Saturday, July 04, 2015

Archival revival...

I am in the process of translocating all my articles from Farm Journal and Top Producer to new blogs/websites. It will take some time, but I'll be able to link to them like I used to when they were on a database service that has ended. The constant upgrading at Agweb has disabled their archives as well.

You can find them here:

Farm Journal (John's World)

Top Producer

I'm starting back at 1994 and working toward the present.

Friday, July 03, 2015

It's a start, anyway...

One of the buzzwords inserted liberally in everything from corporate sales pitches to farmer humblebrags is "sustainability".  But like "WOTUS" we all think we know what it means, but try nailing it down.

I stumbled on this definition by accident, and thought it useful:

According to Herman Daly, an early pioneer in the sustainability movement, sustainability means three things: 1) For renewable resources, the rate of harvest should not exceed the rate of regeneration; 2) for pollution, the rates of waste generation should not exceed the assimilation capacity of the environment (sustainable waste disposal) and 3) for nonrenewable resources, the depletion of the nonrenewable resources (that is, fossil fuels) should require comparable development of renewable substitutes for that resource. Achieving such sustainability will enable the Earth to continue to support life. Thus, teaching sustainability is common sense. It is our responsibility; it is not a “plot” to brainwash students. [More]
While seemingly straightforward, the trick, of course is how to measure all of these rates. Still, I think it is helpful and offers a template to guide your own definition.

The interesting angle for me is the linkage to nutrient management. This pollution, and that label is inescapable, I think, is the result of exceeding the assimilation rate for the soil and water. The is a point beyond which our fields cannot hold more N and P, it seems.

Unfortunately, the default way to measure sustainability is a weird kind of destructive testing - keep increasing the load until something gives. We used to joke about testing bridges this way in Statics classes in college.

I don't know whether we'll be able to agree on better metrics for sustainability, but if we could get some slightly clearer benchmarks, much of the uproar over regulation would at least diminish. It becomes a problem to be solved, rather than a threat to be imagined.

Thursday, July 02, 2015

What am I missing?...

OK, I am obviously clueless about the impact of the CWA WOTUS ruling. The ag community is apoplectic about its "overreaching" and "land grabbing". But time and again, when I ask what does this mean in how I farm...I get nothing.

Incidentally, there seems to be a common script with required phrases when expressing your outrage. Note these examples:
Blake Hurst, President of the Missouri farm Bureau, publicly applauded Koster’s suit.“We applaud Attorney General Koster for filing this lawsuit against EPA and hope the courts will act quickly to halt implementation of the WOTUS rule as the issue works its way through the legal system.  The EPA is guilty of a massive overreach, and we fully expect the courts will once again instruct the EPA to follow the intent of Congress.” [More]
Stenehjem, a Republican, said the rule usurps state authority over broad swaths of water, subjecting landowners to federal red tape, additional permit requirements and costly permit delays, and steep penalties and possible jail time for noncompliance.“This federal power grab is unnecessary and unlawful and will do nothing to increase water quality in our state,” he said. [More]
The claim is that the rule would extend the EPA and Corps regulatory reach tremendously by allowing regulation under the Clean Water Act of areas where water is found only a few months out of year such as roadside ditches and field waterways as well as regulation of small bodies of water including farm ponds. The claim also is that any work by farmers that might alter water flow on their property in any manner might be subject to extensive paperwork for permitting.The EPA claims the rule was issued to bring clarity to the terminology and specifics of where the Clean Water Act pertains, including private property. But those state officials filing suit on behalf of their constituencies see the rule as a tremendous overreach of authority by the EPA. The rule has not gone into force yet, and the lawsuits are asking for it to be declared illegal and or an injunction against it ever going into effect in its current form. [More]

OK, the last account suggests that if I alter water flow on my farm I'll need to get a permit. That is one of the few specifics I have ever seen in the debate. I'll point out the EPA says that's not true, but the common reply is "The EPA is lying. "

What if, for the purposes of argument, I just stipulate all these dire predictions are true.  What does the WOTUS APOCALYPSE look like? Is there a fear that the EPA will dictate how much we can spray and apply and when and how? How would that work? Who would enforce it?

