This might help...  

Are you sick of hearing about the Greek crisis affecting corn/soy/banana prices and you realize you have no idea what the heck is going on except the hardworking Germans are being asked to bail out crummy, corrupt Greeks?

Felix Salmon, one of the best econobloggers in the world of finance deploys some rubber ducks to educate you.




The most interesting part for me was the statement that bondholders have agreed to a 50% haircut.  That's pretty harsh, but essential to a resolution. Like our mortgage mess here, there must be some liability for foolish lenders, IMHO.

Our new "insurance" infatuation...  

May be a forbidden love. While every ag group seems to have their own farm bill proposal, I think it is safe to say they mostly boil down to this: you can have the direct payments, just guarantee these whopping profits we've been making the last few years.

Of course, subsidizing a lavish crop insurance system could actually raise farm program costs if prices slide, but we'd have the moral high ground for once when prices are acceptable to our new expectations. In fact, farmers don't generally have a good handle on crop insurance costs.

With direct payments at risk, the agriculture industry last year began pressing for more federal support for crop insurance. It’s already one of the fastest-growing benefits for the agriculture industry, with subsidies for insurance premiums rising to more than $7 billion in 2011 from a little more than a $1 billion in 2000.  [More]

 But there is a slight problem. To my thinking, these are clearly counter-cyclical payments, and therefore market distorting. If prices can drop and you don't feel pain, you're not getting a real market signal about how much of what you're growing buyers want.

Guess who else thinks this way: our arch WTO nemesis, Brazil.

In a move that is liable to ruffle a few feathers in Washington, Brazil's government has sent letters to the agricultural committees of both the U.S. Senate and House of Representatives, reminding them that leading proposals for a new farm bill actually increase subsidies and therefore could break World Trade Organization rules.

The message is clear: Brazil is willing to challenge the U.S. in Geneva if the new legislation increases market-distorting subsidies, just as it successfully did in the case of cotton subsidies seven years ago.

Back in October, Roberto Azevedo, Brazil's ambassador to the U.S., visited Washington and met with Debbie Stabenow, chairwoman of the Senate Agriculture Committee, and Frank Lucas, chairman of the House Agriculture Committee where he first voiced Brazil's concerns. They also talked about how the new bill could settle Brazil's claim over cotton subsidies -- the U.S. pays $147 million a year to Brazilian cotton farmers as a means of avoiding wider trade retaliation.

The unusual measure of communicating directly with a foreign legislature was taken after analysis of three farm bill proposals, from the National Cotton Council (NCC), from the American Farm Bureau Federation and from four senators, all of which increased market distortions, said Azevedo.

Among the issues raised was that government-subsidized crop insurance could also be considered market distorting under WTO rules and that none of the proposals significantly altered the GSM-102 export credit guarantee program, which the WTO has also condemned. [Apologies for the liberal exerpt from here]

I think they have a case, and they certainly have handed our farm schemes a few setbacks [e.g. cotton]. The reason is also pretty simple. No matter how it is packaged, US farmers want a federal risk protection program. But when the possibility of painful losses is eliminated by insurance or target prices or whatever, we don't react to the market. No matter how that risk is mitigated, it is de facto distorting.

In addition, our wishful proposals are going to cost too much. There is simply no way to provide the kind of "safety hammock" we want for less than we are spending now, unless fewer farmers/crops split the pot.

Somehow, I doubt that will fly.

I await our collective "Plan B", although we may have to have the WTO make us do the hard work.

Our greatest challenge...  

Increasingly transparent rental markets.  I got this land rent auction report from Murray Wise.

 [Click to enlarge, but sit down first]

Note the terms were up-front payment, two-year term. Make your own judgment re: CSR and rent.

Update: I guess Mike was already all over this.

Are we close to...  

A replicator?

 
Full Printed from nueveojos on Vimeo.

A consultant caveat...  

I have never been an ardent advocate of consultants for farmers. Indeed, they often strike as a very minimal result for an exorbitant cost. But if you look at the example of consultants use in industry, there may be another deliverable I was discounting too heavily.

