, but you said a few things that just gave me a few questions that I have, that you’re probably the right guy to answer them, being in the industry and also a farmer. But when you get a late spring we had this year, we always think it’s going to be late. The fall’s going to be late. And a lot of times, well, it’s going to be really late, because we’re getting planted in some cases six weeks after we should be here. But this year in particular, it feels like when you get planted late May, if you get really good weather right after that plant date, that the crop can catch up pretty fast. Now, are we going to be later than a traditional year this year? Maybe, but not by a lot. And do you see that or do you agree with that comment that it has a lot to do with still, even if you get planted 2, 3, 4 weeks late once you’re planted, what happens after that from a growing standpoint?
Karl Guetter (04:50):
So the day you plant obviously makes a difference, but ultimately you need growing degree units. So we’ve caught up to where we’re actually ahead of the five year average right now for heat growing degree units, at least in Southwest Minnesota, I don’t necessarily pay that close of attention, once you get out of the Northwest corn belt down into Illinois in the United States down there. So we have caught up now, we still may be late, but really September, September can do a lot for you or against you. If we stay warm through September, you’re going to see the corn come along very quickly. You’ll see the beans come along quickly. On the opposite side, if we start seeing cooler weather, a lot of rain in September, late August and September, the beans will hold on, they’ll continue to grow to some degree until we get well into September. And the corn’s just really not going to mature quite as quickly. And then obviously at the end, at least for the Northwest corn belt, you have a frost date. So the frost date’s what’s really going to dictate where we end for the year.
Jamie Duininck (05:48):
Yep. Yep. It’s so often that we get planted, guys are excited in the spring, they get planted in April and they’re like, man, this is going to be good. I’m planted in April, but then it’s cold and the ground temperature isn’t warm enough really to do anything anyway. So that seed sits there for a while. So I think we get too concerned about that. At least I do, or it seems late and it seems like things are fairly similar every year where we get a plan that comes out about the same. And we haven’t had that year yet where in my career where we’ve had a frost on Labor Day weekend, which could easily happen in a place like Minnesota, but hasn’t happened in my career. So anyway, wanted to ask that question, but when we talk about demand and what you’re seeing, you’re traveling really all over the Midwest, all the [inaudible 00:06:43] States and into North Dakota, the Dakotas and everything in between. Is it similar across what you’re thinking for the fall as … this podcast, like I said, will be released around September 1st. And how are people feeling about it? Is it different from different areas, with we’ve had spot weather too.
Karl Guetter (07:05):
Weather’s obviously a big part of it. You can’t ignore that. And we do still have small areas of drought. If you look at the drought monitor, there’s still some pretty tough areas, but for the most part, they’re pretty small. And even the areas that are showing some drought, but not severe drought, a lot of those areas have picked up enough rain so that their crops still look pretty strong. They maybe don’t have a bin buster coming, but they’ve got pretty decent crop coming. Therefore the contractors in those areas are seeing demand, and will probably even see some farmer plows going that area. To the south and to the east, it was a little stronger this spring, the demand’s been strong, pretty much pretty steady actually from spring and all the way through summer. Out West here, a little light early, but right now I’d say the demand is strong across the board.
We’re seeing some pipe go into some prevent plant acres up in North Dakota. I’m surprised how much pipe I’m seeing going into vegetable crops across Southern Minnesota right now. I mean, a lot of those fields are getting tiled as we speak, as the peas are off, the sweet corn’s starting to come off. So that tiles starting to move. So from a demand standpoint, I think, unless we see something really strange happen here in the next few weeks, I think it’s going to continue all the way through and pretty much across the entire corn belt.
Jamie Duininck (08:24):
Yeah. Yep. I’ve heard that from others too. So when we talk about demand and where it’s at, we’ve been busy, our industry has been successful, we’ve been blessed to be part of this industry for quite some time now, that it continues to grow. I did a podcast while back talking with a guy and he just said in the nineties, his dad said, how long can we keep putting in pipe? When is everything going to be tile? And that was in a very intensely drained area, but our business, our industry continues to grow. So what’s really driving that demand? And I think it depends on the timeframe too, probably on what’s driving it. But over the years what’s driving that demand?
