Unclear on the concept...  

Economists and ag journalists are so anxious to see a reversal of farmland prices so their decades-long warnings can be said to have come true they are starting to confuse an inflection point with a "tipping point".

Iowa farmland values have definitely hit a tipping point, agreed Iowa State University economist Mike Duffy. The state's ethanol industry helped spawn four years of 20% to 30% land appreciation since 2007, almost on par with 1970s-style inflation. "Now the gains are slowing down, but I don't see a big collapse ahead," said Duffy, who thinks Iowa markets might slip back to 10% year-over-year gains by November, half the year-ago levels. "This adjustment will feel more like a tire with a nail in it." [More]

I done the ciphering and "slipping back" to 10% gains  does not consitute a tipping point, IMHO. A lot of 401K owners would love a mere 10% annual gain.

And charts like this don't help.

[Same source]

This is bad charting. While labeled "Actual thru 2012", the blue line should be dotted or indicative of the shift to estimates for 2013 and beyond. The decline shown is all in the author's imagination right now.

Well, I'm going to an auction tomorrow for 80 screwy acres next to me. 

We own the 40 acres in the corner as well as farm all around it. The drainage ditch makes it a headache but does give us a great tile outlet.  Ground quality is meh. 

Since we're interested, my experience is it will go sky-high.  I'll let you know how it turns out this weekend on US Farm Report (we're bringing a shooter down).

Junkbox, Episode MMXIIIΩ...  

Actually getting drier here. Hmmm....

• How much ale did they drink in the Middle Ages?
• Why don't Indians like The Hobbit?
• The Aquaman of Charts
• Snap Quiz: Name the 3 highest paid individuals on the Pentagon budget?
• The Last Telegram: Morse's Remorse?
• The Heartland Institute is descending into buffoonery.
• Seriously, 222# of beef per person per year?

While all eyes in farm country are on the farm bill, immigration reform is in trouble I think. 

Crap in the Farm Bill: Exhibit C - F...  

The Natural Stone Checkoff. 

I don't have an issue with refundable checkoffs for any industry, but the Farm Bill? The fact this is included is indicative of how Congress views it as the Mother of All Pork Handouts.

And speaking of pork...

Pork and poultry producers are exposed to trade and food safety disruptions to their export markets, which contributes to the importance of addressing the issue of catastrophic losses. Klobuchar included a provision in the Senate-passed Farm Bill that would require a feasibility study for insuring swine producers against catastrophic losses, and she also cosponsored a provision that would require a feasibility study for insuring turkey and chicken producers against catastrophic losses. [More]

I dunno.  The more larded up this thing gets, the lower the chances of passge, I think.

With Koch-money fueled threats of Tea Party primary opponents, many Republican House members will be picking their way through a minefield.

Finally, another Southern effort to support a commodity that market forces don't.

Crop insurance and price-support plans hold the most risk for bigger federal spending, Smith said. Along with revenue guarantees for peanuts and cotton, the bill includes the catfish provision as well as the consideration of catastrophic-loss plans for poultry and swine and regular policies for alfalfa and sugarcane.
Temperate japonica rice used in sushi would be added as a crop eligible for price supports. The new program is justified because direct payments to rice farmers would be eliminated in the bill, said Charley Mathews Jr., who raises 600 acres of the rice variety near Marysville, California, about 40 miles north of Sacramento. [More]

So, add alfalfa to the list - which just keeps growing. Cattlemen could be the last holdouts.

Of course, this is all Obama's fault, according to some.

Remember TARP?...  

You know the terrible, awful, no-good bailout to evil companies and undeserving businesses that wasted gazillions in taxpayer money and cost everyone involved mucho political capital?

Funny thing. Not only did it likely stave off a total collapse, it's slowly becoming the best investment we taxpayers have made in a long time.

