Saturday, February 28, 2009

The waning Promethean Age?...

 

I've started a new audio course whilst trundling along in Zippy called "Classical Mythology".  The professor, Dr. Elizabeth Vandiver, is the best of the ones I've heard (along with Daileader of the "Middle Ages" trilogy).

Anyhoo, we're at the early parts where the Titans were being born and Zeus was becoming the dominant God.  Enter his "nephew", Prometheus, who began the contact with the gods for humankind.

The Prometheus myth first appeared in the Greek epic poet Hesiod's (ca. 700 BCE) Theogony (lines 507-616). He was a son of the Titan Iapetus by Themis or Clymene, one of the Oceanids.MenoetiusEpimetheus (" and afterthought"). In the Theogony, Hesiod introduces Prometheus as a lowly challenger to Zeus' omniscience and omnipotence. At Sicyon, a sacrificial meal marking the "settling of accounts" between mortals and immortals, Prometheus played a trick against Zeus (545-557). He placed two sacrificial offerings before the Olympian: a selection of bull meat hidden inside an ox's stomach (nourishment hidden inside a displeasing exterior), and the bull's bones wrapped completely in "glistening fat" (something inedible hidden inside a pleasing exterior). Zeus chose the latter, setting a precedent for future sacrifices; henceforth, humans would keep the meat for themselves and burn the bones wrapped in fat as an offering to the gods. This angered Zeus, who hid fire from humans in retribution. Prometheus at once went to Athena with a plea for admittance to Olympus, and this she granted. On his arrival, he lit a torch at the fiery chariot of the Sun from which he broke at once a fragment of glowing charcoal, which he thrust into the pithy hollow of a giant fennel-stalk. Then, extinguishing his torch, he stole away, and gave fire to mankind. This further enraged Zeus, who sent Epimetheus, brother of Prometheus, Pandora, the first woman,[3] fashioned by Hephaestus out of clay and brought to life by the four winds, with all the goddesses of Olympus assembled to adorn her. "From her is the race of women and female kind," Hesiod writes; "of her is the deadly race and tribe of women who live amongst mortal men to their great trouble, no helpmeets in hateful poverty, but only in wealth."
Prometheus, in eternal punishment, is chained to a rock in the Caucasus, where his liver is eaten daily by an eagle[4] or vulture, only to be regenerated by night.[5] Years later the Greek hero Hercules would shoot the vulture and free Prometheus from his chains.[6]
Hesiod revisits the story of Prometheus in the Works and Days (lines 42-105). Here, the poet expands upon Zeus' reaction to the theft of fire. Not only does Zeus withhold fire from men, but "the means of life," as well (42). Had Prometheus not provoked Zeus' wrath (44-47), "you would easily do work enough in a day to supply you for a full year even without working; soon would you put away your rudder over the smoke, and the fields worked by ox and sturdy mule would run to waste." [More]

Prof. Vandiver points out that the fire represents and perhaps is truly synonymous with culture, and the foundation stone of civilization. Thinking about this in my open-ended traveling hours provoked a tentative conclusion she may even be discounting the stunning importance of fire on our development as an intelligent species.
Humans became human, as it were, with the emergence 1.8m years ago of a species called Homo erectus. This had a skeleton much like modern man’s—a big, brain-filled skull and a narrow pelvis and rib cage, which imply a small abdomen and thus a small gut. Hitherto, the explanation for this shift from the smaller skulls and wider pelvises of man’s apelike ancestors has been a shift from a vegetable-based diet to a meat-based one. Meat has more calories than plant matter, the theory went. A smaller gut could therefore support a larger brain.Dr Wrangham disagrees. When you do the sums, he argues, raw meat is still insufficient to bridge the gap. He points out that even modern “raw foodists”, members of a town-dwelling, back-to-nature social movement, struggle to maintain their weight—and they have access to animals and plants that have been bred for the table. Pre-agricultural man confined to raw food would have starved.
Start cooking, however, and things change radically. Cooking alters food in three important ways. It breaks starch molecules into more digestible fragments. It “denatures” protein molecules, so that their amino-acid chains unfold and digestive enzymes can attack them more easily. And heat physically softens food. That makes it easier to digest, so even though the stuff is no more calorific, the body uses fewer calories dealing with it.
In support of his thesis, Dr Wrangham, who is an anthropologist, has ransacked other fields and come up with an impressive array of material. Cooking increases the share of food digested in the stomach and small intestine, where it can be absorbed, from 50% to 95% according to work done on people fitted for medical reasons with collection bags at the ends of their small intestines. Previous studies had suggested raw food was digested equally well as cooked food because they looked at faeces as being the end product. These, however, have been exposed to the digestive mercies of bacteria in the large intestine, and any residual goodies have been removed from them that way. [More]