The most frequent semi-answer is "we'll have to get permits".  But as I understand it, that's true only if you are going to do something bad that could end up in water that leaves your property
Agriculture groups raised important questions about what it means for waters to be “covered” under the Clean Water Act. The Act requires a permit if a protected water is going to be polluted or destroyed, however, agricultural activities like planting, harvesting, and moving livestock across a stream have long been excluded from permitting, and that won’t change under the rule. In other words, farmers and ranchers won’t need a permit for normal agricultural activities that happen in and around those waters. [Same] [My emphasis]
Lost in all the hand-wringing is the idea of clean water. That's the point we're missing. If you aren't polluting, you're not a target, it seems to me.

The idea of leaving it up to states to handle has its own problems. Budgets for one. And what do you do if the state upstream has more lax rules than your state? The idea of 50 little EPA's making 50 sets of rules doesn't seem like a good thing to me. Besides, if we're going to get paid to comply, which we will insist on and probably get, we'd better tap into the federal jugular, not say, the Kansas fiasco.

The EPA budget is almost entirely consumed with responding to lawsuits. There is no enforcement legion to patrol the backroads and strip-search farmers planting corn. If we do have to have permits to spray everything because of ditches (remember, EPA lies) how would we get them? Can the EPA even begin to handle that admin load? I doubt it.

So all farming comes to a halt while we stand in line for permits. Since this is the case constantly being predicted by opponents, a strategy springs to mind:
  1. Get long everything.
  2. Don't sell anything from now until then.
  3. Get good at getting permits. (Huge rewards to people who can handle bureaucracy, just like crop insurance or PIK certs)
  4. Rent ground away from those guys in DC picketing. (Just kidding, of course, but if such a world is inevitable, bitter-enders will be subject to replacement by early collaborators)
I exaggerate, of course. A lot. But the Doomsday scenarios seem to be suggesting this. The question is why. I offer these guesses.

First, we know this is about stuff we put in the water: N, P, and pesticides are too high even following current rules and prudent practices. There is no "land being grabbed", there is something even worse: owner/operator responsibility for what leaves our farm in the water. I think one unspoken motive here is to make sure no blame can be tracked back to me. This may seem like a good defense, but doesn't that simply leave control measures that treats good actors and bad alike? Without further delineation, probably it will be done by waters that the EPA clearly does have jurisdiction over, like the Mississippi River, and hence the whole watershed. Imagine the ruling is overturned/negated somehow, and the EPA simply says to the states, "The water flowing out of your Miss. River boundary has too much X. Take measures to drop it 50% or the AG will call you."

Second, I think there is an visceral fear that the EPA wants us all to be bucolic, organic small farmers. OK, again let's imagine this is the real hidden agenda. How we get there? If they stipulate no chemicals, less fertilizer, etc. our grain production plummets. While I can't imagine this kind of economic disruption is even faintly possible, there is an uneasiness because we know much of the public really wants cute farmers growing food. It irritates us so much we spend mucho time and dollars educating them how mistaken they are. Still, we are constantly reminded the longing for agrarian production is persistent and widespread among consumers. Totally, overlooked, IMHO, is what is the EPA just wants the water to be cleaner - not pristine - just better. Why shoot for impossible domination when you really want less stuff in the water? These imaginings are politically-fed paranoid fantasies that have tapped into a deep resentment that folks don't love us like they did when we were all labor and 4-crop rotations.

Third, deep, deep down, we know our current path is not good. All corn all the time is great for suppliers and users, but probably not as sustainable as we thought a few years ago. In fact, it appears to me, only by offloading our economic externalities downstream can we force land to produce at the 300 bpa levels we think is our goal. Our outraged response to being called to responsibility for what we do to water leaving our land is maybe a way to take our mind off the truth that we wouldn't want to be downstream of us either.

All of these scenarios are unsupported by any shred of feasibility or evidence. The agpocalyptic future being touted is laughably impracticable, politically unthinkable, and economically nonsensical. The worst/best the EPA might be able to do is begin to add some burden of accountability to the most egregious water pollution actions.

Most of the fears are slippery-slope arguments carried to ludicrous extremes as I have done. But those extremes are as far as I can see, counterproductive to the supposed EPA purpose (clean water, remember?). At any rate, these underlying anxieties need to be articulated, instead of simply ominously hinted. The fact they are not only reinforces my conviction ag simply will always  and automatically oppose any EPA action, making up reasons to do so in the face of contradictory facts.

