Sunday, July 27, 2014

The problem with "average returns"...

I have long disputed the axiom touted by our financial industry that long-haul equity investment would outperform other assets. Like too much advice it was a facile glossing-over of the actual impossibility of mortal individuals to experience long term average gains.

It turns out timing - spelled L-U-C-K - is a big factor as well. Those average returns are not the same for any particular investor lifetime.
One other scenario year is interesting just for the dramatic disconnect it shows. It involves those fortunate enough at the outset to have a pile of cash to invest. The period from 1975 to 2005 was a stunning three decades for the American stock market, returning 13.7 percent per year. A person who socked away $300,000 in the S&P 500 at the start of 1975 and reinvested all dividends walked away with $14.2 million in 2005.But the pattern of returns was distinctly unfavorable for someone who was a slow and steady saver throughout that period. Some of the years of the sharpest gains came early in that window, like the 38 percent return in 1975 and 24 percent in 1976. And then the last few years were weak, encompassing three straight years of sharp declines to start the 2000s.As a result, our person who invested $10,000 each year walked away with $1.59 million come retirement — nothing terrible, certainly; it was almost impossible to hold stocks during that 30 years without making money. But hardly $14 million.A final note. You can’t control any of this. We all happen to be born when we are born, and the future returns of the stock market are unknowable. As an investor, it is generally best to focus on the things you can control, like how much you save and whether you are putting money in investment vehicles with low fees that are tax efficient.But the luck of when you are born may have a bigger impact on how much you have for retirement than you might like. [More]



Again, I agree that average returns are a good source for basing decisions. Expecting average results is not rational, however. 

Now apply this principle to farmland. How do you think the returns on land bought in say, the last 5 years will match up to acres purchased in 2005, for example?

Uh, guys...

Lost in the rural umbrage over Chipotle cartoons and "responsible raising" was any consideration that this concept might have endurance. I think the Meat Establishment consistently assumed a little pushback would not just be tremendously satisfying, but snap Joe Public back to his burger-loving senses.

That could still be proven correct, but the chances of a significant change in consumer consumption at the fast food level are growing right now - not diminishing.
The numbers were startling: Shares of Chipotle Mexican Grill shot up 12 percent on Tuesday after the company reported a nearly 26 percent spurt in its quarterly profit. For the fast-food industry, this was fresh evidence that the world of Big Macs and Doritos Locos Tacos has room for a menu with healthier-than-average food and higher-than-average prices.But it came as no surprise to a new generation of smaller fast-food chains that are coming up fast behind Chipotle and its peers, and taking its “food with integrity” mantra even further.A handful of rapidly growing regional chains around the country — including Tender Greens,LYFE Kitchen, SweetGreen and Native Foods — offer enticements like grass-fed beef, organic produce, sustainable seafood and menus that change with the season. Most promise local ingredients; some are exclusively vegetarian or even vegan. A few impose calorie ceilings, and others adopt service touches like busboys and china plates.And despite the higher costs and prices, all are thriving and planning national expansions, some directed by alumni of fine dining or of fast-food giants like McDonald’s.Their success marks a milestone: After decades of public hand-wringing about the empty calories and environmental impact of fast food, the farm-to-table notions that have revolutionized higher-end American restaurants have finally found a lucrative spot in the takeout line. The result already has a nickname: farm to counter.“This is not a passing fad,” said B. Hudson Riehle, the research director for the National Restaurant Association, who added that locally grown food and sustainability were the top two customer priorities reported this year in the group’s annual poll of American chefs. “It’s only going to get stronger.” [More]

The numbers are still absurdly lopsided, but with traditional fast-food (jeez - who'd have thunk that would be a legitimate label?) struggling to generate sales growth, I think there is a real risk that market for proteins - and consequentially, grains - may move slowly overseas. Fast food's future could be dependent on a rising lower class - not a thriving middle class.

It's tough to say how much of Chipotle's strong sales are a result of its campaign, but many analysts give the practices lots of the credit.
McDonald's doesn't expect full-year international comp sales to be too different from its June performance, and July global comps are expected to be negative.That's in spite of the late-April makeover for the iconic Ronald McDonald clown, who traded in his pear-shaped yellow onesie for a hip vest-and-cargo-pant combo. For special occasions, he wears what the firm calls a whimsical red blazer and bow tie. His floppy red shoes remain.Shares of the Oak Brook, Ill.-based company slid 1.4% in the stock market today.By contrast, Chipotle wolfed down profit in spite of higher menu prices, reporting late Monday a 17.3% jump in Q2 same-store sales. Earnings topped views as revenue growth accelerated for a third straight quarter.The company's antibiotic-free proteins and fresh ingredients have made the chain a fan favorite in the fast-casual world.Making over menu items — instead of mascots — may be the ticket to success with consumers. [More]
The numbers are all the more impressive given the healthy (heh) price increases Chipotle announced earlier this year.