The Treasury is authorized to spend $475 billion of the TARP (In July 2010, the financial regulation overhaul reduced TARP’s spending cap to $475 billion from the original $700 billion.). It has created 13 different programs, to which it has promised $465 billion.
The government committed bailout money to 925 recipients. Those recipients have received a total of $418 billion. A total of $364 billion has been returned.
The Treasury has been earning a return on most of the TARP money invested or loaned. So far, the total return is: $50.6B.
The main sources of that revenue are $22.2 billion through dividend or interest payments, $19 billion from sales of equity or other assets that Treasury acquired (mostly stock in Citigroup); and $9.39 billion through stock warrants which Treasury received as part of most of the investments. When companies pay back the TARP investment, the warrants are either sold back to the company or auctioned off.
When those revenues are taken into account, $3.18 billion is the net amount still outstanding.
While the Treasury has paid out money to 925 recipients, only 780 of those received funds via investments meant to return money to taxpayers. The rest received subsidies through TARP’s housing programs – that money (so far totaling $6.38 billion) isn’t coming back.
Of the 780 investments made by the Treasury, 469 have resulted in a profit. 75 of the investments resulted in a loss. So far, the profits amount to $43.4 billion, while the losses amount to $5.02 billion. 236 of the investments are still outstanding. [More scrupulously careful accounting]

Hat's off to Hank Paulson for his courage and extremely hard work. And props to President Bush for supporting the unpopular move.

But wait - there's more! Even the money thrown down the Freddie/Fannie rathole (technically not part of the TARP) may not be beyond recovery. (See above source).

Crap in the Farm Bill: Exhibit B...  

John McCain, with whom I sporadically agree is making a valiant, but probably futile attempt to excise one egregious bit of rotten special interest legislation from the bloated farm bill.

If the chairman and ranking member have their way, the Farm Bill will soon ban catfish imports for seven years due to “food safety concerns” while USDA organizes a specialized catfish inspection office. During that time, southern catfish farmers become big fish in a much smaller pond – at the taxpayer’s expense.
I obviously support maintaining a safe food supply. But seafood inspections already fall under FDA’s jurisdiction, which requires foreign catfish farms to follow the same food-safety standards as domestic farms. Unless catfish have suddenly sprouted legs, USDA should stick to meat, poultry and egg inspections.
Don’t take just take my word for it: The Government Accountability Office (GAO) investigated this catfish sham and in four different reports concluded that it is duplicative of FDA’s standards and a waste of taxpayer money. One GAO report, simply entitled “Inspecting Catfish Should Not Be Assigned to USDA,” said the department would use “outdated and limited information” and “the cost-effectiveness of the catfish inspection program is unclear because USDA would oversee a small fraction of seafood imports.” That same report calls on Congress to repeal the catfish inspection program.
I hope supporters of good government will join us in publicly demanding that the Senate’s Farm Bill managers allow a vote on this amendment. This is one fishy deal that needs to be fried on behalf of the American taxpayer. [More]

Bless your heart, John. But make sure your insurance is in order when this Pork Truck runs over you.

This is why I don't take many of the fiscal hawks seriously: they only want to cut everyone else's slice of the federal pie.

In the same vein, kudos to Sens. Roberts and Thune for voting no.

Meanwhile, the Brothers Koch have joined the fray on the same side as...uh, me.

Yippee?

Just suppose...  

I told you that Jan and I were going on a cruise to somewhere in Europe. [Hint] We're thinking about asking local friends to go with us. Would any of you oddly loyal readers want to know about this and possibly join us? No organization, but honestly, I would love to sit down and visit with some of you guys without having to type with two fingers. We'd just be a bunch of peculiar persons who wind up on the same ship and decide then how much time we want to spend with each other.

This would be next year.

Probably. Or not.

And I may be able to get some discounts, but no promises.

No, you don't have to attend any lectures by yours truly.*

No pressure. We'll go without y'all, anyhoo.

*Unless that would make it tax-deductible.

[You can reply privately (not counting NSA) to my e-mail.]

First!*...  

