Thursday, May 21, 2015

Thinking unthinkable thoughts...

 Don't ask me why, but I have been struck by two seemingly disparate events the last few days that led to a minor epiphany, or major wild-ass guess - take your pick.

First the DuPont boardroom skirmish.
It turns out that activist investor Nelson Peltz came very close to being elected to DuPont's board of directors, according to vote totals released Wednesday.Peltz, principal at Trian Fund Management, launched a proxy war to gain four seats on DuPont's board. He conceded defeat last week at the company's annual shareholder meeting after DuPont shareholders elected all 12 of the company's nominees.The preliminary vote totals, disclosed in a Securities and Exchange Commission filing, reveal that Peltz received 293 million votes, just 77 million votes behind DuPont Director Robert Brown, who had the fewest number of votes among the company's nominees. Brown, president of Boston University, received 370 million votes.Peltz got 43 percent of the 681 million total votes cast. Although 77 million may appear to be a large gap, DuPont's three largest shareholders own between 25 million and 50 million shares of company stock.Just one of those shareholders could have made a difference, but it is unknown how the company's biggest stock owners voted. Typically, large pension funds that vote in multiple proxy fights disclose their votes in all of them in one report released in August. [More]
This was interesting in and of itself, but the case Peltz made was supported buy an SEC filing which included this slide (apparently all business is now done in PowerPoint):

[Please do click to enlarge]

But...but...the PIPELINE!  We have been promised all kinds of wonderproducts emerging assembly-line-like that will make yields soar and demolish problems like weeds, fertility, rain, and baldness. And here's this guy who owns 20-odd million shares of DuPont suggesting there's nothing there.

So, looking at this from the DuPont POV is unsettling. You have:

  1. an activist shareholder who could conceivably oust/hassle management if performance doesn't improve (came fairly close this time)
  2. not much new coming in ag to dazzle customers, who can barely afford your old products
  3. a meh-economy that isn't showing great results for the non-ag portion of your corporation
It seems to this uninformed layman that DuPont has almost no room to lower seed prices. Corn prices sure seem to indicate no expansion in acres, so a bigger market is not in the cards. They have $5B in sunk costs (research) to recover and they sure as heck aren't going to get it from shareholders. It comes down to how much blood is in the farmer turnip.

Bottom line: even if they wanted to, DuPont would struggle to compete on price.  But that may not hurt them that much. Because of the same licensing fees listed above, other seed companies likely don't have much margin to cut either.  At the very least seed corn has a floor price for stacked varieties and that floor could be over most farmers' heads with <$3 corn.

Now add in this ongoing struggle with fellow giant Monsanto.

So what does Monsanto do? Instead of hiving off Roundup and becoming a non-pesticides seed company, it does the precise opposite. In seeking to take over Syngenta, it looks to double down in agro-chemicals, including many more forms of pesticide and insecticide in Syngenta’s current portfolio, most of them far more toxic than glyphosate.Indeed, according to the Wall Street Journal, Monsanto has pledged to regulators that it would sell off Syngenta’s seeds division, keeping the chemicals instead. It combines this with the usual arrogant corporate PR campaign with soft-focus imagery and warm words – all the sort of stuff that just puts thinking peoples’ backs up. [More]
I have my doubts that Monsanto is overlooking the above author's point. In fact, this move signals to me their pipeline that looks much like DuPont's. Monsanto could be getting back into the pesticide business because they too have seen the RR/Bt Profit Cliff.

My complaint about GM seed has not been about safety - it's been cost. Stacked corn has very high fixed costs for seed companies, which translates into very high variable costs for farmers. Seed companies have no downside flexibility as their customers lose income. While the consumer resistance doesn't help, mostly I think it's a side show used by seed companies to distract farmers from the economic problem.  If GM protests went away tomorrow, a 2B bushel carryover would still be squashing prices. More than anything, this reminds me of Detroit making cars of declining quality and affordability just before Toyota and Honda showed devoured chunks of market share. 