Karl Guetter (09:13):
We’ve both been in the industry a long time and it definitely has changed. I mean, my dad, when he tiled in the eighties, he was tiling to make the farm farmable. He wanted to get the potholes drained, to be able to actually drive across a thing. And then we got into the nineties, I would say maybe into the early two thousands. And the focus really changed from making the farm farmable to making it profitable. We started seeing pattern tiling, and that still is happening in many areas. But I think recently a lot of the push has been more on efficiencies. As farms continue to get larger, farmers are farming in a circle that may be 30 miles, it may be a hundred miles. And also no farmer wants to pull into a 40 acre field anymore. So to make the farm uniform, to have efficiencies from an equipment standpoint, be able to plant, being able to go from one field to the next, without picking everything up and going 30 miles across the county, is definitely something that’s driving some of it.
Another thing I would say that’s driving it, is that inputs are high right now. So I mean, you can easily stick seven, eight, $900 into an acre of corn, and soybeans is growing as well. And if you’re going to stick a ton of money into it, you’re going to want to make sure you took care of what’s under the ground first, because you’re going to have a hard time going out there and spraying fungicide. Or if you’re doing beans, you have a hard time putting fungicide or spraying for aphids, or putting on some micronutrients. If you haven’t taken care of some of your other stuff first. So I think that’s driving a ton of it. And then lastly, I would say just with land changing hands, is probably another large one, as land changes hands more often than not now we’re starting to see that ground is tiled the second it changes hands.
And I think that’s for a couple reasons. One is obviously once you’ve bought something bought, bought, inherited, however you came and however you got it becomes a little bit painful to have to write another check. But if you can do it up front, you can roll that into your financing, I think it’s just a little easier. Kind of like when you’re buying a new vehicle and you just keep pushing the buttons, what you want, just keep pushing buttons and adding features. I think that’s kind of the same way to some degree. So it’s just a little bit easier to do it then. And bankers, bankers are willing to give you more money for it, right? They’re willing to lend the money for tiling.
Jamie Duininck (11:31):
I think that piece is a double edge sword from the standpoint of, if you’re going to pay the amount of money that it’s costing now to buy an acre of farm ground, you can only justify that by making sure it’s going to return by having your water managed. On the other side of that, the guys that weren’t the winning bidder, they were there, they were at the auction, they wanted to buy it, but they weren’t willing to pay that. They go home and say, well, I can’t buy farmland, it’s going too high. How do we get more bushels on what we have? Well, how they get more bushels is manage the land by tiling and water management. So I think it’s both are happening, but for sure, I would say the people I’ve talked to around the Midwest in the last 24 months, it seems like that piece has really picked up where they tile it immediately.
I think I mentioned this on a podcast not too long ago, as a farm that I know sold in December in Minnesota here, close to where [inaudible 00:12:39] goes at, and it was all tiled. It was 400 acres, it was all tiled before the crop was planted that spring. So a lot of guys will put it like you say, if they’re financing in their financing, but it still might take a year for somebody to get there. I was surprised when I knew that ground switched hands in December to see pipe on the ground there in March.
And some of that is probably due to you have ground switching hands, and I think most farmers in general know the math behind it. They know that they can tile their own land and they can make more money if they tile it. However, a lot of farmers rent a lot of ground, and sometimes it’s harder to get that landlord convinced that they should spend the money on tiling. So I’m guessing there’s a higher proportion of that rented ground that still needs pipe. So I guess it would make sense that as that starts changing hands, either going to an investor or a farmer that farms something across the road, that there’s opportunity there to tile that ground, because it was just harder to get that landlord in the past to pull the trigger, spend the money.
Jamie Duininck (13:47):
What are you seeing out there right now, in regards to demand and driving demand when it comes to installation practices and how the contractors are installing pipe, is anything new? Is there anything going on that people are excited about?