OK, stay with me.

Our current energy debate can be very roughly divided into getting energy from fire and getting energy from other sources.  Today, we burn fossil fuels for electricity, internal combustion engines, heat, etc. We are oxidation-based.

Giving up all this "burning" may be a harder cultural adaptation than we imagine. In some sense, we are the children of fire, and I think you can glimpse that instinctual response when at a bonfire for a pep rally or a fireplace coming in from the cold"Fire good", we grunt on some level.

Switching to nuclear power, in contrast, has been difficult because that deep-seated linkage and primeval familiarity is simply non-existent or counterintuitive.  Wind, solar, and hydropower are less strange to our old brains, but I think we know on a very deep level they lack the raw, "commandable" power of roaring blazes.

Consequently, much of the resistance to new energy sources may be more deeply founded than we suspect. Our long history with fire, the cultural trapping we have invested it with, and the seemingly straightforward comprehensibility of burning stuff for energy will not be tossed aside on a whim or in the face of computer models a handful of people can understand - even if the arguments are fundamentally sound.

Despite from all equations about future energy needs and CO2 levels, we should be prepared for a long, long goodbye to the gift of rapid oxidation - if indeed we can actually part with this aspect of who we are. Fire is more than a clever tool we have adapted to our use as humans.  It defines us and has made us more than we were.

You can take the fire out of the furnace perhaps, but not out of the forebrain.

Friday, February 27, 2009

Who ya gonna believe?...

Me or your own eyes?



If they were Hoosiers I could buy it.

[via infonation]

Thursday, February 26, 2009

Hey - look, giraffes!...

So I thought I would spend the day at O'Hare and South Bend airports today.  Only it's now 8 p.m. and my 3 p.m. flight has turned into a chance at standby at 9 and 11:30 to get to Dallas for the Commodity Classic.

It is pouring rain here and has been for about 2 hours.  I keep seeing pairs of animals walking by.

Weird.

Wednesday, February 25, 2009

Right after the lawyers...

We kill all the mathematicians.

Just kidding, of course.  Or maybe not.

For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.
Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.
David X. Li, it's safe to say, won't be getting that Nobel anytime soon. One result of the collapse has been the end of financial economics as something to be celebrated rather than feared. And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees. [More]

This fascinating article is very readable and wonderfully enlightening about how the credit crisis began.  It also points out one obvious truism:

Too many of us fall in love with beautiful models.
Lo, they are always with you...