There may not be much of market for $400 seed corn, even if that is what it costs to produce. Maybe it's down to guessing how long low prices can last, but that seems unlikely for companies this sophisticated. Monsanto looks like it is hedging bets on what they can get for seed by getting back into pesticides. DuPont...they look to be in a much tougher position.

While it's possible trait fees between companies could plummet, I'm not sure how long the licensing agreements last (and am too lazy to do the homework). Should stacked hybrids stop selling, I have to believe those fees would be under intense pressure.

Input suppliers seem to be convinced other input suppliers will break first. But they are all competing for a rapidly shrinking income-per-acre. While normally this would mean farmer and landowner returns would bear the brunt, there is an approaching limit there too. Lenders probably won't fund negative cash-flows for long, and there are not many economies of scale left to exploit for massive consolidation.

It is the lack of apparent options that may be deceiving suppliers. Farmers will grow corn no matter what, they may think. To a degree they are right - what else can we do? But gambling with the possibility of a meltdown in farm economics, or betting on government intervention like the extra AMTA payment of the eighties (very unlikely with this Congress, IMHO) seems to be the directions we are heading. 

After watching financial sector collapse in 2008, I am no longer so sure such apocalyptic outcomes are unthinkable. Looking at the seed industry, I'd say one piece of tinder is in place for a wildfire.

Monday, April 06, 2015

The savings glut hypothesis...

 Is gaining some momentum. Very slowly, the idea of low returns to capital for a loooong time is becoming not just less unthinkable but more inevitable.

Third, we may be headed into a world where capital is abundant and deflationary pressures are substantial. Demand could be in short supply for some time. In no big industrialised country do markets expect real interest rates to be much above zero in 2020 or inflation targets to be achieved. In the future, the priority must be promoting investment, not imposing austerity. The present system places the onus of adjustment on “borrowing” countries. The world now requires a symmetric system, with pressure also placed on “surplus” countries. [More]
I'm still working through what this means for farmers. Could Aaron spend his career believing that borrowing at 4% is to be expected? Will any project that can earn a 5% ROI be worth looking at?
For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. [More]
It is looking to me more likely that this is indeed the future. Working through what this means for investing and saving, especially for retirement is not encouraging for many. If the best you can hope for is 3-4% return, the mountain of wealth needed to retire becomes immense.

Which, of course, tends to increase the savings glut, postpone consumption and - yep, you guessed it - reduce interest rates.

Wednesday, April 01, 2015

Tough turning back...

 Just as guys are trying to plant more non-GMO seed due to resistance, cost, or whatever, producing seed pure enough for non-GMO standards is getting nearly impossible.  I've talked about the problem of growing non-GMO specialty corn.

I think the standard for seed is 0.1%; my standard for non-GMO is 1% and it can be really problematic, even with big (200+ A) fields.

This is pure hearsay - and I can't even remember who said it, but the rumor is is takes huge fields of beans to bury non-GMO seed corn production in to meet the purity test.

If you have any better info please comment or give me a tweet. [@jwphipps]

Wednesday, February 04, 2015

The few are enough...

As most of you know, I do not and have not participated in phone surveys of any sort for a decade or more. I have always suspected that I was not alone - and I'm not. But counter-intuitively, declining participation rates do not appear to be affecting results as much as I thought.
This is not to say that declining response rates are without consequence. One significant area of potential non-response bias identified in the study is that survey participants tend to be significantly more engaged in civic activity than those who do not participate, confirming what previous research has shown.2 People who volunteer are more likely to agree to take part in surveys than those who do not do these things. This has serious implications for a survey’s ability to accurately gauge behaviors related to volunteerism and civic activity. For example, telephone surveys may overestimate such behaviors as church attendance, contacting elected officials, or attending campaign events.However, the study finds that the tendency to volunteer is not strongly related to political preferences, including partisanship, ideology and views on a variety of issues. Republicans and conservatives are somewhat more likely than Democrats and liberals to say they volunteer, but this difference is not large enough to cause them to be substantially over-represented in telephone surveys. [More]

This unexpected (for me) result does confirm my belief that farmers - well, a lot more in all professions - need to make statistics and probability courses a higher priority when in college. Of course, that daisy-chains back to taking calculus, I would guess, which has been a big hurdle for freshmen of all flavors.