Karl Guetter (14:04):
Probably not as exciting as it was in the early to mid two thousands when you had the advent of GPS grade control on plows. I mean, that was a very significant point that allowed contractors and farmers with farm plows to install a whole lot more pipe in a lot less time. And that was huge. During that same time period, we had really … farmer plows got popular. There was hundreds and hundreds and hundreds that were being sold every year. So that was a unique time in history that really drove demand during that period. We don’t have those same things today. However, I would say that today it’s more the design technique that’s starting to drive some of this, and this is contractors wanting to be efficient. A few years back plowing both ways got popular, plowing away from the main and back to the main. Obviously they knew where the main was. They could go right over the top of it and plow both directions. That was huge. That really increased capacity.
Now I would say it’s more in the design itself, taking a look at a farm and not just looking at the design from a, where can I get to if I put my main here and plow away from it? Not necessarily looking at line length, but really looking at optimizing that plow coming back to the main, and then going back the other direction. So that’s meant a ton to quite a few contractors and it’s probably led to some of what we’re seeing right now. I mean, they’re getting ridiculous amounts of pipe through a single plow this year. Things we wouldn’t have even thought about back in the early two thousands.
Jamie Duininck (15:29):
And I suppose the Flex dual wall product that’s out in the market now is helping some with just being able to install that main faster too.
Karl Guetter (15:38):
Flex dual. I mean, contractors taking a look at plow utilization from … if you have multiple plows putting one plow on mains and coming back with another one for laterals, I mean, they’re really diving into the feet per day, right into the efficiencies on them, and trying to dial that to where they know they can accomplish the most in such a short window. Because springs seem to get shorter every year. I know it’s probably not happening. Averages typically average out that’s why their averages, but it just feels like it. And also in the fall as well. I mean, you only have so many weeks from harvest until freeze up. So they have to maximize that time in order to make the payments on the equipment they’re buying.
Jamie Duininck (16:17):
That made me think of when you say springs get shorter every year, it feels like … I talk to you a lot. I don’t think I’ve ever asked you this question, but in a year we had this year, in a spring like we had in 2022 in the upper Midwest, and how late things got planted, how much wouldn’t have gotten planted 20 years ago? Just with the type of equipment we have today, or 30 years ago. Is it realistic to say it would’ve been a much different scenario just because we have so much better equipment bigger, faster?
Karl Guetter (16:52):
It certainly would’ve looked different, as far as a percentage, I don’t know if I can put an app actual number on it. And I think they probably still would’ve got a lot planted. It wouldn’t have gotten planted probably till close to the 4th of July. Years ago, go back to the seventies or eighties, you couldn’t go through the fields that we can go through now, you couldn’t do things as fast, things weren’t tiled tractors got stuck a whole lot of easier than what they do today. They probably still would’ve got the majority of it planted, but it would’ve been much later. So in the later you plant, you get yield drag from planting late. So the return, right, or the yield, would’ve been much different coming into the year.
Jamie Duininck (17:31):
Then I asked that too, because prevent plant is something, if you live in Illinois or Iowa, don’t really … a lot of people don’t even know what that means. We live up in Western Minnesota or the Dakotas, it’s something that happens quite a bit and it’s climate related. They can’t get in the fields as near as early, but we working in this industry, we know that if you have pipe in the ground, your chances of getting in the field are almost a hundred percent. I mean you might have to wait till later, but you’re going to get in. And so that prevent plant thing has been good for our industry, because we can get in in the summer and do some work. But it also something that again, kind of a double edged sword for me when I look at and say, from the standpoint of what’s right, we should be just managing all these fields, managing the water, because then we wouldn’t have to worry, government shouldn’t have to pay this prevent plant payment very many years, if any, going forward.