My favorite policy wonk, Ezra Klein at WaPo posts on the same topic I used for my commentary this week on USFR: How the U of M sells their consumer sentiment survey results early to both the press and traders who scoop up "dumb money".

It’s not just media companies and financial data providers who have to grapple with this. The same applies to the research departments at investment banks, who periodically come under fire for giving their clients access to reports upgrading or downgrading a company’s stock before the information goes out to the rest of the world. As Richard Curtin, the economist who runs the University of Michigan sentiment survey, told the Wall Street Journal in defending the practice of early release put it: “This research is totally funded by private sources for the benefit of scientific analysis, to assess public policy, and to advance business interests. Without a source of revenue, the project would cease to exist and the benefits would disappear.”
Whether you’re a reporter who comes up with a scoop on the Fed, an analyst who has an insightful take on what a big company’s stock is worth, or a university doing a large and expensive survey, somebody has to pay the bills. And this conflict between the needs of investors — that limited, early access — and what is best for the public and markets as a whole, isn’t going away. [Short post worth reading]

The days of timing any market are over. And frankly, I think derivatives (options) are even more subject to HFT and black box trading. Like people managing 401K's, I'll stick to blind averaging or index-type funds.

*EK posted this afternoon. I recorded the show at 8 am.

Crap in the Farm Bill: Exhibit A...  

Of course to my mind, it is pretty much all crap, but there are some real stinkers in the likely outcome from conference committee.

Fearful of anything that even looks like Dodd-Frank, House Republicans want to block a modest federal rule giving farmers and ranchers a greater say on salary increases for senior officers in the banks and co-ops that make up the Farm Credit System.
The rule itself is quite limited and was adopted last October on a bipartisan basis by the three-member board of the Farm Credit Administration, which oversees the nearly century-old FCS network of government sponsored lending institutions.

As shareholders in those associations, farmers and ranchers would be guaranteed a “say-on-pay” vote if compensation for the top corporate officers jumped by 15 percent or more in a single year. But that vote would be non-binding and only advisory.

Nonetheless, the rule has been met by strong opposition from the well-connected Farm Credit Council, the Washington-based trade organization representing the lenders in the farm credit network. And it echoes enough of the 2010 Dodd-Frank financial reforms that Rep. Robert Aderholt (R-Ala.) has drawn a sharp line in his draft 2014 budget for the Agriculture Department and related agencies like FCA.
The $19.5 billion measure, which quickly cleared Aderholt’s Appropriations agriculture panel Wednesday morning, specifically denies funding for the FCA to implement the “say-on-pay” rule. Thus far, most debate has focused on controversial cuts from food aid proposed by the same bill. But the FCA issue is sure to draw more attention when the full Appropriations Committee takes up the measure, likely next week.

[More]

The say-on-pay measure was prompted by stunning salaries being awarded to CEO's in the FCS as it rides the ag boom wave. The bipartisan Farm Credit Administration board thought a mere advisory referendum would be a gentle indicator that captive boards needed some restraint, and they heard plenty from FCS employees.  And after all, isn't that what Farm Credit is becoming all about now?

From the Farm Credit Bank of Texas 2012 Annual Report:

 

[Click to embiggen]

Partly I blame/credit the demise of earmarks for the inclusion of such blatant special interest give-aways. That's how tidbits like this used to be handled.

But Farm Credit competes with my local bank with a huge advantage. They are a GSE - Government Sponsored Enterprise. They have the implied backing of the US when they sell their bonds and, as we found out in the 80's, the almost guaranteed assurance of a bailout when they screw up. Perhaps given those circumstances, they would be foolish not to take advantage in the era of "me first". Still, to go to the barricades to prevent an advisory referendum?

Just spare me the pious sermons about service to agriculture and humanity, etc. FCS is proving no different than any other player in in our increasingly parasitical financial industry.

But as I lift up more of these hidden rentier schemes, keep in mind this is the farm bill (some) farmers are demanding. They'll deserve the consequences, as well.

Taking some time...  