But just notice how many of the debates within and without agriculture are based on public surveys or estimates of probable outcomes. Unless we have better tools to comprehend and utilize such information, we will be limited for the most part to trial-and-error. That doesn't strike me as competitive in a word where quants deploy algorithms to outfox our instincts in the marketplace. 

Monday, February 02, 2015

The drift away from stuff...

Even as wages remain sorta stagnant, Americans are enjoying a windfall from lower gasoline prices. But early evidence suggests it won't be going to buy more Things necessarily.
The couple, both 56 and from Emmaus, Pennsylvania, drive a lot so filling the tank didn’t leave much room for fun. Now they’re splurging after years of staycations, minor-league baseball games and free concerts. In October, they visited Disney World, their priciest vacation in ages. They’re also planning to renovate, meaning more trips to Home Depot Inc. “We’re finally starting to feel like we’re back in the middle class,” Cheryl Saul said.
Millions of Americans are benefiting from the collapse in gas prices, which Goldman Sachs Group Inc. equates to a tax cut worth as much as $125 billion. That’s potentially good news for a range of mass-market companies that have struggled while upscale establishments catering to wealthy Americans prospered. Family Dollar Stores Inc., Popeyes Louisiana Kitchen Inc. and McDonald’s Corp. all say they’re benefiting from lower gas prices or will in the second half.  [More]

Adding in my own anecdotal datum - Aaron reports Disney World is very busy right now - I wonder if the Great Recession has altered perhaps permanently the spending priorities, along with an aging population.
Yet for the vast majority, the shock of the Great Recession lingers — and that’s a good thing in terms of how most folks are managing their money. In a new survey from Fidelity, nearly half of respondents say even now they are saving more, reducing debt and building an emergency fund. 
A new survey from Principal Financial finds that the number of workers preparing for retirement is on the rise and that most workers who expect a tax refund plan to save or invest it, or pay down debt. Before the crisis, people commonly cited going on vacation and buying big ticket items as well.
Perhaps most telling, the Fidelity survey found that 78% of those who have taken steps to shore up their finances say the measures are part of a new and permanent personal financial strategy. “The sheer number of people who say the changes are permanent was probably most surprising,” says Ken Hevert, vice president of retirement products at Fidelity.People are moving from scared to prepared, Hevert says. When the financial crisis hit, 64% said they were scared and 45% said they were prepared; today, 45% say they are scared and 61% say they are prepared — a near perfect reversal. In general, those who feel prepared are the ones who have cut debt, increased savings and built an emergency fund. [More]
This feels about right, FWIW. And I think the breach of faith in the future felt by Boomers will be lasting, simply because of the characteristics of aging and attitude. We won't have enough time to get over this, so to speak.

Meanwhile, oncoming generations have never been as focused on accumulation of and economic signaling by "things". There seems to be a shift toward experiences like the vacations mentioned above over snazzier cars, for example.

We will have a hard time predicting future consumption from historical data, I think. This implies we will likely be disappointed by GDP growth (~70% consumer spending), retail sales, housing, and wages for some time. 

I am sure much of my thinking is influenced by availability bias - it's hard to imagine things being different from current conditions - but as secular stagnation becomes less a buzzword and more a reality, it is the best outlook guidance I can user to plan for the future.

In short, it may not get any better than this.

Sunday, February 01, 2015

Not much progress...

I keep looking for some indication that the public is coming 'round on GMO's. If they are, I haven't seen the evidence. In fact, it looks to the contrary:


Note that GM food has the largest public-science divergence. Bigger than climate change.

I have two reactions. First, this issue may be simply carried along in the tides of science disdain indicated by other specific controversies above. Climate, vaccinations, GMOS's, etc. are all part of a larger holistic problem for many perhaps.

But it could also be that GMO's are the heavy lifter for the anti-science crusaders. Like nuclear power, which never really cleared escape velocity, rejection of the evidence of GMO safety seems to be an enduring, possibly even strengthening popular sentiment.