[Ethanol mandates excepted, of course]

Like I said at the beginning, maybe there is a detailed explanation of how my life will change as a farmer because of the WOTUS rule. But all I can find are hints and innuendo, so I've tried to create some possibles to ponder.  Let me know what you think the end result might be.  After all, SCOTUS could uphold it.

Friday, June 26, 2015

One input bright spot...

Propane is essentially a byproduct of oil and NG production.
Propane is produced as a by-product of two other processes, natural gas processing and petroleum refining. The processing of natural gas involves removal of butane, propane, and large amounts of ethane from the raw gas, in order to prevent condensation of these volatiles in natural gas pipelines. Additionally, oil refineries produce some propane as a by-product of cracking petroleum into gasoline or heating oil. The supply of propane cannot easily be adjusted to meet increased demand, because of the by-product nature of propane production. About 90% of U.S. propane is domestically produced.[citation needed] The United States imports about 10% of the propane consumed each year, with about 70% of that coming from Canada via pipeline and rail. The remaining 30% of imported propane comes to the United States from other sources via ocean transport.After it is produced, North American propane is stored in huge salt caverns. Examples of these are Fort Saskatchewan, Alberta; Mont Belvieu, Texas and Conway, Kansas. These salt caverns were hollowed out in the 1940s,[10] and they can store 80,000,000 barrels (13,000,000 m3) or more of propane. When the propane is needed, much of it is shipped by pipelines to other areas of the United States. Propane is also shipped by truck, ship, barge, and railway to many U.S. areas. [More]
I have anticipated prices to drop every since North Dakota became the Saudi Arabia of the US.  But infrastructure to capture, clean, and store propane takes time to get going. Perversely, dropping prices makes that investment more unfavorable.

And boy have prices dropped!

[Click to embiggen]

Benchmark propane prices in Mont Belvieu, Texas, fell to 32 cents a gallon June 8, the lowest level since February 2002, according to the Oil Price Information Service. Wednesday afternoon, prices were up 3.44 cents, or 9.5%, to 39.69 cents a gallon, according to the service. [More and source for chart]

Anyhoo, this is all well and good, and comforting to free marketeers, but am I the only one to be a little taken back by a price of 32¢?

Crimony, I don't think beer has this good of a markup. (No, a bartender friend told me beer was 99% profit) To be fair, I just had a summer fillup and including taxes, it was under $1.10. So no gripes from me.

I do wonder how guys installing massive tanks after the shortage in the winter of 2013 (?) when it flirted with $5/gal. feel about this.  the payback just got waaaay longer.  But the intial fill looks more manageable.

And with the way this growing season is splashing along, we may need a bunch of drying.
TransparenSeed 6/26 Report...

The first of what will hopefully be several ever-bigger reports on 2015 seed corn prices was emailed to participants today. Some things I learned:

  • While I anticipated it would be tedious, the bizarre naming conventions are an invitation to typos and confusion. Lists are subject to revision/correction.
  • It is hard to get useful comparisons because of all the different trait packages. It reminds me of how manufacturers make slightly different models, with and without various features, to confound shopping 'bots and make price chopping harder. Just the way it is.
  • There are some clues as to patterns, but participants can analyze and reach their own conclusions.
Please consider joining us. While the initial idea was to verify scrupulously authentic prices, I have decided this can be too difficult and unnecessary, until some hint of deception is encountered. Plus those scanned documents can be a bear for me to read.

So just send in your seed corn prices for 2015 including:
  1. Zip code or region [SWMN, e.g.]
  2. Brand
  3. Hybrid #
  4. Traits
  5. Bottom line price/unit after all discounts
  6. Pay date (optional)
  7. Seed treatment (optional, if not included #4)
  8. Any notes that seem pertinent
Your email will be protected.

You will receive updated reports by email as new data comes in. 

FWIW, the info is changing my buying plans.

Wednesday, June 24, 2015

Big Sugar vs. Big Corn...