Loyal reader Kevin asks about what's going on here in IL.  The posts have been sparse for a variety of reasons: some distant family health issues, lack of motivation, competition from my woodshop, and The Paywall Problem (about which I will post soon).

As for the crops, we thought we would have a three-day window beginning 5/15 so the two families now working together on our adjacent farms decided to hit it as hard as possible. Running almost 24/7 we put the whole crop in in 8 days - 4100 acres. The three day window expanded just enough to get it done, and the crop has emerged very well. However, it took the older generation some time to recover. (We were counting on some interruptions that never happened, I think)

I think this type of season - with narrow windows - may be more likely in the future for our part of the world. It what climatologists told us would happen. The expensive tile we installed finally generated some payback, but also illuminated the need for yet more.

Since then, the corn is showing variability - not unusual, but more than expected. Still, I wouldn't trade ours for any fields I have seen in my travels. All in all - absolutely no complaints.

We are working to get spraying done in between showers, but have not had the big rains experienced both north and south of us.

I appreciate all who read, and have been feeling guilty for not posting, but not quite guilty enough, I guess.

More soon.

Junkbox, Episode MMXIII♒...  

Jeez - swimming hasn't been much fun this year.

• I wonder if this tendency affects farmers after a drought
• It's important to keep in mind that farmers are the "labor" in this discussion.
• Best commercial you'll see this month
• The zero-bound problem hits high-frequency trading
• What economists are good for.
• The tech-demise of payday loan operations
• The return of the boarding house. Or dorm. Or something.
• Who wants 1950 corn prices? Put me down.

Anybody have extra GDUs?

Mobile money update...  

I thought I had written before about the non-bank financial system springing up in Africa using mobile phones, but I guess it was just a passing reference to the mechanism for giving to the poor directly.

The good news there is more evidence is coming in that this is an extremely efficient and effective way to raise standards of living.

It’s easy to see that a nice injection of cash would make people better off. But in principle, the long-term impact could be ambiguous. Give money to a person whose only job prospects are low-paying and unpleasant, and perhaps he’ll simply respond by working less. That kind of income support would increase human welfare, but not really create any economic growth. That’s not what happened in Uganda. The government selected 535 groups—a total of about 12,000 people—for the experiment. Of the 535 groups, about one-half were randomly selected to actually get the money, and the rest were denied. Blattman, Fiala, and Martinez then surveyed 2,675 youths from both the treatment and the control group before dispersal of money, two years after dispersal of money, and four years after dispersal of money. The results show that the one-off lump-sum transfer had substantial long-term benefits for those who got the cash. As promised, the people who received the cash “invest[ed] most of the grant in skills and business assets,” ending up “65 percent more likely to practice a skilled trade, mainly small-scale industry and services such as carpentry, metalworking, tailoring, or hairstyling.” Consequently, recipients of cash grants acquired much larger stocks of business capital and thus earn more money—a lot more money. Compared to the control group, the treatment group saw a 49 percent earnings boost after two years and a 41 percent boost after four.

Those strikingly high returns are reminiscent of one of the oldest and simplest accounts of economic growth there is. According to this theory, poverty is caused by a lack of capital. Because the absence of capital is so immiserating, the return on investment in poor places is extremely high. Thus capital ought to rapidly flow from rich places to poor ones, rapidly boosting incomes and inducing economic convergence. In practice, though, we don’t really see this happening. That’s inspired a lot of complicated thinking about the roles played by institutions, public policy, culture, epidemic disease, and just about everything else under the sun.

The Ugandan experiment suggests a simpler answer. Maybe there’s just no feasible way for subsistence farmers and casual laborers in rural Africa to get loans at reasonable interest rates. When young people get money for free, they’re able to put it to such good use that it’d be well worth their while to pay interest in order to get their hands on it. But there’s no Ugandan equivalent of federally subsidized student loans for youth to jump-start their tailoring careers. [More]

The study was long enough and large enough to warrant serious consideration, and I think it provides an alternative to schemes we love but we know don't work. It also lessens the tendency to blame outcomes on the poor themselves, as it appears under this better arrangement, the poor respond the way western-style capitalists think they should.