The puzzle is why firms pay huge sums to big name consulting firms, when their advice comes from kids fresh out of college, who spend only a few months studying an industry they previous knew nothing about. How could such quick-made advice from ignorant recent grads be worth millions? Why don’t firms just ask their own internal recent college grads?
Some say that consulting firms use their access to collect data on best practices, data that other firms are eager to pay for. But while this probably contributes, I find it hard to see as the main effect.
My guess is that most intellectuals underestimate just how dysfunctional most firms are. Firms often have big obvious misallocations of resources, where lots of folks in the firm know about the problems and workable solutions. The main issue is that many highest status folks in the firm resist such changes, as they correctly see that their status will be lowered if they embrace such solutions.
The CEO often understands what needs to be done, but does not have the resources to fight this blocking coalition. But if a prestigious outside consulting firm weighs in, that can turn the status tide. Coalitions can often successfully block a CEO initiative, and yet not resist the further support of a prestigious outside consultant.
To serve this function, management consulting firms need to have the strongest prestige money can buy. They also need to be able to quickly walk around a firm, hear the different arguments, and judge where the weight of reason lies. And they need to be relatively immune to accusations of bias – that their advice follows from interests, affiliations, or commitments.
All three of these functions seem to be achieved at a low cost by hiring good-looking kids from our most prestigious schools. These are the cheapest folks you can buy with our most prestigious affiliations, they are smart enough to judge where reason lies, and they have few prior affiliations to taint them with bias. They can not only “borrow your watch to tell you the time,” but can also cow you into submission in accepting that time.
Yes the information contained in consulting advice can be obtained elsewhere at a lower cost. Firms could hire most any smart independent folks, or set up a prediction market. But alas those sources don’t have the raw strength of status to cow opponents into submission, opponents who in practice can block changes no matter what a CEO declares.
So mine is a signaling and status story (surprise surprise). The weight of status often decides outcomes, no matter what the CEOs commands, and so CEOs often need to bring out status ringers, to cow opponents into submission. [More]

My summary: we bring in consultants as ratifiers of actions we already know need doing, but require uncomfortable changes in our group.

OK, I can follow that. But for groups or businesses without high levels of dysfunction I assert there is a considerable competitive advantage. They do not need to fork out for expensive and often redundant statements of the obvious; they can react much more quickly in a high-speed business environment; they develop a confidence in their ability to face an uncertain future without hand-holding.

I will grant consultants can add some value to some business groups. But I would suggest, those who can develop a working environment that utilizes equally qualified in-house talent more effectively will achieve a substantial competitive advantage. It may also be that continued reliance on consultants would possibly minimize the chances for such group skills to develop and flourish.

File under "Holy S***!"...  

Not being a gun enthusiast, this item blew me away.

Earlier this month, a British Army sniper Corporal Craig Harrison broke the world’s record for superaccurate shooting, taking out a pair of Taliban machine gunners from a mile-and-a-half away. It was a one-in-a-million feat — one performed under “perfect” conditions, Harrison says: “no wind, mild weather, clear visibility.” [More]

But wait, there's more.

The U.S. military has been after self-guided bullets for years. Now, government researchers have finally made it happen: a bullet that can navigate itself a full mile before successfully nailing its target.
The breakthrough comes courtesy of engineers at the government’s Sandia National Laboratories. They’ve successfully tested a prototype of the bullet at distances up to 2,000 meters — more than a mile. The photo above is an actual image taken during one of those tests. A light-emitting diode was attached to the bullet, showing the amazing pathway that the munition made through the night sky. [More]

Between stuff like this and drones, is there a good argument against being paranoid?

Junkbox, Episode IDUNNO...  

Heading to the record-breaking TP Seminar to tape the show today.

• I take 'em when I can find 'em.
• Helpful global temperature chart. New study, same conclusion.
• Another step toward the HAL 2000 car.
• The Indian wheat yield problem
• Wild mustard could get a little wilder
• Is wind dying?
• I need to work "sustainable" into this post, I guess.

I would be surprised...  