A few weeks ago on USFR I talked about how our domestic sugar industry was vulnerable due the the fact it is a wholly political structure - absolutely dependent on subsidies/protectionism for its existence. Too many other places can grow cane sugar too cheaply. I tried not to attack or judge, just mention that as we inched toward freer trade, it was one of ag's most likely and biggest losers.

The sugar industry responded with predictable counterpoints on the show.

  • All the other kids are doing it. (This is unkind, but essentially describes the argument). Brazil and Mexico subsidize sugar growers, so we have to do the same.
  • Jobs, economic activity (Actually, like the Keystone pipeline, sugars job impact is a rounding error for one-months US job growth)
  • Frankly deceptive remarks about how US consumers really aren't paying more for sugar (only in comparison to select countries - not world average)
There are more rationalizations that have become gospel for the industry. But the fact that Big Sugar spends almost as much on lobbying as all other commodities combined should suggest they are a political construct - not a viable economic enterprise.

All that is beside the point, and was not my main issue. I was simply trying to say the tide of commerce seems to be flowing in the direction of freer trade - and sugar is vulnerable, despite whether the sugar program is good or not.

Actually, I edited out my main point: If other countries subsidize sugar, isn't the sane economic policy to let them pay for our consumption? If people are paying part of the tab, why should you spend more - in our case much more?

The stakes has risen. I'm not the main problem by far for Big Sugar. Look who's making the sugar program a 2016 campaign issue:
Joint SCOOP with Tom Hamburger: The Corn Refiners Association, representing companies that produce high-fructose corn syrup, has just hired 10 outside lobbyists as part of an unorthodox attack on sugar producers and the unusually generous federal support that they receive. Their first target is an agriculture appropriations bill now working its way through a House committee. “While every other farm support program has received multiple rounds of reforms, big sugar has not been touched,” said John Bode, CEO of the Corn Refiners group.Watch for sugar supports to become the next Big Thing that movement conservatives oppose, even if they supported them in the past: Some on the right predict this issue will play out a lot like the reauthorization of the Export-Import Bank. The bank’s charter is likely to lapse, at least temporarily, next week after a sustained push by conservatives to cast it as a symbol of corporate welfare. The 2016 presidential contenders continue to seek out issues where they can get to the right of one another.“Defeating the sugar lobby is the next campaign after Ex-Im,” Grover Norquist, from Americans for Tax Reform, told The Daily 202 last night. “Both are cronyism in its undiluted, inexcusable majesty. Both have survived because they perfected the skills to control Congress for their own profit. If they go down, no political subsidy will be safe. The implication of these wins is bigger than the ban on earmarks.”The Club for Growth’s Andrew Roth added that fighting the sugar subsidy “is high on the list” of priorities after Ex-Im: “If there is more muscle going into anti-sugar subsidy efforts, we welcome it.”Heritage Action’s Dan Holler argues that the war on sugar is “a whole lot further along” than the push to kill Ex-Im was just a few years ago. Indeed, a 2013 amendment to reduce sugar price supports and enact other reform failed by just 15 House votes. “Using the protectionism that exists around sugar to highlight the dreadful nature of America’s farm policy is very important to us,” he said. (The sugar lobby declined to comment.)The coming sugar war could become problematic for Marco Rubio and Jeb Bush, Republican presidential candidates from Florida who have been supportive of sugar but already have at least one big strike against them in the eyes of activists (immigration). [More ].

As we all know, if your party name starts with R, you don't cross Norquist. Or the Koch's. Or FNN. Or...never mind. To put it mildly, outside of sugar-producing state legislators, these is not a lot of love for our policy in the political spectrum, and it's become A Cause for the right.

Subsidies for sugar producers raise prices for consumers and cost taxpayers billions of dollars per year, but now a bipartisan effort is underway in the Senate to repeal them.
The New Orleans Times-Picayune reported on Tuesday that, “seventeen U.S. senators have introduced legislation to repeal the U.S. sugar price support system, renewing a fight that was won previously by sugar producers.”
Although some believe that Republican majorities in Congress might be more receptive to repealing the subsidies, the Times-Picayune predicts that, “the sugar industry is still likely to prevail.” (RELATED: Sugar Lobby Sweetens Deal for House Republicans Protecting Subsidy)
Nonetheless, Democratic Sen. Jeanne Shaheen, along with Republican Sens. Mark Kirk and Pat Toomey, reintroduced the Sugar Reform Act last week, quickly attracting an additional nine Republican and five Democratic co-sponsors. [More - I'm not proud of excerpting the Daily Caller, but it's to make a point about the far right position]
But this has become an internecine battle as Big Corn takes off the gloves. HFCS is certainly struggling, and sugar policy has always driven them nuts. While there has been a running battle over competing health claims, it's sales of HFCS that is driving this war.