I refer, of course, to the poor and unemployed.While the Bible does not actually mention "unemployed", it appears that admonition could be the singular characteristic of the recovery from this depression.  Call it the curse of productivity.
Yet amid this carnage there is one thing that, surprisingly, has continued to grow: the paycheck of the average worker. Companies are slashing payrolls: 3.6 million people have lost their jobs since the recession started, with half of those getting laid off in just the past three months. Yet average hourly wages jumped almost four per cent in the past year. It’s harder and harder to find and keep a job, but if you’ve got one you may well be making more than you did twelve months ago.
This combination of rising unemployment and higher wages seems improbable. But, as it turns out, it’s what history would lead us to expect. Even during the early years of the Great Depression, manufacturing workers actually saw their real wages rise, and wage cuts have been scarce in every recession since. Oil and wheat prices may rise and fall instantaneously to reflect supply and demand, but wages are “sticky”: even when the economy goes bad, it takes a lot to make them fall.
It’s not because businesses are generous that wages are sticky; it’s because employers are worried. In part, bosses are afraid of what economists call “adverse selection”: if they cut wages, it’s the least productive workers who would be the most likely to stay, while the best workers would start looking elsewhere. (Even in a weak economy, businesses still compete for talent.) In a 1997 study of almost two hundred employers, the economists Carl Campbell and Kunal Kamlani found that the threat of losing their best employees was a major reason that bosses didn’t cut wages.
Even more important is the impact of wage cuts on morale. After the 1990-91 recession, the economist Truman Bewley interviewed managers and labor officials at more than two hundred companies and found that most believed that wage cuts wreck employee morale and eat away at productivity. Whatever money they’d save by cutting wages, bosses assume, would be cancelled out by the decline in effort and the breakdown of trust that wage cuts would create. Not everyone believes this: in the past month, both Hewlett-Packard and FedEx have announced plans for pay cuts. But generally, when sales and profits drop, wages aren’t cut, even in firms undergoing layoffs. Of course, layoffs don’t exactly help morale, but, as one of the bosses that Bewley interviewed coldly put it, they “get the misery out the door.” Cutting wages keeps the misery around. [More of a great, but sombre outlook]
My read on this phenomenon is very bad news for rural areas distant from service sector, high-skill jobs. What will be left in manufacturing are extremely technical jobs or pure entry-level labor, I imagine. Worse still, the ladders connecting these two levels will be few and far between.

There is considerable political cost as well. Unemployment benefits will be needed to cover more folks for longer periods than we suspect. Considering how few jobs were created in the last expansion, it is hard to see unemployment numbers bouncing much at all.  Compounding this is the effect of desperate business managers trying everything to lower costs by decreasing headcounts with technology.  Critics of policy will be able to point to high unemployment numbers long after GDP has started to rise. We could even see a resetting of the lower bounds of accepted unemployment.

One thing that could help is the seemingly inexorable march (slide?) toward severing health insurance from employment.  Even those currently covered will likely face cutbacks in employer contributions, and too many will see such benefits phased out.  If insurance were transportable and separate from employment, employers might look differently on re-hiring laid off workers.

Not do I think agriculture will be immune from this aspect of the recession. As our productivity skyrockets, higher commodity prices are unlikely to raise farmer numbers, except in the agrarian sector.
Blowing in the wind...

As many of you know, I am concerned the appearance of something-for-nothing has utterly confused the concept of wind energy.   Yeah - we know how to generate electricity from wind, and every day we get better at it.  But for the umpteenth time - that is not the major issue!

The issue is getting those amperes to your grain bin fan or Wii controllerIt's the GRID, people.
Let’s take a look at what’s going on here.  The first premise is that, by conveying real-time pricing the smart grid will encourage people to redistribute their consumption of electricity to off-peak hours of the day.  This will “level loads” and solve the perennial problem of utilities in meeting demand that occurs a few hours of the day or a few days of the year.

The second premise is that the smart grid will help integrate wind and solar energy - the two balky “renewables” that have the disadvantage of not being dispatch-able when we want them.  With the smart grid, wind and solar generation will always be available somewhere and so can be conveyed to where it’s needed.

Notice these are different things.  The true “smart grid” will be a digitalized distribution system that conveys real-time information.  Incorporating remote wind and solar, on the other hand, will require an upgraded grid, something entirely different.  Our present 345-kilovolt, AC transmission wires can’t do it without unacceptable line losses.  We will need to rebuild to 765 kV DC system – something that could take decades and easily cost several trillion dollars.

One has very little to do with the other.  However they are often described as the same thing.  Thomas Friedman effortlessly conflates them in Hot, Flat and Crowded when he writes:


[The smart grid] has made large-scale renewable energy practical for the first time ever.  Why? Because the flatter your utility’s load profile gets, the more it is able to go out and buy or generate renewable energy and sell it to you and your neighbors instead of energy powered by coal or gas.
This is not true.  A flattened utility profile has nothing to do with incorporating wind and solar.  In fact it is just the opposite.  The one great virtue of solar energy is that it peaks exactly when it is needed – in mid-afternoon and on hot summer days.  If we level loads, we will be taking away solar electricity’s greatest advantage.