If officials find much of the MF Global missing $$. So would others.

Federal officials looking for an estimated $1.2 billion missing from customers of MF Global Holdings Ltd. feel more and more that a lot of it may never be located, according to a report citing sources familiar with the probe.
What's been learned so far suggests that a good deal of the money may have “vaporized” because of scrambling in trading in the week before MF Global filed for bankruptcy protection Oct. 31, the Wall Street Journal reported, citing “a person close to the investigation.”

Many now think specific MF Global employees used money from a customer account meant to be walled off and used it to cover collateral requirements or to unfreeze assets of banks and others as they became more worried about how exposed they were to MF Global, the Journal reported. [More]

The TP seminar is underway, and this will be one of my questions to the analysts at the taping.
See their answers this weekend.

A pain in the back...  

I have friends and family who suffer from back pain, and Jonah Lehrer clarifies what we know in a brilliant article about the boundaries of our understanding of cause-and-effect.

Today, back pain is an epidemic. There's an 80 per cent chance that, at some point in your life, you'll suffer from it. There are so many moving parts in the back that doctors have always had difficulty figuring out what, exactly, was causing a person's pain. As a result, patients were typically sent home with a prescription for bed rest. This treatment was very effective. Even when nothing was done to the lower back, about 90 per cent of people with back pain got better within six weeks. The body healed itself, the inflammation subsided, the nerve relaxed.
For years, this hands-off approach remained the standard medical treatment. That all changed, however, with the introduction of magnetic-resonance imaging in the late 70s. These diagnostic machines use powerful magnets to generate stunningly detailed images of the body's interior. Within a few years, the MRI machine became a crucial diagnostic tool. The view afforded by MRI led to a new causal story: back pain was the result of abnormalities in the spinal discs, those supple buffers between the vertebrae. The MRIs certainly supplied bleak evidence: back pain was strongly correlated with seriously degenerated discs, which were in turn thought to cause inflammation of the local nerves. Consequently, doctors began administering epidurals to lessen the pain, and if it persisted they would surgically remove the damaged disc tissue.
But the vivid images were misleading. It turns out that disc abnormalities are typically not the cause of chronic back pain. The presence of such abnormalities is just as likely to be correlated with the absence of back problems, as a 1994 study published in The New England Journal of Medicine showed. The researchers imaged the spinal regions of 98 people with no back pain. Two-thirds of normal patients exhibited "serious problems" such as bulging or protruding tissue. In 38 per cent of these patients, the MRI revealed multiple damaged discs. But none of these people was in pain. The study concluded that, in most cases, "the discovery of a bulge or protrusion on an MRI scan in a patient with low back pain may frequently be coincidental".
This is not the way things are supposed to work. We assume that more information will make it easier to find the cause, that seeing the soft tissue of the back will reveal the source of the pain, or at least some useful correlations. Unfortunately, that often doesn't happen. Our habits of visual conclusion-jumping take over. All those extra details end up confusing us; the more we know, the less we seem to understand. The only solution for this mental flaw is to ignore a wealth of facts, even when the facts seem relevant. This is what's happening with the treatment of back pain: doctors are now encouraged not to order MRIs when making diagnoses.
The failure of torectrapib has not ended the development of new cholesterol medications -- the potential market is simply too huge. Although the compound is a sobering reminder that our causal beliefs are defined by their oversimplifications, that even the best-understood systems are still full of surprises, scientists continue to search for the magic pill that will make cardiovascular disease disappear. Ironically, the latest hyped treatment, a drug developed by Merck called anacetrapib, inhibits the exact same protein as did torcetrapib.
The initial results of the clinical trial, made public in November 2010, look promising. Unlike its chemical cousin, this compound doesn't appear to raise systolic blood pressure or cause heart attacks. (A larger clinical trial is under way to see whether the drug saves lives.) Nobody can conclusively explain why these two closely related compounds trigger such different outcomes or why, according to a 2010 analysis, high HDL levels might actually be dangerous for some people. We know so much about the cholesterol pathway, but we never seem to know what matters.
Chronic back pain also remains a mystery. Doctors have long assumed that there's a valid correlation between pain and physical artefacts -- a herniated disc, a sheared muscle, a pinched nerve -- yet there's a growing body of evidence suggesting the role of seemingly unrelated factors. A recent study published in the journal Spine concluded that minor physical trauma had virtually no relationship with disabling pain. Instead, the researchers found that a small subset of "nonspinal factors", such as depression and smoking, were most closely associated with episodes of pain. We keep trying to fix the back, but perhaps the back isn't what needs fixing. Perhaps we're searching for causes in the wrong place.
The same confusion afflicts so many of our most advanced causal stories. Hormone-replacement therapy was supposed to reduce the risk of heart attack in postmenopausal women -- oestrogen prevents inflammation in blood vessels -- but a series of recent clinical trials found that it did the opposite, at least among older women. (Oestrogen therapy was also supposed to ward off Alzheimer's, but that doesn't seem to work, either.) We were told that vitamin D supplements prevented bone loss in people with multiple sclerosis and that vitamin E supplements reduced cardiovascular disease. Neither turns out to be true.
Given the increasing difficulty of identifying and treating the causes of illness, it's not surprising that some companies have responded by abandoning research. Most recently, two giant firms, AstraZeneca and GlaxoSmithKline, announced that they were scaling back research into the brain. The organ is too complicated, too full of networks we don't comprehend. We live in a world in which everything is knotted together, an impregnable tangle of causes and effects. Even when a system is dissected into its basic parts, those parts are still influenced by a whirligig of forces we can't understand or haven't considered or don't think matter.
This doesn't mean that nothing can be known or that every causal story is problematic. Some explanations work better than others, which is why, thanks largely to improvements in public health, the average lifespan in the developed world continues to increase. Although our reliance on statistical correlations has strict constraints -- which limit modern research -- those correlations have managed to identify many essential risk factors, such as smoking and poor diet.
And yet, we must never forget that our causal beliefs are defined by their limitations. For too long, we've pretended that the old problem of causality can be cured by our shiny new knowledge. If only we devote more resources to research or dissect the system at a more fundamental level or search for ever more subtle correlations, we can discover how it all works. But a cause is not a fact, and it never will be; the things we can see will always be bracketed by what we cannot. And this is why, even when we know everything about everything, we'll still be telling stories about why it happened. It's mystery all the way down. [More][Apologies for a very liberal excerpt, but the whole piece is worth the time, albeint mildly discouraging]