However, Africans are finding out the baggage that comes with success, however small. The new form of mobile money has triggered some interesting social and cultural consequences.

The “Sambaza” paper explains that mobile money is both helpful and disruptive. Men, who in the past had been dismissive of the social gatherings around mutual savings clubs, are now forming mutual savings clubs themselves over mobile phones, assessing credit through shared bonds such as trade—among bus drivers, for example. But mobile money strengthens traditionally weak bonds among what anthropologists call “uterine kinship.” A wife can stay attached to her own birth family by helping with school fees, for example.
“When I commented to one lady that she did not name her husband as an e-money contact,” one author writes, “she clucked in annoyance—and pointed out her farm and chickens, entrusted to her by her mother-in-law.” Property, real value, passes from father to son. Mobile money may not be the hoped-for story of empowerment for women in Western Kenya, the authors point out, but rather a coping strategy for maintaining ties to the home she was born to.
And some mobile money account holders report avoiding their phone altogether. From some people, no call comes without a request for money. “Nowhere to hide,” the authors heard, and “it is a curse more than a blessing.” This is a familiar problem to any parent with a child in college; every society has some level of ritual and social expectation around cash. But actual experience with mobile money in Kenya, where the service is most widespread, leaves hopeful development economists with a problem. There can be no mobile economy until cash loses some of its ritual social meaning. This happens with economic opportunity—the economic opportunity that mobile money is supposed to help provide. [More]

This type of technology work-around must be giving the banking industry heartburn, and it should. Reducing the chances for fees to be charged is not a good business plan for an industry that has grown fat extracting income from those least able to afford it.

But if you read the whole article above, you can get a hint of how having money will change how Africans relate to each other socially, and within families. Everybody has one of those brothers-in-law.

Word of the Day: Sheepwrecked...  

Sheepwrecked: ruined by overgrazing sheep. It's hard to imagine sheep as a threat in the UK (What about all those wonderful James Herriot tales?). But the evidence is pretty clear.

Sheep have reduced most of our uplands to bowling greens with contours. Only the merest remnants of life persist. Spend two hours sitting in a bushy suburban garden and you are likely to see more birds and of a greater range of species than in walking five miles across almost any part of the British uplands. The land has been sheepwrecked.
I accept that hill farmers are only trying to survive, and that theirs is a tough, thankless and precarious occupation. I’m not calling for the entire tradition of hill-farming to be abandoned (not that there’s much left of it in this age of quad bikes, consolidation and absentee ranchers). I am calling for a good deal more scepticism about the claims of those who champion it. And for a sweeping reassessment of a subsidy system which has been sold to us with a series of falsehoods.
Do we really believe that keeping the hills bare, wiping out wildlife, helping to flood homes and farms and exacerbating landslips is a good use of public money? [More]

It calls to mind the herder/cowboy conflict of our Western past.

In the case above, it is hard not to side with keeping the English countryside frozen in time. It is incredibly picturesque and charming.

And you can never put it back the same.

But it's not my call, even though I feel more at home in England than anywhere except home.

Your intuition was right...  

If, like me, you are convinced rural America is depopulating, you have some hard evidence to verify your perceptions.

It is not clear that the population decline is permanent, the USDA said. Nevertheless, much of rural America – 15 per cent of the US population spread across 72 per cent of its land area – faces population decline.
John Cromartie, a geographer with the USDA’s Resource and Rural Economics Division, said that the exodus of younger rural residents had left many rural areas with a population that is “ageing in place”.
Losing people in their 20s and 30s, the prime childbearing years, meant many rural regions were seeing their birth rates decline significantly. Those people who did move to rural areas tended to be older adults past their childbearing years.
Mr Cromartie said that although further analysis of the latest data was required, earlier studies suggested that rural America was ageing more quickly than the rest of the nation. A 2009 analysis of data for the first half of the decade showed, for example, that those aged 65 and over accounted for 15 per cent of the rural population but 12 per cent of population nationally. [More]

The analysis this is based on is here. Another note is the boom in farm income didn't solve the problem. It made farmers wealthier, but didn't save small towns, rural economies, or stem the loss.