Dietarily, I don't really have a stake in this battle. I eat increasingly less beef, but have been doing so for years. But I travel enough to use fast-food for refueling simply because it's, umm...fast. Come to think of it, that may be the large majority of the attraction.

Nonetheless, I think treating this sales trend with the respect the numbers deserve might not serve us better that echo-chamber outrage-fests. 

Saturday, July 26, 2014

Out of the closet...

No - not that closet. I have nurtured an abiding fear somebody will find my Kindle and note the astonishing amount of ...um, low quality fiction I read. We're talking space operas, hard-core SF, and even some Tolkein-ish fantasy. We're talking a couple hundred books here. (Some only $1.99 and still overpriced)

It was a relief to find a masterfully written article that helps me justify this juvenile escapism.

Second, some of the most celebrated practitioners of modern fantasy share with their pre-modern predecessors this belief that the fictional apparatus of fantasy is a relatively close approximation to the way things really are for human beings. J. R. R. Tolkien may not have believed in Sauron, but he surely believed that there are in human history people who sell themselves to the Enemy and find themselves as a result of that decision first empowered and then destroyed. And when, at the beginning of Lewis’s Perelandra (1944), the protagonist Ransom’s progress toward a friend’s house is impeded by invisible forces who fill him with fear, Lewis was describing the work of spirits whom he truly believed to exist, though under a slightly different description, just as he probably believed thatsome forms of scientistic rationalism are the product of demonic influence. In short, these writers sought to present their readers with an image of an enchanted world, of selves fully porous to supernatural forces. But because they did so in genres (fantasy, science fiction) known for the imaginative portrayal of the wholly nonexistent, readers confident in their buffered condition can be delighted by those stories without ever for a moment considering the possibility that the forces portrayed therein might correspond to something real. Indeed, the delight of the stories for such readers consists primarily in their perceived unreality. [Much more]
The mental escape routes are handling some heavy traffic these days. Fantasy/SF is a hot genre - and not only with nerds. But some suspect this wave is only a bubble.
Therein lies the rub. There's a reason fantasy wasn't mainstream before. It's a genre that appeals to people who play D&D and get their kicks reading about elves with names like Tanis Half-Elven and Galadriel. Unless publishers can keep finding the next big crossover, fantasy may once again return to its less mainstream, and considerably less profitable, roots. People can only take in so many teenage vampire romances and wizarding schools. It's possible that the next Harry Potter is just around the corner, of course, but it seems like no matter how many "Is Such-and-Such the Next Harry Potter?" articles I read, the books never quite gain enough momentum to go mainstream. Books like Lev Grossman's The Magicians gain wide critical acclaim, but then run into the immovable object that is the hardcore fantasy fan base.As much as I'm enjoying the bubble, I won't care too much if it bursts. Fantasy has simply gotten better over the past decade, and most of the best titles will never be adapted into an HBO series or a movie anyways. The really good stuff these days also tends to be really edgy. R. Scott Bakker's Prince of Nothingseries is so dark I'm not sure it would make an R-rating if it were translated to the silver screen. Many other contemporary fantasies are similarly adult, with lots of sex and lots of violence. Steven Erikson's Malazan books are also dark, but more problematic from a filmmaking standpoint, as the popular series spans several distinct time periods, countless perspectives, and a sprawling epic storyline. The various storylines are not obviously connected with one another even after several books. Robert Jordan's Wheel of Time series suffers from the same kind of shortcomings. What works in epic fantasy doesn't necessarily translate onto the big screen.Plus fantasy costs too much money to produce. Dragons, spells, and fantastical worlds are expensive, even in the age of digital animation that has made this all possible. It's one thing to adapt A Game of Thrones, which is as much medieval adventure as it is high fantasy. Martin's work has little overt magic, and few magical creatures. Compare this to the work of Jordan, Erikson, or Bakker and you begin to see how studios such as HBO might be leery of the investment. [More]
It could be the increasing intrusion of technology is affecting our feelings about religion and our dreams alike. The intensifying monotony of our choices for entertainment certainly encourages borrowing someone else's imagination, perhaps. 

But as I continue to note lately, I care less about whether others think my preferences are silly or misguided. At this point, life really is too short. Besides, when I did care I couldn't change their opinions, anyway.



Thursday, July 24, 2014

Bankers unclear on the concept...