Karl Guetter (18:32):
You will not only get it planted. But also like I mentioned earlier, you’re going to get the whole field planted, versus just coming back to it two or three times. And again, as farmers get larger, have to cover more ground, it becomes more painful to come back to those fields two or three times. So you’re right, they don’t have much prevent plant very often down South, obviously their windows a lot longer. They don’t have a backside to their growing season like we do up here. But managing your water, knowing your farms, draining them properly, not necessarily just draining every acre you have the same, but draining it properly to make sure that you can get across it, get through it and also get a return off of it, is more important than ever.
Jamie Duininck (19:21):
Yep. I just believe that every year that goes by now, we’re going to see … that’s how I correlate a shorter spring, is because things are just more efficient with … maybe it’s just the drainage that’s in the field that helps you get in earlier, which just speeds things up, but it always feels quicker and quicker to me. And so it’s just an interesting conversation, not really going anywhere with that point.
But farm economy, you got a really good grasp from my perspective, because you work in it from the standpoint of trying to sell a product to farmers every day, but then you’re also a farmer. So you kind of know what’s going on, and we’ve batted that around different times the last few months, on where we think this thing is going. And to me it’s just super unique right now. We’re living in a unique time because we have things that you never would’ve seen coming.
You couldn’t see coming that positively affected farm incomes and farmers, whether it’s what was going on in China and how Trump handled that. And there was some payments to farmers on soybeans a few years back, whether it was COVID and some of the PPP money or now the Ukraine, Russia war, all three have had a positive impact on farmers one way or another. Where is it going from here? A lot of times, my perspective is always when there’s something from the outside that affects it, it has to come back the other way eventually. And we’ve got to counter effect that, but how are you feeling as a farmer about what’s happening?
Karl Guetter (21:07):
I mean, holistically, I’m very bullish [inaudible 00:21:09], just because I think that there’s a need for food, there’s a need for fuel. Those are the two things that you’re really satisfying. So holistically, I would say I’m bullish. I’m a big believer in cyclical trends. So you’re right, there’s going to be a backside to this hill that we’re on right now, the million dollar question, or billion dollar, however high you want to put the number, is when? That’s a key. So right now we have had a few outside influencers that have probably driven it a little higher than it would’ve been. It’s may have stayed there a little longer than what it should have to some degree. And you’re right, farmers have had some pretty nice surprises in the mailbox over the past couple years that have helped keep them whole and actually strong. I think during this period, let’s say 2020 and 2021 specifically now in the areas, especially they’ve got good crops that had good yields.
Obviously they’ve had good commodity prices to go along with it. They’ve probably healed up some of the wounds from the previous five or six years, 14 through 19. So I think the farmers are probably sitting pretty strong. Obviously that’s probably contributed to some of the high land prices that you’ve seen. The one thing that concerns me is, we have probably historically high input fertilizer prices going into fall this year. And we don’t know what that next year’s going to bring yet. We don’t know what the insurance situation’s going to be for next year, what our spring price is going to be. So I think guys are a little bit nervous right now. Just not knowing if we’re really close to that backslide of this cyclical wave, right? Because they’re going to have a lot of input costs going into their 2023 crop. I’ve always said in the US, it feels like the government won’t let farmers go broke.
It certainly won’t let all the farmers go broke, to your comment on the payments that they’ve received. And I think that’s true to some degree, but I think the guys that operate strong operations that do smart things, have really done well over the last couple years. They’ve reinvested. I mean, you can see that if you talk to a John Deere dealer, I don’t know how far out a new John Deere combine or tractor is right now, probably mid 2023, maybe it’s 2024 already. They’ve invested in tile. I mean, that’s our strong demand that we’re seeing right now. And I think overall they’ve done the right things to make themselves stronger to handle the backside of this slide when it happens.
Jamie Duininck (23:39):
And I think one thing that we don’t talk very much about is that it was tough from 14 to 19 for farmers. And I ran in … good friend of mine that I was talking to last summer, but he had said, with what happened in the last, so this was last summer, but in the last 12 to 18 months, he said, if that wouldn’t have happened, that we would be looking at a different scenario in agriculture right now, because there was just a lot of guys that couldn’t hang on another 18 months, since they had been in this cycle of just kind of low commodity prices and tougher years for five years already. And so we were due for that cycle up, but now we’re going into the third year. So that’s why I question it and I appreciate your way you’re explaining that. Because I tend to agree that for the most part, I think the whole farming community and especially the strong farmers are very well heeled compared to where they were three years ago. And they’ll be able to weather a little bit of this going forward. We just don’t know what the backside of this looks like, so.