Let’s go back and examine these issues one at a time.  First, start with the premise that the smart grid will enable us to redistribute energy consumption throughout the day.  It’s fitting that the girl is standing in front of a clothes dryer because that and washing dishes are the only examples anyone has ever been able to come up with about how residential users are going to “redistribute” their energy consumption. 

...
Wind, of course, is an entirely different animal.  Although  completely unpredictable, the wind does tend to blow stronger at night and in the fall and spring, exactly when it’s not needed.  A strong, steady wind in North Dakota might allow Illinois to cut some coal consumption but it won’t obviate the need for fossil fuels because the wind will always need backup.  “The Green Grid” concludes that wind will work best in tandem with - wouldn't you know it - natural gas turbines.  They can be adjusted instantly to compensate for the wind's vagaries.

So the prospect that a smart grid is somehow going to save huge amounts of energy and pave the way for a solar future is an illusion.  At best it will make electricity a bit cheaper and perhaps shave 5 to 10 percent off the anticipated growth in consumption.  But the smartest of smart grids can’t distribute power that isn’t already there. [More]

Now imagine they want to build that huge new transmission system across your best land.  The thrill sorta vanishes, doesn't it?  Our leadership failure to explain what is really going on, and to focus public attention on turbines as a problem solved is political duplicity at its worst, IMHO.

Farmers (and recently wind fever has hit here) see this  - very understandably - as another "ethanol", where government subsidies fill their pockets under the cover of virtuous environmental policy.  Wind energy is one very small source for our future energy needs, but until we do the ugly and expensive part of wiring our world, it will amount to little more than another fiscally loopy program.  This goes ditto for all those dairy methane digesters the farm press is suddenly in love with.

Incidentally, stimulus package opponents need to present their plan to get the grid rebuilt utilizing tax cuts and private enterprise.  Like roads and police, my opinion only the government can get this job done, due to the issue of over coming individual resistance for a common good.

Now look at some energy reality:


Of course, all this matters little, if you are the lucky farmer who gets a subsidized generator check. Wind energy is also powerful tool to enrich wind turbine manufacturers.  But keep an eye on usable MW generated whilst we continue to use fossil fuels and you might wonder why this GSB* ever got started before figuring out how to hook it up.

Maybe the thinking is if we build all these thousands of turbines, eventually somebody else will have to pay for a grid.  ["Built it and they will wire"]

All I keep seeing however, is a 90-foot homemade yacht in a barn in Nebraska.


*Government Sponsored Boondoggle

Tuesday, February 24, 2009

Photo of the Day...

I'm a big fan of Gothic architecture, and this HDR shot riveted my attention.

 
[More]
I think I would have made a good monk back in the Middle Ages.  Except for the chastity thing. 
And poverty.
OK, I might have trouble with the obedience and humility stuff as well.
But I love the outfits.

Maybe I could have been an alchemist, instead.
Mail call...

Help me out with this one, guys.
Dear John

 I am the young long blonde haired farmer, who works part time in Australia for a Grain Marketing firm (check www.marketcheck.com.au), and whom you met at Farm Tech, Edmonton, Canada and enjoyed a beer with.

Now.