Out in Kansas, home of the famous "Fighting 'Flation Hawks", bankers recently gathered to complain how the Federal Reserve was ruining their lives.
"Interest rates have been low longer than needed," said Jim Farrell, president of Farmers National Company and chair of the Omaha branch board of directors of the Kansas City Fed. "The low rate doesn't seem to be stimulating anything now.""Beware of unintended consequences," Farrell added. Discounted interest rates get factored into farmland values, which influence cash rents and that drives up the cost of production, Farrell noted.Another consequence: "Some have called it a 'retirement tax,' because retirees are paying the price, [by not being compensated for their savings]," said Farrell.In fact, George pointed out, "We've seen signs of 'reaching-for-yield' behavior in the leveraged loan market, subprime auto lending and corporate bonds."The lack of alternative investments has been a factor in keeping farmland values high, noted Doug Stark, president of Farm Credit Services of America, based in Omaha."Lower interest rates have also pushed some savers, who traditionally relied on safer assets, into riskier securities," said George. And there is growing concern these savers, especially those retired or nearing retirement, may not understand those risks, George noted. [More]

It's unsettling to me to hear remarks like these from people in charge of our financial system. My understanding of the system seems to be strongly at odds with their POV.

For example, there are easy ways to tell when interest rates need to rise: inflation comes to mind. When people want to buy stuff and services more than they do save money, prices will begin to rise. This demand-pull doesn't seem to be what we've seen for years.  In fact, inflation remains historically low.
The Labor Department’s latest consumer price index report suggests concerns about inflation pressures may again be premature. U.S. consumer inflation firmed last month but largely decelerated outside a jump in gasoline prices, and food costs in particular slowed after surging in recent months.Indeed, the Fed’s preferred measure of inflation—the Commerce Department’s personal consumption expenditures index–has been undershooting the central bank’s 2% target for two years. Any reading that finally approaches 2% – and even one that surpasses it slightly – is likely to be welcomed rather than feared by Fed Chairwoman Janet Yellen and many of her colleagues. [More]
Let's see what this looks like:



Another sign rates are too low would be bond yields. If US debt wasn't paying enough interest the price of bonds would drop to raise the effective yield. But signs of investor reluctance just aren't there.




And while the bankers complained that savers were being "forced" into riskier investments to get some yield, this is another indication we have plenty of money looking for work. Just like we now seem to have more than enough corn, the price has plummeted. For many, it is hard to think of money as a commodity, but the same supply/demand principles apply. 

Here's a curious indicator about the abundance of savings.
A report released Thursday by bank consulting firm Moebs Services Inc. calculated the average balance for U.S. checking accounts at $4,436 at the end of last year — more than double the average of $2,100 over the 25 years of the annual survey.During good economic times, when unemployment and inflation are low, the average balance in consumer checking accounts is about $1,400, the survey noted."When times get difficult, the consumer sits things out and checking balances get larger, normally upward to $3,000 or a bit beyond," the study said. "Generally there is higher unemployment, lower inflation and falling prices." [More]
The idea of more money than can be used by borrowers simply eludes many people. The belief that money has intrinsic value is deeply ingrained in our minds. Perhaps this is necessary, because if we ever did try to come to grips with the fact that it's jut a piece of paper or a number on a screen we'd panic. And buy gold.

But this, I believe, is the big reason why interest rates are low - there are oodles of money being saved, much less being spent. And as for needing money for investing in new business ideas, that's not happening either.



The surplus of savings has gone on long enough to trigger a sense of entitlement in savers - they deserve a decent return! It turns out if nobody wants to use your money, you don't. Money earns a return, it isn't a built-in guarantee.

Finally, these bankers seem to have forgotten they control their interest rates. The Fed can't prevent them from raining what they pay savers. Of course, they would have to charge more to borrowers in return, who would likely go to a) borrow less or b) find another cheaper lender. The Fed doesn't tell banks what to charge. 

Exacerbating the problem is how banks have voluntarily linked loan rates to the prime rate (which links to the Fed funds rate) so as to "automate" and shift blame for rate changes. This is a real help when going up, but less fun for them when rates are falling. Again, this was their choice, not the Fed.

This is simply low demand. While $3 corn may help that situation for some ag banks, right now more saving is going on than spending.  The worst (for them) news is this is unlikely to change very fast. Economic growth is largely being garnered by the saving class, not the spending (borrowing) class.

Banks have the same problem I have: too much product for current demand. Carping about the Fed won't help, and raising interest rates could actually make the problem worse.  Until loan demand and inflation show some life, they need to figure out some other way to make a buck.


Wednesday, July 23, 2014

I'm not dead...

"Anonymous" below asks if I've giving up blogging. Which reminded me:



So, the answer is, I don't think so. But I've gotta get my time balanced.

Here is what I can tell you right now.