All this can be more than a little discouraging. We've been "telling our story" like crazy. And without any positive results, and possible the opposite.

Second, we don't seem to have any viable tools to change these attitudes. In fact, it appears altering public attitudes its getting harder, much harder.
Last month, Brendan Nyhan, a professor of political science at Dartmouth, published the results of a study that he and a team of pediatricians and political scientists had been working on for three years. They had followed a group of almost two thousand parents, all of whom had at least one child under the age of seventeen, to test a simple relationship: Could various pro-vaccination campaigns change parental attitudes toward vaccines? Each household received one of four messages: a leaflet from the Centers for Disease Control and Prevention stating that there had been no evidence linking the measles, mumps, and rubella (M.M.R.) vaccine and autism; a leaflet from the Vaccine Information Statement on the dangers of the diseases that the M.M.R. vaccine prevents; photographs of children who had suffered from the diseases; and a dramatic story from a Centers for Disease Control and Prevention about an infant who almost died of measles. A control group did not receive any information at all. The goal was to test whether facts, science, emotions, or stories could make people change their minds. 
The result was dramatic: a whole lot of nothing. None of the interventions worked. The first leaflet—focussed on a lack of evidence connecting vaccines and autism—seemed to reduce misperceptions about the link, but it did nothing to affect intentions to vaccinate. It even decreased intent among parents who held the most negative attitudes toward vaccines, a phenomenon known as the backfire effect. The other two interventions fared even worse: the images of sick children increased the belief that vaccines cause autism, while the dramatic narrative somehow managed to increase beliefs about the dangers of vaccines. “It’s depressing,” Nyhan said. “We were definitely depressed,” he repeated, after a pause. [More]
OK, let's get past the moaning and figure out what this means to our respective business plans. I'm thinking we get out of the GM promotion racket. If this was a side enterprise on our farm, results like above would have pulled the plug on persuasion long ago. I suppose as long as Monsanto et al, are paying for it, what the heck?

I'm ready to stop pouring time and political capital down this lost cause rathole. Despite frantic pleas from our suppliers, I don't see strong efforts to outlaw GMO's on the most distant horizon. The effect will probably just show up in consumer preferences in the marketplace. And we are not moving that needle in the right direction.

I also think GM inputs could be revealed as luxury items as corn slides toward $3. Maybe it is great stuff, but it's rapidly becoming great  stuff I can't afford. US producers have "scienced" themselves into high-cost producers, and unwinding that economic misstep will be ugly.

So I think I'll listen to my customers, push back against my suppliers, and treat this debate as just another economic challenge. I can live with or without GM products.

Friday, January 30, 2015

Umm, guys...

Every morning I check Bloomberg to see how much those darn interest rates have shot up.

This shouldn't be happening.

BTW - check out the new Bloomberg Business site.

Lessee - 10-yr bonds heading toward 1%; 30-yr toward 2%.  And I wet myself a little when they broke 3%.  Should have read my own astute thinkings on interest rates.  (Which of course was a guess like everybody else's)

So how puzzling is it that the CBO - admittedly a few months ago  - decided to use this projection for interest rates.

[The whole CBO report]

As I said, this was done in Nov 14 so it's already wrong, but what could make rates jump as shown above that I can't see coming?

Well, I'm not the only one puzzled.

The actual arguments in the body of the report contradict elements of this forecast, however. It’s quite possible that, for at least a few years before the next recession, the combination of strong growth and previous austerity measures will combine to produce a budget surplus and an associated scarcity of safe assets. [More, highly recommended]

While I think this is an extreme long-shot, it is NOT unthinkable. And as European yields continue to set multi-century lows, it's hard to find those forces that will counter the slow slide of US Treasuries yields.

Can you imagine the heads exploding in Washington if Klein (above) is even close to correct? An Obama surplus???  WTF??

Like a death in the family...