I have been back in Sydney Australia (due in part to deregulation and as such growers/traders requiring our services) buying and selling grain, as well as sending and receiving member grain surveys to determine what grain stocks are out there. In addition, as growers are closing out their CBOT Mar 09 positions which was hedged against their old crop, my new task for the next week is determining what are our growers going to do with their 2009 crop. We Australians have received some early excellent subsoil moisture in northern growing regions, which means that at least we will have a crop in that area. In addition, our basis has really firmed up these last couple weeks for our high quality wheat's. CBOT has fallen, while our domestic bids for physical grain have gone up, with bids for APH2 (equivalent to Canada's CWRS or Minneapolis at 320AUS/mt delivered Newcastle. In addition, the prices for grain in easternAustralia have surprisingly become stronger than prices in Western Australia due to the fact that shipping stems are plugged in Western Australia.  One of the reasons why grain prices on futures ie CBOT have stayed as firm as they have is due to the fact that investment funds  (Index Funds)   took in some money in at the end of last quarter 2008 as people invested in soft commodities due to the outlook being better than bank deposits and shares. But slowly speculators, as well as the fund managers, have been pulling out of their long positions and having to sell, as they are slowly realizing that Ag commodities are not immune to the global credit crunch. As such, we believe growers need to think now about what to with their 2009  crop, they are about to put into the ground, before as we believe, prices drop.

I hope you can help me in answering the question "What are we (growers) going to with our new 2009  crop?" in addition...what is the "American grower doing to protect himself against price risk" and in addition "what is American Basis doing?" ...is "CBOT or even Minneapolis representing local prices?"

Good Luck on your Farm this year and Regards,

Stefan

My answers so far:
1. What are we going to do with the 2009 crop?  Stand in stunned paralysis while prices plummet.
2. What are we doing about risk protection?  Some will be buying very expensive options, a few will forward prices a little grain, most of us will be praying a lot.  A bunch of non-economic crop insurance will be bought.
3. What is the basis doing?  Tightening up considerably but unevenly depending on your immediate buyers.
4. Are the CBOT and MGE reflecting cash prices?  Well, they are not totally disconnected, but I no longer am surprised when they march in different directions.

I try to avoid giving marketing advice, so if you have better answers for this young man, please chime in and post in the comments.

Monday, February 23, 2009

I knew something had changed...

When PF Editor Chip Flory announced he wasn't that excited about the Cubs last yearLittle did I suspect what an ominous omen that was. (I'm blaming the economic crisis entirely on him.).

Yogi Berra was right*.
[Click to enlarge]
What comes through clearly in these time lines is, first, the rise in the popularity of football and, second, the even more rapid decline in the popularity of baseball.
My own feeling is that this — at least the first trend I just noted — is too bad. Football these days strikes me as an excellent way for 350-pound brutes who start huffing and puffing after playing for three straight downs to wreck their knees and shorten their lifespans. Moreover, I think George Will got it exactly right when he proclaimed football a perfect reflection of how we now organize our society: three seconds of action followed by a thirty-second committee meeting.
I was a happy camper in the olden days, when there were eight teams per league, the teams had pretty much the same players season after season, the games — even the World Series games — were mostly played during the day, and football and basketball just weren’t important. Now the players, instead of being drunks, are druggies, the games last so long and end so late that they’re virtually unwatchable, there are so many teams that I can’t even name them all, and the players move around so much that there’s no real sense of continuity anyway. I don’t really care much about baseball any more, and the Gallup Poll figures indicate that I’m not alone. [More]

Count me in there too.  Unless I'm mistaken, bloated payrolls aren't going to renew the love affair either.  In fact, high salaries anywhere are now targets of disdain, I think.


*"If the fans don't come out to the ball park, you can't stop them." [More]
The CRA allegation...

For about the twentieth time, I have heard the assertion that the Community Reinvestment Act caused the housing crisis.  It has shown up in comments to my posts, as well.

Frankly, I was not that up to speed on the CRA so here is what I found.
Bernanke, responding to a letter from Sen. Robert Menendez, D-N.J., said the Fed's experience with 1977's Community Reinvestment Act - including data on the subprime loan market - "runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties." Bernanke, continuing in the Nov. 25 letter to Menendez, said declining home values, inadequate risk management of complex financial instruments, and lending models that favored quantity over quality all contributed to the current problems.
"The available evidence to date, however, does not lend support to the argument that CRA is to blame for causing the subprime loan crisis," Bernanke wrote.
The CRA has come under fire from some conservative lawmakers for being a major factor in the current financial crisis. Proponents of the law note it does not require banks to make risky loans, and instead directs federal banking regulators such as the Fed to encourage banks to lend to underserved areas in a manner that is "consistent with safe and sound operation." [More]
And this

        • Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

        • 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

        • What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

        • Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

        • Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

        • Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

        • How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

        • What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time?

        • Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

        • The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada;  Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

        • Did the GSEs require banks to not check credit scores? Assets? Income?

        • What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood

        • What was it in the Act that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also?

        • Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking?  

    The answer to all of the above questions is no, none, and nothing at all.

 [More]

and finally, this rebuttal from Tyler Cowen:

There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default. [More]

In balance, I'm going with Bernanke.

Let the Great Scapegoat Search continue.

Addendum:  Thinking about it this afternoon, I realized how ludicrous the "predatory borrowing" concept is.  So a bunch of poor people with evil in their hearts forced bankers to lend them money by bald-faced, easily refuted lies?  How stupid does that make the lenders?
If he is asserting the government made them make what they knew to be bad loans he does not say it, nor has anyone shown that to be fact. 

My verdict is once they discovered securitized CDO's lenders went into overdrive to package garbage and sell it to foolish investors.
Economic justice first...

In a wonderful dinner conversation with old friends this weekend, I found an edge to some opinions that surprised me.  These are folks I admire and deeply respect.  To some extent, the feelings (more than their thoughts) are partially captured by this post on Andrew Sullivan:
A reader writes:
I live in Santa Cruz California where the median home price shot up close to $900,000 at the peak of the real estate boom. My wife & I realized that there was no way that we could afford to buy a home responsibly, so we reluctantly decided to rent forever. Many of our friends who are financially reckless decided to buy condos with no money down adjustable rate interest only loans.
I don't understand why the government should bail these people out. If I had known that reckless financial behavior was going to be bailed out I would have bought one of these homes. I know that we need to fix the economy, but I feel like we are going to be punished for being responsible.
I understand the systemic dangers of letting a wave of foreclosures trigger another wave of collapsing demand. But I also know that I never took out risky loans, diligently paid back three separate mortgages, saved for my retirement, and now pay more than half my income to the government ... to give to those who gave in to greed, wishful thinking and recklessness. Another reader adds:
No one is talking about MEWs (mortgage-equity withdrawals), so it must be the elephant in the room. What really frosts people is not that their neighbors bought "too much house," because often it's the same as their house --- simply purchased at a much higher price. Rather, it's the Toyota Highlander Hybrid in the driveway, purchased with money from a MEW (via a cash-out refi), that pits neighbor against neighbor.  The responsible neighbor is reminded EVERY DAY that he is paying for the irresponsible neighbor's Highlander, and probably the deck and the big TV as well. 
Until there's a plan that deals with this inequity, the anger will not go away.
Nor should it.
[Link]  [My apology for excerpting the whole post]
Andrew is not given to high dudgeon and calls for retribution, so his reply caught me off guard as well. And heaven knows the sentiments expressed by his reader are quite common.

But if it is important to not reward/excuse/compensate for bad decisions, do we truly believe it will end there? I agree it is not fair, and has no justification in our American economic system, but my question is how do we prevent their just consequences from spreading to the "righteous"?  In short, if we simply let the housing market find a bottom on its own, is there not a significant chance we will in the process drag underwater folks who saved for a 20% downpayment and affordable payments as well?

Many of these comments seem to come from folks who have been in homes (and seemingly safe jobs, to boot) since before the great run-up, and it will take at least a few more years to destroy their equity.   But is the point that people who were given a promotion and moved to the Los Angeles office in 2007 should have sought out what few wretched houses a sensible price would buy (if any) instead of using realized gains from their sale in Topeka to buy stay within very conservative underwriting/appraisal standards?  That would have required an amazingly dour outlook.

When house prices drop by 50%, it's not only the wastrels they describe who lose, but folks who simply did not have the good fortune to have geographically fixed employment.  I can see the point of outrage in helping bad actors, although the statements about current taxpayers having to pay is nonsense.  Taxes are being cut - for crying out loud!  Any pain we will feel will be in the future, so unless critics are suffering pre-emptive financial agony, that complaint rings hollow.