  • There will be some changes coming at USFR which will help. (Other than Tyne having her baby)
  • I am posting links and comments on Twitter almost daily. Follow me there if you like.
  • I miss blogging but also found out I missed farming and woodworking.
The time off really helped, so now that corn is headed to $4.00 $3.50 $3.00, there may be some stuff to write about. 

I think I'm about ready to get going.  Thanks for asking.

Sunday, June 22, 2014

The truly "golden" years...

Jan and I have been unbelievably - and undeservedly - lucky in life. One thing we can take credit for, however, we had our children at a great time in our lives.  As such we enjoyed our "golden" years at a time and in a way many cohorts behind will never know.

The old admonition, "Life begins when the kids leave home and the dog dies" has a bit of truth behind it. Our children were born when I was 26 and 29 respectively.  Which means they left for college when we were in our mid to late forties - no age at all.

Better than that, they never came back, and more importantly achieved financial independence promptly after school. I have written how I was caught unaware by Aaron's return after nearly 15 years away, but that is another story. My point today is how - happy though we are right now - we marvel at the incredible years when we were still young enough to do anything we could afford, we could afford more than we had anticipated, and we were not yet caring for an older generation, or friends coping with health issues.

This life plan doesn't appear to be that common any more.
One in five people in their 20s and early 30s is currently living with his or her parents. And 60 percent of all young adults receive financial support from them. That’s a significant increase from a generation ago, when only one in 10 young adults moved back home and few received financial support. The common explanation for the shift is that people born in the late 1980s and early 1990s came of age amid several unfortunate and overlapping economic trends. Those who graduated college as the housing market and financial system were imploding faced the highest debt burden of any graduating class in history. Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000. (Kasinecz still has about $60,000 to go.) And more than half of recent college graduates are unemployed or underemployed, meaning they make substandard wages in jobs that don’t require a college degree. According to Lisa B. Kahn, an economist at Yale University, the negative impact of graduating into a recession never fully disappears. Even 20 years later, the people who graduated into the recession of the early ’80s were making substantially less money than people lucky enough to have graduated a few years afterward, when the economy was booming.Some may hope that the boomerang generation represents an unfortunate but temporary blip — that the class of 2015 will be able to land great jobs out of college, and that they’ll reach financial independence soon after reaching the drinking age. But the latest recession was only part of the boomerang generation’s problem. In reality, it simply amplified a trend that had been growing stealthily for more than 30 years. Since 1980, the U.S. economy has been destabilized by a series of systemic changes — the growth of foreign trade, rapid advances in technology, changes to the tax code, among others — that have affected all workers but particularly those just embarking on their careers. In 1968, for instance, a vast majority of 20-somethings were living independent lives; more than half were married. But over the past 30 years, the onset of sustainable economic independence has been steadily receding. By 2007, before the recession even began, fewer than one in four young adults were married, and 34 percent relied on their parents for rent. [More]

Look, we loved being parents, but we were stunned by how much fun it was to have grown children. I suppose we missed the crazy times of being 20/30-somethings without spouses or children, but postponing them to 45 ain't the worst outcome in the world either.

Most crucially, we are learning that much of what is glittering beyond 65 is fool's gold. In addition to the scenario laid out above, longer-lived parents often surprise our retirement plans, so that postponed pleasure is being eroded from both sides. 

Again, other than deciding two children were enough (which oddly we often regret) and having them early in our way-too-early marriage (I was 22, fer Pete's sake!), simple good fortune granted us a decade or more of hilarious freedom of action. I know, I know, it could all have been stolen by a health problem or similar life catastrophe, but at least we were in position to take advantage of the absence of calamity.

Our sons will be shifted slightly further down the life-track as they married and propagated at somewhat later ages, but I also know young people who may never see a grandchild, let alone her wedding. The timing just doesn't work.

I wonder if these life examples will move the trend of later marriages and families back to younger ages, or whether it will become astonishing to go on a camping trip with your grandparents when you are 12. 

Re-reading this, it could be interpreted as not merely self-congratulatory, but anti-retirement planning. That certainly wasn't my point. I'm just thinking that birth control has delivered some unexpected cultural results that may take us generations to sort out.

Wednesday, June 18, 2014

Odd charts...

Exercise #1: Integrate these two charts into a workable theory.




[As always, click to enlarge] 


So, apparently we are watching TV more than any other social activity, but what are we watching? Obviously not "regular" TV.

Anyone?

More to fret about...

Agriculture seems to me to be overly concerned about what other people think of them. While much of this has to do with defending our special status with the government is many instances, this anxiety is also present in less-subsidized sectors.