The HFCS-free trend has been noticeable, but the results are not showing up in use figures significantly so far. While declining in the last few years, it has simply followed the total sweetener use curve.

Note the top line above. With sweetener use in general declining, producers have one main option: increase market share, and while attacking the sugar program seems to be one way to do it, I'm not so sure.

Sugar can be grown darn cheap in tropical countries like Brazil, Caribbean nations, and Australia. Now add in the muscular dollar, and we could save billions by imposting our sugar. [Important note: while Big Sugar loudly proclaims the program doesn't cost the taxpayer, it does cost the consumer. Which makes it a very regressive policy - hitting low income people harder than rich]

My guess is that these factors will combine to put extraordinary pressure on the sugar industry:
  • TPP will give Australia leverage, and Big Beef may join Big Corn to scuttle Big Sugar. [OK -I think it's time to give "Big" a rest...]
  • Conservatives see this as a low cost, high impact winner that burnishes free enterprise credentials while costing only a few MN, ND votes.
  • Sugar consumption continues to decline for health reasons, and the HFCS/cane battle becomes to the death.
  • Budget pressures. Although the economic payback will actually come in the grocery, some ag budget "savings" could be fantasized long enough to save something else in the ag budget or pay for a tax cut for somebody.

So to sum up.  The US sugar program may be a good thing and crucial to good farmers who are allowed to grow beets (closed coops) or cane producers. It's not IMHO, but that is not the point. It's that macro trends are combining to erode the political base of an non-economic industry.

This will not be pretty.

Friday, June 19, 2015

TranparenSeed II (Improved)...

 I obviously made it too hard by trying to ensure privacy.  Just email your info (location, brand, hybrid, traits, final cost/unit; and special notes) if you want. I will protect your info. I'll post results here.

Please contribute - the results could help us all.


Thursday, June 18, 2015

SAIB: Set-Aside In Bag...

I have a close friend who also happens to be the best farmer I know. I leech him for information and more importantly, real-life results. God knows what he gets out of our relationship.

Anyhoo, we were talking about seed prices and something he said casually began to rattle around in the back of my head. "I planted a conventional hybrid this year as a test. My calculations how it could yield 27 bushels less than a triple stack and be as profitable."


The reasons we all know: about half the seed price ($330 - 170). Have to use at least half-rate residual herbicide on RR corn now. Some of you may be adding insecticide in addition to Bt. Meanwhile we haven't seen a corn borer around here is a decade or two.

OK - there is the cost angle. Now ponder our marketing problem. Even with modest production issues - the window for which is slowly slipping away - we could harvest an ample crop. Prices could be much more dismal and with old-time surpluses, very sluggish to rally. After all, we can only keep the '14 crop off the market for so long.

I am pretty bearish on new demand. The bloom is off ethanol, China, and meat. Thanks to our dang economy not tanking, the dollar just won't wilt. And ethanol was THE source of new demand for $7 corn. That's a whole 'nother post, but I find it hard to build a credible rising demand case to match our output increases.

If we head north of a 2B bu. carryover, subsidized crop insurance and a decreasing ARC payment will not satisfy many producers who believe in political solutions to economic problems. Murmurings of production controls, i.e. set asides, or other pay-me-not-to-plant schemes will be thrown out as solutions to the ag crisis.  But maybe there is a method at hand to tackle this using simple Adam Smith economic tools.

I call it Set-Aside-In-Bag.  Basically let's all take a page from my friend and arbitrage the price distortion between trait costs and benefits. Plant conventional corn, and make the same money with lower yields by saving on costs. In the process, we lower US production.

Price erosion has two effects in this scenario.