I have been puzzling for some time about the anti-scientific mood in much of America, or at least a "cafeteria" approach to science and technology. We choose when adherence to the scientific method is applicable. For farmers, it displays as staunch defense GMO's with arguments they deny for climate change. This list includes vaccinations, environmental cancer causes, flood control, meat consumption, and other hot-button issues.

I've written about our profession's approach to science before. In agriculture, we justify it by carefully annotating some science as "sound". Curously, sound science is always research that validates our position.

Sound science doesn’t just line up on one side of an argument either. Anyone who has been to a congressional hearing or in major litigation can witness a parade of sound scientists contradict one another – for a hefty fee, of course.
When EU customers won’t buy GMO corn for obviously trumped up health issues, I really doubt that a mountain of sound science will suddenly change their minds. It certainly hasn’t for US producers. Sound science has quietly pointed out that market advisors are virtually ineffective – although better than farmers themselves – compared to random choice, but producers still fork out hefty fees and mumble mantras of technical mumbo-jumbo. Sound science points out that wind energy is a non-starter because of the backup generators required, but it looks like such a great idea and if we can get a subsidy the science won’t really matter.
Sound science would also demand that no tractor be operated without a closed cab (interestingly, something our “non-science” EU cousins believe and we don’t) or by operators over 65. 

What might be happening is the clash between how much cultural change we can absorb and the pace of scientific progress. But watching the anger of the Tea Party and the mystical surreality of modern spirituality on the other side, it appears neither wing has much respect for plodding efforts by scientists to push back the boundaries of ignorance.