Some of it may be attributable to our odd concern over being "over-regulated".  I use quotes because what many see as intrusive regulation looks to me like being required to clean up our messes so they don't burden others. Or better yet, regulations offer strong  protection from our litigious fellow citizens. Regardless, apparently if we are well thought of, this will ameliorate the problems, the thinking goes.

I'm not sure why we are so concerned. But since we are here is some sobering news:

We are not a prestigious occupation.


[Source]

I'm not sure why the survey is so old (2009) - maybe you have to buy the fresh stuff. Whatever.

It's even worse when you look at our NORC score.

Maybe I'm just getting old and grumpy, but I don't think I was ever worried about whether people were "dissing" my occupation. In fact, I can enumerate some positive aspects of being ranked lower.

  • You are non-threatening.  My brother is a DOCTOR.  People who are DOCTORS seem to slip the fact into every conversation or attach MD to the scout trip chaperone list. Not all of them, but enough to notice a trend. This gets old. When people find out I'm a farmer, defenses fall instead of raise. They are pretty sure I'm not going to try to overwhelm them with my fabulous intellect or credentials. (Suckers!)
  • It's easy to astonish them with simple competence. Let's face it, the bar is pretty low for expectations in conversation or knowledge.
  • In a way, we are exotic. Nobody really knows how we live, yet may think they do. Partly that's because we spend inordinate effort trying to mislead them, but mostly it's due to a really unusual way of life.
  • You have new stories. Life in rural America is a mystery and an endless source of fascination. 
  • You have a unique perspective on everything from health care to child-rearing.
  • You have strong ties to a long past. You know how people say "X% of the jobs Y years from now don't even exist yet"? Our does and has. For 12,000 years or so. This is often envied more than you might think.
  • You job is "explainable". Despite embracing technology like a warm cheerleader on a cold night, farming still is basically the same job it was for, like, ever. 
It's not that I don't want people to think well of my work. But I don't expect them to respect me because of my occupation. That could be what we're seeing here in agriculture: a respect entitlement attitude.






Sunday, June 15, 2014

Twits on Twitter...

Yes, I've degraded myself to 140-character wisecracks and am tweeting.

Worse yet, I think I'm starting to enjoy it.

FWIW, I will tweet whenever I have a new post, so if you follow me you can follow Incoming as well.
The Chipotle affair...

I have been more than a little puzzled by the kerfuffle between the beef industry and Chipotle - for multiple reasons. But it's evident  - although virtually predictable - my opinion doesn't line up with the majority of farmers and ranchers. This became obvious when we talked about it on Agritalk Friday.

Chipotle has turned to Australia to source grass-fed beef. Considering the price of beef, especially the lean beef they need to cut our higher fat fed beef down to burrito level, this is hardly a surprise. But the beef industry took offense at their CEO comments.