  1. It expands the yield differential breakeven between conventional and traited seed.
  2. It collapses margins.
Now suppose, in response, more farmers do like my friend. Yeah - I know there isn't nearly enough conventional seed now to plant major portion of the crop, but even at say 10% there would be some effect on the overall yield, reducing US production and possibly nudging prices up. Besides, after a year of selling out conventional numbers, some companies will break ranks and decide they can make good money without licensing their profit to Monsanto, et. al. Seed companies recognize the need for lower seed production costs in the era of $3-something corn. New genetics could pour into conventional numbers as well as traited.

I know, lots of things could go differently than I am describing. Let's look at some.

A. Seed companies lower traited seed prices to reduce the cost penalty. OK - that's not a bad thing. In fact, it's what were are griping about.

B. The yield differential turns out to be less or even non-existent due to the uselessness of defense traits in the absence of weed/insect pressure. US production doesn't  decrease much, keeping prices low. With much lower costs, this is a clear win for SAIB

C. Prices jump up with lower production. Traited corn would still have to overcome a now much clearer cost/benefit threshold. If the economics reverse, and we can afford what seed companies think traits are worth, that's exactly what producers are wishing for now. I think the introduction of a choice  would radically lower pricing power for seed companies after conventional competition. Advantage: SAIB.

The Bottom Line: Lower costs never seem to hurt.

Meanwhile, the decrease in BT and RR traits might prolong the the usefulness of those for another decade as a wider variety of protection methods are used. Resistance would likely slow. The growing confluence of green-snap susceptibility (which seems to be more problematic in new traited hybrids, IMHO) and more violent storms via climate change would be alleviated with sturdier genetics and lower populations.

I admit, I have strung together a daisy-chain of what-if ideas. None are terrible unrealistic, and they can link up in different ways with pretty much similar conclusions. At any rate, I've learned that my friend does something like this, its good to pay attention.

Wednesday, June 17, 2015

A few details might help...

FJ's Paul Neiffer has an obligatory interview on what expenses to cut to make your budget work. It is wonderfully vague. He suggests:

  1. Living expenses
  2. Farmland and machinery
  3. Inputs
I have to say, this column does not break much new ground. I mean, have none of us thought about those categories that make up ~90% of our budget? But rather than just criticize, here's where I would aim the axe. And I am.
  1. Professional services: Cripes, most of us have ag and business degrees. Software has made everything from accounting to analysis learnable with reasonable effort. Stop paying for people to do stuff you can do yourself.
    • Accounting. Learn QuickBooks. You might actually begin to understand more intuitively how you earn a living. It is liberating to not ask someone what to do with every dollar. To those who claim that accountants earn save more than they cost, then pay them on commission rather than per hour. If you are worried about doing your taxes, try TurboTax and remember all the IRS asks is that you don't lie - not that you are exactly right. Besides IRS budget cuts means your odds of an audit are vanishingly small. Be honest, you'll be OK.  It is not rocket surgery.
    • Crop consultants: get off your backside and look at your own fields. Besides the threshold points for spraying something expensive get pretty high when corn is $3. Your fields won't wither if you skip grid sampling for 4 years. You'll be surprised how much advice you've been getting to spend more money was simply to justify advisor fees.
    • Market advisors: the rule about passive marketing that is slowly emptying Wall Street also applies to commodities.  The average is not to be despised. Sell 1/12 every 12th of the month (or a date of your own choosing). Seriously.
  2. P and K: Keep the pH right and draw down some of the over-application you've done the last few years. You know how hard it is to raise the K test on a field. It also goes down as slowly. The only way fertilizer will get a market signal is if we say no. The handwringers at the university cannot talk rationally about this due to strong conflicts of interest and blame avoidance. But they are on tenure - you are not.
  3. Refinance: you may have missed the absolute bottom, but if you can roll long and mid-term debt into one mortgage with longer amortization, you may buy time and working capital. We are still near record low rates. 
  4. Additives: from seed coatings to fungicides - leave out everything except what you absolutely know you need: grass and broadleaf control. Remember the rule of "extras": if they really work, they are guaranteed. Apply at pesticides at 75-80% label rates. Yeah - I know you CAN'T do that and get the chem rep to give you a check, but it makes real money. Oddly, it is probably better for the environment as well. We may have a short window in rootworm and certainly corn borer before they make a comeback. Check for silk-clipping to plan next year's insecticide. Use residuals on corn, with as-needed glyphosate. Get the resistant broadleaves in corn - you can't leave them for soy.
  5. Seed: go conventional corn. Drop 3-4K/A seed rates - the curve is really flat at 36,000. Try half-rate rootworm insecticide on some. Tune your planter, plant more carefully and cut soy seed rates. Shop harder and know how much yield every trait needs to earn to pay for itself. Make offers for seed, instead of asking prices. Share price info with friends.
  6. Labor: for cash grain farms, you may be paying for year-round labor when you need 12 weeks. I realize you'll have to mow your own roads and your machinery won't be washed as often, but permanent help is rapidly becoming a luxury. I appreciate loyalty to employees, but you have to put a real dollar value on that emotion. Besides, I think there may be a sudden rise in the number of just-retired neighbors looking for SS supplements.
  7. Machinery: this is obvious, but hard to do anything about. Adjust your "maximum-hours" threshold - 3000 hours on a well-kept tractor is not what it was 20 years ago. However, if you need to lighten up, get that stuff sold tomorrow. Remember, if you cut back on labor, you may not need as many tractors.
  8. Rents: here is the curious thing. While most will fixate on $50/A from a landowner, this may be wiser to recoup elsewhere. And always remember, if your competitors expect to solve their cashflow problem via rents instead of slimming down their own expenses, opportunities arise. It happened in the '80s. Make this the penultimate target. Fight the farm-size fixation by making sure all fields pay their way. Nobody likes to give up ground, but if you do, don't burn bridges. If you don't think this slump will last long, find a way to cut elsewhere to hang on to ground, but make that decision out loud to make it real.
  9. Family living: accountants jump on this first, but it has gradually become a much smaller percentage of overall expenses. Making your family miserable for $5000/year when you could just stop the fungicide could yield a better life result. Do NOT cancel a modest vacation unless you have exhausted the above remedies. You will need your brain and family team at full ability, and downtime is a necessary ingredient. Living expenses are not money wasted in most cases.
We have confused doing what we are told with doing what really helps. The first step to managing this profit squeeze will be to reassert some of the self-reliance that worked in previous downturns. Things will not be perfect. But perfect is something we can't afford anymore.

Our ship could soon be in extremis, I suggest. The usual recipes for changes may not be enough. Breaking old habits and patterns can mean the difference in outcomes. Keep in mind that any outside help, like handouts from the government, should be bonuses, not lifesavers.

There are solid reasons to strongly disagree with these recommendations on one point of another. But the need to generate your own should be obvious to all but the wealthiest producers.

Monday, June 15, 2015

The TransparenSeed Project...

Like many of you, we are engaged in an all-out effort to get our costs down to survive <$3 corn. Hope your efforts are going better than ours, BTW.

A few weeks ago, a brief Twitter exchange tipped us off to one area where we might find some savings: seed. Reportedly, it seems like Aaron and I now hold a record for paying the most for seed corn. In fact, we may have paid ~ $80 more for the same hybrid compared to producers 100 miles away.

Very important: this is not the fault of the seed company. It is our fault. Recall the maxim of American capitalism: "It is immoral to allow a sucker to keep his money."

We are anxious not to repeat this feat in 2016, so what can we do?

I think the answer is the tried and true efficiency-booster for any market - transparency and more symmetrical information. Seed companies have amassed significant data on my buying habits and what I will pay. They are employing sophisticated market quantitative analysis as well. They also know what competitors are doing. We have nothing besides vague verbal comments among acquaintances to verify our analysis.

I have pondered long and hard on this one and do not see why seed prices need to be cloaked in conspiratorial pricing. After all, other inputs can at least be roughly comparison-shopped.

Why don't we share what we pay for seed? My conjectures include 1) we never have, 2) we think we are getting the good deal, and 3) we have somehow been led to the belief it just isn't done by upstanding farmers 4) ???. It is also not unthinkable that seed company ad dollars have made this a no-go area for ag media. Maybe seed pricing is too explosive to touch.

I honestly don't know. But I think it would be fun to find out.