It may seem harsh, but outside the significant problem of providing decent schools within workable distance, depopulation of ag country solves some problems such as nuisance lawsuits, traffic congestion, land division for homes, etc., and conflicting community goals. When only farmers live in a county, there should be fewer collective headaches, it seems to me.

But as I said, where will my grandchildren go to school?

The Holy Trinity unpacked...  

We were grappling with this in Sunday School this week, so how timely is this helpful video?

 

Clears it up for me.

The missing data...  

I have long been suspicious of most microeconomic analysis done on farms when it is based on FBFM (or whatever the equivalent is in your state).  There are several reasons.

First, the data sample is relatively small and not random. Indeed it is self-selected, and I think there are reasons to think it represents a unique sub-sector of any state's farmers. I cannot find any comparisons between the participators and the general farming population, but I suspect FBFM is highly concentrated on smaller and older farmers. Since one reason for continuing I have heard from neighbors who do use FBFM is to "get their taxes done", I'm uncomfortable reaching broad conclusions about the state of farm economics from this (possibly) divergent sample.

Second, I am persuaded FBFM gets little data from larger farm operations. Probably it is because they have their own accountants and tax preparers, or the comfort and skills needed to manage Quickbooks, TurboTax, etc. You can kinda see this in the reports where the numbers from large farms are pretty thin. Without good sampling in this group, any results are certainly skewed.

Similarly, I think FBFM is dealing with older - mostly Boomer - producers. It was very popular when I was younger, but not so much today, and the ease of stating with what you know may be the biasing factor for membership. Again, not a representative or statistically solid sample, IMHO.

Finally, I am concerned about the survivorship bias. We're reaching conclusions about farm business decisions based on winners alone.

Simply put, survivorship bias is your tendency to focus on survivors instead of whatever you would call a non-survivor depending on the situation. Sometimes that means you tend to focus on the living instead of the dead, or on winners instead of losers, or on successes instead of failures. In Wald’s problem, the military focused on the planes that made it home and almost made a terrible decision because they ignored the ones that got shot down.

It is easy to do. After any process that leaves behind survivors, the non-survivors are often destroyed or muted or removed from your view. If failures becomes invisible, then naturally you will pay more attention to successes. Not only do you fail to recognize that what is missing might have held important information, you fail to recognize that there is missing information at all.

You must remind yourself that when you start to pick apart winners and losers, successes and failures, the living and dead, that by paying attention to one side of that equation you are always neglecting the other. If you are thinking about opening a restaurant because there are so many successful restaurants in your hometown, you are ignoring the fact the only successful restaurants survive to become examples. Maybe on average 90 percent of restaurants in your city fail in the first year. You can’t see all those failures because when they fail they also disappear from view. As Nassim Taleb writes in his book The Black Swan, “The cemetery of failed restaurants is very silent.” Of course the few that don’t fail in that deadly of an environment are wildly successful because only the very best and the very lucky can survive. All you are left with are super successes, and looking at them day after day you might think it’s a great business to get into when you are actually seeing evidence that you should avoid it. [More worth reading]

My hypothesis is the losers in our industry are not so different from the winners, except for luck. We don't like to think random chance has that much influence on success, but between, birth, location, marriage, and weather, an awful lot of what we call success is delivered to us free.

That said, I will readily admit we don't have any other sources we could use to generate any kind of decision aids. But the fact FBFM is the best we can do still doesn't make it good information or the analysis useful for many. In fact, it could be, I suspect, a major paralyzing force for farmers who are trying to stay in the middle of the herd and avoid risk. By not being able to see what the both big players do and what failed producers have done, we can reach some false conclusions, and the competitive level we now face leaves little room for blunders based on bad data.