Karl Guetter (24:52):
You had an ag economist, I think it was on your last podcast that talked about growth when things aren’t so rosy. And there was a fair amount of that happening through that 14 to 19 or maybe it was 15 to 19 time frame when things weren’t all that profitable per se. So it is a good thing that these cycles happen right, and we get periods in time when those that did take maybe a little more risks than what they should have, have a chance to hold themselves, make themselves whole again.
Jamie Duininck (25:20):
And that’s why I think things like the land price is probably, it’s probably going to be a while before we see lower land prices, because we did see it. If you go back to 2000, probably 2008 to 2012, land was up every year and then maybe it was into 13, I don’t remember. But then there was a slide from 12, 13 all the way to probably 19 that, I don’t know, from my perspective, that was maybe a 20% slide from the top to where it slid to. But now with what’s happened and with farmers having some money, we’re probably not as far away from the economy changing, but I personally feel like we’re a ways away from seeing land prices go down again, unless this inflation thing where the financing rates continue to go up to a point where it changes it. I don’t know.
Karl Guetter (26:21):
I’m guessing you’ll start to see some of the marginal land tail off here at some point. But if it’s good ground, if it’s got good drainage, the water’s been managed on it, it’s going to stay strong for a while. I hate to put a number on that because I’ve been wrong before, but that’s also going to feed into why I’m excited about pipe in our industry, moving forward, because as these land prices are high. I mean, guys, are not stupid, I mean, they see what some of this ground is bringing when it’s well drained. And in these times when maybe they’re not buying, they’re still going to invest, right? They’re still going to invest in their land. They’re still going to want to put tile in where they can, do projects where they can, just to put themselves in a better position. So, I mean, we always have the weather thing to worry about, mean droughts obviously do curtail the tile demand, but drought aside, I’m very bullish on tile and installation of tile and tile demand for the foreseeable future.
Jamie Duininck (27:20):
Yeah. Well great. Me too. So anything else you want to share with us on your debut on the Water Table podcast here?
Karl Guetter (27:32):
Well, my dad always told me I’m the luckiest guy alive because the only thing I’ve done my entire career is sell drain tile and grain bins. He said both of those have returned. Even I could sell those. He tells me, so I’ve been pretty fortunate and I appreciate the opportunity to be on the show and just looking forward to what the next few years bring.
How do you feel, something that you and I have talked about, been a while, but offline and something we haven’t done on the Water Table podcast, but how do you feel that the need, I guess, where is the need to do a podcast with a banker, with an agricultural banker to just talk about the returns and why they’re willing to take some risk and loan farmers money on drain tile, and managing water on a piece of property.
Karl Guetter (28:26):
We talked a little earlier, a little bit about it’s … part of the education has to happen at the land owner level, and not so much the grower, but the land owner level. And if you can get someone from the financing group on to talk and we can get the right people to listen, I think, the story never changes, but getting the story to the right ear sometimes is probably the harder thing to do. A banker or anyone from the lending institution, it’s a third party. So they don’t have a vested interest necessarily in either getting someone to tile or talking them into buying tile. So I don’t think it’s a bad idea. The key I think is trying to get it to the right set of ears.
Yep. Yep. Well, thanks for being on the podcast and for all you’ve done over the last close to 20 years in out of the industry, been a real advocate for managing water on the farm, and for rural America issues. And that’s what we talk about here. So thank you for what you’ve done and we’ll see you again on the Water Table.
Karl Guetter (29:34):
Jamie Duininck (29:43):
Thanks for joining us today on the Water Table, you can find us at WaterTable.ag. Find us on Facebook. You can find us on Twitter, and you can also find the podcast on any of your favorite podcast platforms.