 Andrew Sullivan, perhaps one of the greatest masters of the blog format, is ending his blog - The Daily Dish.
One of the things I’ve always tried to do at the Dish is to be up-front with readers. This sometimes means grotesque over-sharing; sometimes it means I write imprudent arguments I have to withdraw; sometimes it just means a monthly update on our revenues and subscriptions; and sometimes I stumble onto something actually interesting. But when you write every day for readers for years and years, as I’ve done, there’s not much left to hide. And that’s why, before our annual auto-renewals, I want to let you know I’ve decided to stop blogging in the near future.Why? Two reasons. The first is one I hope anyone can understand: although it has been the most rewarding experience in my writing career, I’ve now been blogging daily for fifteen years straight (well kinda straight). That’s long enough to do any single job. In some ways, it’s as simple as that. There comes a time when you have to move on to new things, shake your world up, or recognize before you crash that burn-out does happen. [More]

I am not surprised. His output, range of subject and quality of analysis earned him the respect of friends and adversaries alike.  I have freely linked and been led to wonderful information over my blogging career. More importantly, I have tried to emulate his variety, intensity, integrity, and thoughtfulness when posting my own stuff.

But boy howdy - do I appreciate his decision. Blogging - especially at his staggering output level is exhausting and can take over your life very quietly. Given his precarious health, this decision is not just understandable but overdue, IMHO.

Still, I will sorely miss his work. I'll bet I averaged an hour per day on his site, after following up pointers and sources. And like me, he was a conservative who could suddenly found himself unwelcome in the GOP as it careened to the hard right. With his strong Burkean philosophy, he could not join the abandonment of true conservative principles on matter of military intervention and egalitarianism.

His voice and intellect framed many political debates, and his insights will be sorely missed.  I will him well, in every sense of the word.

Thursday, January 29, 2015

Wednesday, January 28, 2015

Let's all hum...

The "Lumberjack Song" in honor of the most dangerous job in the US.

Seems to me like we're getting safer, but then a graph of children killed on the job would be much less encouraging.
Our own p.c problem....

 Jonathan Chait wrote a dense, but helpful essay about the rise and reaction to intense "political correctness" in leftist circles. This won't interest many of you, but as I waded through it (Chait is a thoughtful observer and polished writer) the anecdotes he relates kept ringing a bell in the back of my mind.
These ideas have more than theoretical power. Last March at University of California–Santa Barbara, in, ironically, a “free-speech zone,” a 16-year-old anti-abortion protester named Thrin Short and her 21-year-old sister Joan displayed a sign arrayed with graphic images of aborted fetuses. They caught the attention of Mireille Miller-Young, a professor of feminist studies. Miller-Young, angered by the sign, demanded that they take it down. When they refused, Miller-Young snatched the sign, took it back to her office to destroy it, and shoved one of the Short sisters on the way.Speaking to police after the altercation, Miller-Young told them that the images of the fetuses had “triggered” her and violated her “personal right to go to work and not be in harm.” A Facebook group called “UCSB Microaggressions” declared themselves “in solidarity” with Miller-Young and urged the campus “to provide as much support as possible.”By the prevailing standards of the American criminal-justice system, Miller-Young had engaged in vandalism, battery, and robbery. By the logic of the p.c. movement, she was the victim of a trigger and had acted in the righteous cause of social justice. Her colleagues across the country wrote letters to the sentencing judge pleading for leniency. Jennifer Morgan, an NYU professor, blamed the anti-­abortion protesters for instigating the confrontation through their exercise of free speech. “Miller-Young’s actions should be mitigated both by her history as an educator as well as by her conviction that the [anti-abortion] images were an assault on her students,” Morgan wrote. Again, the mere expression of opposing ideas, in the form of a poster, is presented as a threatening act. [More]

I was frankly more puzzled than anything by this involved incident, having zero experience of this type of rancor. But it slowly dawned on me there are issues in agriculture that have generated our own system of similar p.c.  For examples, undercover animal rightist action or GMO opposition has only one acceptable response from producers. While several degrees less strident and threatening, there is little room in our media for any response that leans away from support for the status quo.

We are quick to take offense, implacable in argument, and inflexible in negotiation on the biggest issues facing our industry today. Our conduct is analogous to the rabid victimhood-seeking of the left, albeit much less prolix.