In 2013, our company purchased about 45 million pounds of domestic Responsibly Raised beef; but the U.S. supply isn't growing quickly enough to match our demand. Even though our loyalty to American ranchers is strong, rather than meet the shortfall with conventionally raised beef from cattle treated with growth hormones and antibiotics, we decided to take this opportunity to start sourcing more truly grass-fed steak. So in addition to expanding our supply of beef raised without growth hormones or antibiotics, we are particularly excited to be able to serve more beef that comes from cattle raised entirely on grass. [More]
Of all the possible reasons, I think this quote hints at the most important one: the supply/price crisis in the US. Cull cows are setting records for both price and small numbers. So getting to 80/20 for ground beef is really tough with our beef output. Sure we have grass-fed beef but I can't even get any good numbers on the size of our grass-fed herd, let alone the percentage that are non-hormone and antibiotic free.
Nobody collects information on exactly how much of the grass-fed beef that Americans eat comes from abroad. Theo Weening, the global meat coordinator for Whole Foods, says his company buys very little. "We probably import maybe 3 percent. The rest is regional, local; that's what we really push for," he says.But you'll see plenty of Australian-origin beef in other supermarkets. Organic Valley, meanwhile, gets all of its grass-fed beef from Australia. There's also a lot of grass-fed beef coming in from Uruguay and Brazil.So why does the U.S., the world's biggest beef producer, have to go abroad to find enough of the grass-fed variety?Curt Lacy, an agricultural economist at the University of Georgia, says some of the reasons are pretty simple. Weather, for instance. In most of the U.S., it freezes. In Australia, it doesn't. So in Australia, as long as there's water, there's grass year-round.And then there's the issue of land. "If you're going to finish animals on grass, it takes more land," Lacy says. Grassland in Australia is relatively cheap and plentiful, and there's not much else you can do with a lot of it, apart from grazing animals.As a result, Australian grass-fed cattle operations are really big. In fact, they're the mainstream. Seventy percent of Australia's beef production comes from cattle that spent their lives grazing. And when beef operations are large-scale, everything becomes cheaper, from slaughtering to shipping.On Monday, the U.S. company Cargill announced a new deal with Australia's second-biggest beef producer — a company called Tey's. Cargill will now sell more Australian beef in the U.S., both grass-fed and grain-fed. [More]
I think Chipotle knows exactly what they are doing. And for the most part, the beef industry isn't thinking this through. Chipotle is arguably the brightest star in the food service galaxy right now, and seems to be handing both fast and casual dining competitors their heads, by inventing - along with Panera, etc. - a new category: fast casual.
There are now over 1,400 Chipotle locations in 43 states, and the chain reportedly made a 25% profit margin on $2 billion in sales in 2011.Chipotle began a trend in restaurants that the industry has dubbed “fast casual,” which offers a more upscale dining environment and food quality, along with higher prices, but in the familiar, convenient limited service format of fast food. “When I started Chipotle, I didn’t know the fast-food rules,” Ells explained years later. “People told us the food was too expensive and the menu was too limited. Neither turned out to be true.”By either ignoring or directly challenging all the dominant trends in its industry, Chipotle quickly became a great brand. Now Chipotle has become the trend-setter in the category, and trade publications feature headlines such as, “Who Will Be the Chipotle of Pizza?” Wendy’s and Taco Bell are just two of the most prominent fast food players investing in new store designs that look shockingly similar to that of Chipotle. The Wall Street Journal dubbed Ells the “Fast Food Revolutionary,” and Esquirecrowned him America’s most admired CEO....McDonald's sold its stake in Chipotle in 2006, and since then, Chipotle has moved farther and farther away from the typical fast food way of doing business. Ells’s latest obsession is the issue of sustainability. Chipotle is now the largest buyer of higher-priced pork, beef, and chicken from animals that have been naturally fed and humanely raised outside of the factory-farming system, which provides inexpensive commodity meats to the rest of the food industry. Produce served at Chipotle is also locally raised if possible (lettuce served in January on the East Coast still comes from California). What Chipotle has learned is that customers notice the difference in flavor from natural meats and fresh vegetables grown “with integrity,” as the chain’s tagline states--and they’re willing to pay extra for it. [More]
Chipotle is adding 200 restaurants a year to boot. Even the NCBA rep on the show with me pointed out the lines out the door at the stores in the DC area. Oddly, he couldn't connect that with the dots that suggest Chipotle knows what they are doing.

Mostly Big Beef hasn't gotten over their big beef (I've been saving that line for, like, ever) with the slick Chipotle videos, notably the latest - "Farmed and Dangerous". Partly this is due to the clearly top-notch production values, and mostly I think it's simply a lack of any effective response. 

The beef industry has decided, for reasons I cannot fathom, to go with "you hurt my feelings". 
Some U.S. producers say they were not given adequate opportunity to fulfill the company’s rising orders. While U.S. beef supplies are very tight, they aren't tight to the point where there's not enough supply. The company's decision to source some of its beef from Australia likely has more to due with price. Plus, the firm continues to strive for use of beef raised with no antibiotics or hormones, which it calls, "responsibly raised."Chipotle has the right to source its beef (and other meat) needs from wherever it chooses. But to say there isn't enough "responsibly raised" beef in the U.S. is a slap in the face of cattlemen here in the States. Cattlemen (and the entire farm community) should choose to "eat responsibly" and opt to dine at restaurants other than Chipotle. [More, but gated from Profarmer]
Brian Grete (above) reports this pretty accurately. I've heard and seen the "slap" reference repeatedly. It strikes me (heh) as one of the worst metaphors cattle producers could use. First, imagine somebody slapping the quintessential 'Merican cowboy (Marlboro Man, or Clint Eastwood from Rawhide). These are the rough-tough personas invoked often by our cow-calf people, so talking about a face-slap is an inexplicable transition from grizzled survivor to playground victim. Maybe the victimhood thing has worked so well for my sector (the weather/Chinese/Big Oil/etc.!), they have decided to join the whine cellar crowd.

But unlike corn farmers who are whining to government for hidden subsidies, cattle producers are aiming, I guess, for the public. This could be a big mistake. Jane Q Consumer is already aware of painful beef prices. And she is responding just like economists predicted, for once.  Beef consumption continues to drop. While there is substitution going on, total meat consumption is a tide that carries all proteins along.

[Source] [Note: I couldn't find any charts beyond 2012, but trend has not changed]

I see no evidence that pity-based marketing has been working or will work for the beef industry - unless they are shifting to subsidy-based ag, which could be, given the new livestock support in the recently passed Eventual Farm Bill ™. (This is my designation, which I thought up all on my own because the timeline for the current farm bill seems to be stretching to infinity and beyond)

Complicating this response is when you are "slapped in the face", simply griping about it seems a little...umm, limp, to put it mildly.