Worse still, most economists see little hope of reversing the deflationary spiral until housing prices at least stabilize.  We have lost unstable demand from home-equity withdrawals to be sure, but that demand for goods and services was nonetheless real demand which produced real GDP.  I suspect few of the bailout critics have beeen laid off, but my sad estimate is a majority of Americans will experience some employement crisis before this is over, whether by actually being laid off, lower salaries, loss of advancement due to superiors who can no longer retire, lower commissions, loss of investment income - [insert your personal money headche here].

Is punishing the foolish an open-ended exercise to be continued until the collateral damage stops just short of your own door?

As well, too many who scorn the idea of helping the foolish sadly will be victims of simple bad luck as their own income casualties suddenly makes their mortgage too much.  It will be interesting to note if there is a tipping point for home/asset devaluation and job losses where the combined effects moves public opinion to look beyond the desire for justice for free spenders.  My guess would be 50% and 9%, respectively

Given the linkage we now have to each other, watching others fall off the cliff because they walked too close to the edge and remarking matter-of-factly they deserved it ignores the ropes that tie us all together.

Permit this analogy to the banking crisis that now, I think, applies to all of us.


The credit crisis as Antarctic expedition from Marketplace on Vimeo.

The same perhaps instinctive desire for "getting what they deserve" pops up in our sector among those who refused to pay high land prices and rents.  This is one reason I have been surprised at the gullibility that variable rate cash rents will protect us from predatory risk-taking competitors.  Hasn't it occurred to variable-raters that those bids can be escalated as well?

At church on Sunday, I heard a new one. A landowner was asking a reasonable-but-not-cheap cash rent PLUS  1/3 of the crop.  When it comes to competition for land, you can run, but you can't hide.

And if grain prices [continue to] tank, doubtless there will be louder cries for making sure high-rollers suffer the consequences, but in a similar way, that will come back to bite many of us, I'm willing to bet. 


I also bet many farmers who rail against bailing our homeowners will have no qualms about lobbying to raise the mandate or other ag bailouts.

Some time ago, I would have agreed more with justice-seekers.  Two factors have altered my position: 1) I have found it a cheerless result; 2) I become more convinced every day much of what I claim as the product of great decsions and hard work is actually luckThere but for the Grace of God, etc.

Most importantly, in this economic crisis, demand for economic penance may border on self-destructive. 
Pig meat in the news...

The world of pork is more involved and profound than most of us suspect. It could shape the progress (if any) of peace in the Mideast, for example.

One of the oddities of Israeli politics is that Avigdor Lieberman’s far-right anti-Arab Yisrael Beitenu party is also a staunch upholder of secularism, since its primary source of support is immigrants from the former Soviet Union, who tend to be secular and many of whom like eating pork. And soon before the last election, the ultra-orthodox Shas party stepped up its anti-pork rhetoric. This, according to Jeffrey Yoskowitz, likely helped drive some secular voters away from Likud and toward Lieberman, in order to save their pork:
In lambasting the sausages and pork chops of Russian culture right before the election, Yosef aroused widespread fear among the Russian population of what Shas would do if it won enough votes to enter a governing coalition. “I wasn’t going to vote this year but now my husband says we have to vote for [Lieberman], otherwise [Shas] will shut us down,” Haaretz quoted one Russian shop-owner as saying. “It’s true we don’t sell pork here, but I’m from Russia and that might be enough [to close us.]” Lieberman himself credited Yosef for his bump in support, saying that of all the forces working in his favor, “No doubt, the rabbi deserves first prize.” [More]
Of course, this is only amusing to most of us on the surface. Fundamentalism of all sorts seems to endure very irrational results when embraced as a religious answer to political problems.