Meanwhile, we want our phones to work and our cars to drive themselves and life to become easier, faster and cheaper every day. My observation is electronic advancement is far more likely to be embraced than medical or geophysical. One is too close to home, the other has too many long time horizons. In those areas we reserve the right to manufacture our own belief systems, even though I think it is those seemingly disassociated technologies that are wrenching our intuitive understanding of the world the most.


My concern is that making the scientific method a handmaiden to our particular agenda renders it worthless. Our minds will have to work overtime to rationalize mysticism here and physics next door. Most of all, it appears the failings of our education system in STEM courses makes the option of "going with the gut" or "feelings" a  choice that cannot be criticized even with it's dismal results.


Religion is caught in the divergence from seeing the world dispassionately and empirically. Hence the rise of atheism or at least a "none-of-the-above" spirituality that is becoming the refuge for those seeking meaning and forced to choose between reason and faith.

We've struggled with this rift before, of course, but we now have so much power (ironically thanks to science) to change our world and lives, that the philosophical nature of the debate is dwarfed by the scale of possible consequences. 

The Phipps Grain Bin Rally...  

Oh yeah, I'm officially taking credit for this corn rally. The Argentines arranged their drought just to have one last cheap shot at me.

As I have mentioned before (at least in speeches) I have built two of the world's most expensive free grain bins under the Cargill Grain Bin Program. This year I thought I was home free.  My target price was $6.34 on the first trading close in February. If Mar corn closes below that, my 41,000 bushels no longer have to be delivered.

Once - just one - I thought I was going to win one. (This is third and final year of the contract) If we coulda just stayed below the trigger AND THEN HAD A BIG RALLY, I could have matched a friend of mine whose bin experience was just that: his trigger was a half-cent higher than the close, and he went on to sell the contents for zillions. He mentions it often...

So as we motor to $7 please wave to me in the rearview mirror.

[Just in case you are new or confused, this is all very tongue-in-cheek. I would never have built the bins without the program, they have already paid for themselves, and railing at higher markets because you voluntarily sold earlier is nonsense.]

It just doesn't feel like a win.

If only NASS could issue a report between now and then...

Junkbox, Episode XMEN...  

I hate moving to a new computer, so I was blown away by the "Migration Assistant" on my Apple iMacs. The computer asked me which computer I was moving from when it found my network, told me it would take about 5.5 hours, and started the move.

About 6 hours later, I essentially had two identical computers. The new 27" screen adds mostly width, but is still a welcome addition for worsening eyes. The speed is noticeably zippier, and I've eliminated some annoying freezes.

Best of all, I get to play Santa Claus to one of nieces/nephews/friends and hand off my old Mac.

Some stuff I've found:

• It's a big fracking deal. The magnitude of this energy boom is just sinking in. Especially in ND.
• Uneasy lie the heads that wear the expensive hats
• Where the coal trains will be heading
• Silicon Valley may be choking its own recovery
• Getting workers to rural boom towns. Not easy.
• The man who starved his country

This is the competition...  

In an amazing and slightly horrifying article, the NYT details why the iPhone is made in China. And it's not just low wages - it's simply incredible organization and speed. The most jaw-dropping revelations:

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals. 

...

The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.

Foxconn employees, in interviews, have challenged those assertions.

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days. [More of what should be mandatory reading to understand globalization]

Just like the old basketball saw, "You can't teach height", we still struggle in the US to grasp what millions of motivated low-wage workers can allow in terms of flexibility and market response. As manufacturing increasingly depends on shorter time horizons and being first to market, the ability to move literally hordes of people around to fit the task is a dominating advantage.

But just as we have centers for specific business activities (Silicon Valley, Motor City, Wall Street) it might be that we are moving to global focal points for manufacturing, finance, technology, etc. For us in agriculture we need ot work to make sure we are the leading location for agriculture.

I'm not sure that is our goal right now, and the sacrifices (less subsides for production, more for research, education, for example) needed to make it happen aren't being asked or made.

Update: For a refreshingly upbeat case that clearly articulates the other side of the story for the US, read this gem by Dan Dresner.