It could also be our grass-fed producers were simply out-hustled by the Aussies. [I would include an excerpt, but they lock down their content] At any rate, without oodles of corn, we should hardly be surprised Australia would be very, very good at growing and marketing grass-fed beef.  And just as we laud our export efforts in Asia, etc. when US beef takes market share from domestic suppliers, why are are miffed when the free markets works freely (both ways)?

But the bigger picture may be what is troubling most US cattle people (if only subconsciously). What if Chipotle's upfront promotion of "responsibly raised" beef works? What if competitors are forced to match their move? [See also: gestation crates] What if slick videos posed next to feedlot pictures sway consumers to eat less conventional beef?

Right now the answer seems to be, "We'll just export our product." This is a legitimate countermove. The US could become the high-value dominant supplier and simply leave the ground beef sector to others. While it seems to be working, there are things to watch as well. 

Increasing dependence on exports means greater volatility, IMHO. From currency fluctuations to competition to foreign policy entanglements to outright conflicts, lots can go wrong with exports. Secondly, growing income inequality here at home means the growth in the domestic market will be in exactly the sector dominated by the "Chipotles" of the industry. The domestic/export trend could intensify rapidly.

To sum up, beef producers at ticked at Chipotle for saying things they don't like, but can't answer effectively. They are also miffed at losing a grass-fed customer. But if it hasn't dawned on them there is not much they can do about it, they risk looking like ineffectual complainers.

The American and perhaps global consumer is getting used to vendors catering to even illogical preferences. Amazon has taught them they can really have it their way. Tomorrow. All of agriculture needs to realize this will ripple through our value chain and arrive our our farm gate, whether we like it or not. Meanwhile, our government is busying eating its own and can't be bothered with a tiny, never-satisfied slice of constituents. We can wrap US beef in the flag all we want, but that got tiresome back when Japanese cars kicked our automotive butts into the 20th Century. Patriotic shopping happens when consumers prefer US products.

I don't think Chipotle "slapped any cowperson's face". I think they said, "No thank you, I like Brand X".  It's not about us, it's about our products. And if we weren't plowing rangeland to grow insured-for-nearly-free crops, maybe we could play in the Big Grass-fed Leagues.

For the time being I think I'd take a pass on tattling that "Chipotle slapped me!"






Wednesday, June 11, 2014

Looking back, I saw this coming...

Just like the 3.5" of rain on my soggy fields. The Cantor defeat which was utterly unpredicted (my headline notwithstanding) now shines some light on a little known anti-economist economics teacher who has some puzzling views.
The full context of his second Holocaust prognostication comes in a section about how if Christian people “had the guts to spread the word,” government would not need to “backstop every action we take.”He writes:
Capitalism is here to stay, and we need a church model that corresponds to that reality. Read Nietzsche. Nietzsche’s diagnosis of the weak modern Christian democratic man was spot on. Jesus was a great man. Jesus said he was the Son of God. Jesus made things happen. Jesus had faith. Jesus actually made people better. Then came the Christians. What happened? What went wrong? We appear to be a bit passive. Hitler came along, and he did not meet with unified resistance. I have the sinking feeling that it could all happen again, quite easily. The church should rise up higher than Nietzsche could see and prove him wrong. We should love our neighbor so much that we actually believe in right and wrong, and do something about it. If we all did the right thing and had the guts to spread the word, we would not need the government to backstop every action we take.

[More]

Umm, okay. My knee jerk reaction is this guy could be a go-to legislator for a weird quote on a slow news day. While his relationship with the Tea Party was mostly that he was running against Cantor, there could be surprises all across the board. 

The upshot for me is the importance is the removal of Cantor, not the arrival of Brat.  It's hard to imagine the leadership battle being settled without an ugly fight, IMHO. 
In the immediate aftermath of Cantor’s defeat, camps inside the GOP were divided, with some Cantor allies urging him to stay on and help guide the party until November, while many of his critics privately warned that if he does not resign from his post they will promptly move against him.Associates of House Speaker John A. Boehner (R-Ohio) said they were telling him to quickly declare that he will stay in his position for another term and that he would like Cantor to stay on as majority leader through the end of the year, making the argument that unity and stability are critical for a House GOP in crisis.Others close to Boehner predicted that he may say little definitive in the days ahead about his own political future as he waits to hear from House Republicans about how they would like to proceed and whether conservatives, encouraged by professor David Brat’s upset in Virginia’s 7th Congressional District, decide to target him in an effort to elect an entirely new slate of House leaders. [More]
Meanwhile, back in Mississippi, I have to believe this is not good news for Sen. Thad Cochran, even though he is applying liberal (heh) amounts of money to his runoff. 