The Internet has broken open lots of formerly dark markets simply because it's hard to stop a sole actor with sufficient bandwidth. So I hereby announce:

The TransparenSeed© Project

Goal: I will collect and disperse to participants actual, final seed prices paid by producers in a form searchable by area and hybrid. THIS WILL BE DONE IN A MANNER THAT PRESERVES ANONYMITY TO THE PARTICIPANTS (as much as I know how, but I'm sure the NSA will know you got taken on your triple-stack). My hope is to break your hearts first by publishing real prices for 2015 and then this fall have the system worked out so that 2016 pricing quotes can be published in time for it to actually be of some use.  Every step will be done openly and I will work to assure the numbers are legitimate.

Here is how it will work (subject to revision as we learn stuff, of course).
  1. Price information will be accepted from actual invoices redacted to exclude names, addresses (except zip code - see below), exact volumes and final prices (more below) to protect against retaliation or embarrassment (which may be a paranoid fantasy of mine, I'll agree).
  2. Zip codes will be translated into regional abbreviations like Machinery Pete uses: NWIA; ECIL; SWIN; etc.  
  3. Prices will include quoted list price and final, actual producer cost after discounts, but will be rounded slightly to aid anonymity. Volumes will be treated likewise so valid comparisons can be made.
  4. The list will include company, hybrid number and traits.
  5. The results will be available both as a PDF file and Excel and distributed only to those who send in their info. I am aware this could leak to the Intertubes, but that will only happen if it amounts to something due to good participation. I won't do it, but participants may. I hope they don't but who are we kidding?
  6. Every effort will be made to make sure users compare hybrid XXXX RR/Bt/RW with XXXX RR/Bt/RW and not the same number with XXXX RR2/AQ or something. It will make the database a little clunkier, and no promises on my organizing skills. Ditto with payment date and volume discounts.
  1. If you want, create a new email account on Gmail or whatever with a random address like qwerty&  Use the privacy settings to control what name is shown (or not) with the username. I will not be selling or using your email for any purpose other than the TransparenSeed reports. But these days I understand your reluctance to cough up your info, so you can take this optional step to set up a protective account.
  2. Make a copy of your actual, final invoice that clearly shows how much you paid for a bag of XXX seed after all discounts. Explanatory notes in the margin are welcome.
  3. Redact (hide) all identifying information such as name, account number, dealer info,etc. leaving only zip code, hybrid and trait identification, list and final prices. This can be done two ways:
    1. Take a black marker and color out the private info.  (This why is why you need to make a copy first - you may need the original for the IRS)
    2. Scan the document into a PDF file and redact more professionally if you want.
  4. You can skip the redacting if you believe me that I will protect your info. No offense taken if you don't, but I would be crazy to destroy the trust needed to capture enough info to make this work.
  5. Scan the document into a PDF - most inkjets will do this - it's not hard.
  6. If you don't have a scanner or don't use it, try a photo with your phone. You can email it directly, but try the horizontal orientation first to maximize print size. I tried this and it seems to work, although I felt like James Bond in a Soviet lab.
  7. Email the PDF/jpeg/whatever document to:

I will not use emailed text "I only paid $XX for triple stack" reports. It's not I don't believe you, but that just doesn't work in today's environment. Anonymity does weird things to ethics. 

For the record, this is my idea alone, nobody else it to blame, and I'm not going to make any money on it. In fact, there is a faint chance it could become another time-suck like...this blog and tweeting.

I hope to publish timely updates to those who send in their info. In short, it's "pay to play". These reports will be sent to the email from which the info was received, so be sure to add your new account (if you added one) to your mail client.

This whole idea may go down in flames. There may be nothing there to find other than seed is eerily and uniformly expensive. One big issue is deep discounts to very large operators may understandably buy their silence.  Fair enough - don't blame them. This has been my issue with FBFM-type data: under-representation of large farms. But even BTO's can't be sure what other BTO's are getting. 

And I could be talking to myself here. I'll report that as well. There may be tantalizing teases on Twitter (follow @jwphipps) and here on Incoming, but I will not make results generally available except to participants.

Final note: I may be overlooking some really, really important detail about security or accuracy or efficiency that is obvious to you. Add it to the comments and we can make this a kind of Wiki-Seed effort. 

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.