Chait nails the longer term problem with this strategy/mindset.
Or maybe not. The p.c. style of politics has one serious, possibly fatal drawback: It is exhausting. Claims of victimhood that are useful within the left-wing subculture may alienate much of America. The movement’s dour puritanism can move people to outrage, but it may prove ill suited to the hopeful mood required of mass politics. Nor does it bode well for the movement’s longevity that many of its allies are worn out. “It seems to me now that the public face of social liberalism has ceased to seem positive, joyful, human, and freeing,” confessed the progressive writer Freddie deBoer. “There are so many ways to step on a land mine now, so many terms that have become forbidden, so many attitudes that will get you cast out if you even appear to hold them. I’m far from alone in feeling that it’s typically not worth it to engage, given the risks.” Goldberg wrote recently about people “who feel emotionally savaged by their involvement in [online feminism] — not because of sexist trolls, but because of the slashing righteousness of other feminists.” Former Feministing editor Samhita Mukhopadhyay told her, “Everyone is so scared to speak right now.”That the new political correctness has bludgeoned even many of its own supporters into despondent silence is a triumph, but one of limited use. Politics in a democracy is still based on getting people to agree with you, not making them afraid to disagree. The historical record of political movements that sought to expand freedom for the oppressed by eliminating it for their enemies is dismal. The historical record of American liberalism, which has extended social freedoms to blacks, Jews, gays, and women, is glorious. And that glory rests in its confidence in the ultimate power of reason, not coercion, to triumph. [Same]
That was the trigger for me: exhaustion. Agriculture's unrelenting self-promotion and rigid sanctimoniousness has become boring. And if you haven't gotten the Tweet, that is the greatest sin in public discourse these days.

Tuesday, January 27, 2015

Are we hunkering?...

Wasted too much time this morning reading smug/sarcastic/funny tweets about the East Coast Snopocalypse Fail. In the process, I stumbled across this:
I don’t mean to say we’re in a panic, but we are behaving like buffoons. Obviously, if people really were afraid of going hungry, they’d be stocking up on batteries and cans of beans and would skip the baby arugula. (Blizzard tip: Salad greens are both perishable and low in energy-content. Don’t buy them.) No, this is a different kind of frenzied state than you’d find during a genuine catastrophe—less frightened than nervously excited, not so much survivalist as shopaholic. In fact there’s a name for such behavior, which takes prudence as a beard for gluttony. The word is hunkering, in the specifically American sense of digging in and taking shelter. It’s the anxious form of self-indulgence, where fear is fuel to make us cozy. The end is nigh … let’s eat!Official weather warnings feed this hunker culture. They talk in terms of quantity, not quality—an implicit exhortation to go shopping. Meteorologists say that a crippling and historic storm will dump several feet of snow or more. “More”—that’s what drives the hunkered mind: The weather will be so excessive, with so much snow on top of snow, that we should take excessive action. Politicians gin up excessive numbers, the bigger the better: We’ve got 700 pieces of equipment at the ready, says Boston’s Mayor Marty Walsh, and more than 35,000 tons of salt. On Sunday, New York City’s Mayor Bill de Blasio rallied local hunkerers with a call for immoderation: “Whatever safety precautions you take in advance of a storm,” he said, “take even more.” Got that? It doesn’t matter what you do, exactly, as long as you do as much of it as possible. [More]

Interesting. But then it hit me - is much of agriculture in a slo-mo hunker mode right now? We have been warned about the "party being over" for like, ever. Those admonitions have only gotten more shrill as grain prices swooned. And it could be there is a small portion of our conscience nagging that we really didn't totally deserve the money that fell from the skies (for grain producers) the last few years.

You can make your own judgement. But if we are hunkering, it seems to me we are likely to overshoot, just as happened in NYC. Carrying this train of thought one step further, I think there might be some competitive openings should the worst case not arrive on time, or fail to show up at all. 

People are slow to abandon "hunker mode". Maybe because it seems to admit their own erroneous thinking, maybe because they remember a late hit sometime during their lives. I don't know for sure, but I think I'm going to risk unhunkering early. 

Or maybe I never really hunkered that much to begin with.