Two consensus beliefs from the punditocracy:
  1. Immigration reform is doornail dead.
  2. Hillary just got a boost.
Both I think seem plausible. But we pundits haven't been doing so well lately, have we?

I would add there is no good news for ag in the resurgence of the Tea Party. We relied on bipartisan support to get our subsidies and TP doesn't do bipartisan.  In fact, we have yet to get the actual, you know, dollars.

Indeed, it is not impossible this bill could languish in a fight over school lunches. The longer it stays in committee the more it will "evolve", I would think.  Meanwhile, Aaron attended a Farm Bill info session for his FB board and was told the FSA has locked down all information on rule-making, as well as tossed out even more distant final rules dates.  We may not be signing up for anything until next spring, for example.  Ok - this is hearsay, but juicy, ya gotta admit.

Back to the ditches...

Monday, June 09, 2014

Junkbox, Episode MMXIV ✘...

Plenty of water, little heat. Wait - I'm in the energy business.

Lotta guys getting nervous about fields not sprayed yet. I'm thinking ugly tracks...


Thursday, May 29, 2014

Show me the data...

It's about time the pushback for cramming Big Data down our throats got some more attention.  For this farmer, it is not, as the general media seem to think, rooted in obstinacy and ignorance.

But the story of prescriptive planting is also a cautionary tale about the conflicts that arise when data entrepreneurs meet old-fashioned businessfolk. Farmers might be expected to have mixed feelings about the technology anyway: although it boosts yields, it reduces the role of discretion and skill in farming—their core competence. However, the bigger problem is that farmers distrust the companies peddling this new method. They fear that the stream of detailed data they are providing on their harvests might be misused. Their commercial secrets could be sold, or leak to rival farmers; the prescriptive-planting firms might even use the data to buy underperforming farms and run them in competition with the farmers; or the companies could use the highly sensitive data on harvests to trade on the commodity markets, to the detriment of farmers who sell into those markets. [More]
I'm not buying into precise seed-by-seed technology because there is no data to prove it consistently pays off, especially on my farm. The reasons are obvious and ignored in the rush to sell the Apparatus of Big Data to us.

Just off the top of my head, here are my objections:
  1. ALL of the ideas are based on predicting the growing season weather. This overriding factor of production hath made fools of us all too often.
  2. There are no definitive differences between hybrids sufficient to accurately attach them to soil types and conditions. How do you know there wasn't another hybrid you could have selected which wouldn't have boosted your profits far more? We are dealing with a system of enormous complexity and more variables than even this gadgets can begin to demonstrably manage.
  3. The non-trivial costs of multi-hybrid, variable population, and other planting gimmicks are seldom if ever added into the cost/benefit calculations.
  4. Hybrid turnover is now so rapid, there is no possibility of proving claims of site-specific benefits over a range of years and conditions. Besides your choice is limited to whatever seed Monsanto, et al. produce the previous season, so you're not really choosing between thousands of hybrids - you're picking whatever is in the warehouse.
  5. The premium for more uniform soil-type fields should become more pronounced as the need for site-specific solutions would be less.
  6. Knowing what is going on at every inch in the field is a far cry from being able to remedy any problem at the inch level. Other than lower your yield projection what will knowing there is a 20 acre patch of fungus or bugs in your corn field in August do? Are you going to pay for and aim a plane/highboy with that degree of specificity?
By the way, here is how the Economist article cited above understands what Monsanto is doing.

The Climate Corporation planned to use these data to sell crop insurance. But last October Monsanto bought the company for about $1 billion—one of the biggest takeovers of a data firm yet seen. Monsanto, the world’s largest hybrid-seed producer, has a library of hundreds of thousands of seeds, and terabytes of data on their yields. By adding these to the Climate Corporation’s soil- and-weather database, it produced a map of America which says which seed grows best in which field, under what conditions.FieldScripts uses all these data to run machines made by Precision Planting, a company Monsanto bought in 2012, which makes seed drills and other devices pulled along behind tractors. Planters have changed radically since they were simple boxes that pushed seeds into the soil at fixed intervals. Some now steer themselves using GPS. Monsanto’s, loaded with data, can plant a field with different varieties at different depths and spacings, varying all this according to the weather. It is as if a farmer can know each of his plants by name. [More]
I suppose it is possible producers who load up on this questionable and technology will blow the rest of us out of the water. But it could also be they will fall behind because they become high-cost producers during a period of volatile prices. Nothing will stop this false precision in its tracks faster than $4 corn, IMHO.