But extreme positions on pig flesh have another aspect as well.  One of my mentors and role models, Mike Nelson of Mystery Science Theater 3000 fame, has pledged to eat only bacon for an entire month. 
I’ll get right to the good stuff: for the entire month of February, 2009, I, Michael J. Nelson will eat nothing but bacon. Nothing, my friends, but bacon.
Why? Because bacon is nature’s finest and most nourishing food. Also, because several doubters on the RiffTrax staff had the unmitigated gall to insult bacon by making the outrageous claim that, as good as it is, no one could eat very much of it and live. I can and will. Therefore I will spend the month proving it.
And I invite any and all of you to join me in my quest. If you do, I’ll certainly share your stories and blog posts.
Now for the fine print: “Bacon” shall hereafter refer to the cured and smoked fatty cuts of pork, either back, side or belly. In other words “American bacon”. No “Canadian bacon”, which is really just lunchmeat. No pork chops. No turkey bacon. No “tofacon” or any such horror. Just bacon.
No condiments allowed. No syrups, or hot sauces, or pureed vegetables in the form of ketchup. No sauces at all. Just nature’s finest bacon, all by its dignified self.
I am making allowances for the following beverages: beer, wine, martinis and water. No juices, no V8, nothing that could be construed as “healthy”. This is somewhat arbitrary, I grant you, but one bit of madness at a time, is my reasoning. [More]

It is small wonder many folks are convinced these are End Times.

Not a moment too soon, I say.

Sunday, February 22, 2009

Another reason why we have tandems...

With automatic transmissions.  It's obviously staged, and British to boot, but still, for reality TV, it beats "Iron Chef".



Update: After posting this I got curious about the show.  And I found I'm not the only person who liked the guys on the show.
But you're also likely to stumble upon Top Gear, which the network airs constantly, both in new episodes and repeats. In principle, it's a car show, hosted by three middle-aged guys—Jeremy Clarkson, James May, and Richard Hammond—who review the latest automobiles, test them out, and give you loads of details about vehicles you will never be able to afford. But Top Gear also offers a whole new slant on machismo, at least as we know it in the States.
The Top Gear set looks like a small airplane hangar. There's a couple hundred people for an audience, and Clarkson, May, and Hammond act as emcees, with a car or two on the soundstage. Most of the action takes place in various film clips—which document the trio's races and assorted madcap schemes. A race between a $1.4 million Bugatti Veyron,* for example, over a mile of track, and a Royal Air Force jet going a mile into the air and then exploding downward to overtake its four-wheel challenger. Or a soccer match with a giant balloon ball getting bashed about by cheap city cars to test their handling abilities. [More]
[via drb]
Good thing they are forever...

Reading about an odd commodity deflation story I found this fact I would never have guessed:
The immediate outlook for the industry might look bleak, but some analysts said that once the production overhang worked itself through the system, prices would recover. Without new discoveries, Mr. Even-Zohar expects the world to run out of new diamonds within 20 years. [More]
Of course, by then artificial diamonds may be indiscernible from "real" diamonds.

Diamonds are a girl's best friend, they say - and soon they could be every girl's best friend.
A team in the US has brought the world one step closer to cheap, mass-produced, perfect diamonds. The improvement also means there is no theoretical limit on the size of diamonds that can be grown in the lab.
...
Zaitsev considers low-pressure annealing at temperatures greater than 2000 °C to be a "breakthrough in diamond research and technology".
The improving quality of synthetic diamonds threatens the natural diamond market. While 20 tonnes of natural diamonds are mined annually, some 600 tonnes of synthetic diamonds are produced each year for industrial use alone.
They are used in a range of high-end technologies, such as lasers and high-pressure anvils. Some companies have also started to sell synthetic diamonds as gemstones. In response, diamond giant De Beers has set up a "Gem Defensive Programme" with the aim of finding ways to tell apart synthetic and natural diamonds. [More]
The technology of renewable sources for the stuff we use to live is pressuring the entire extraction industryIt won't be rapid, but at some point most mines - especially deep-shaft - could become curiosities.

Saturday, February 21, 2009

Historically funny...

I've been getting some flack from my unfortunate photo op in the latest FJ. And a couple of notes from guys saying they appreciated the laugh right now.

But humor is nothing to laugh about, historically speaking.

Laughter was always a favourite device of ancient monarchs and tyrants, as well as being a weapon used against them. The good king, of course, knew how to take a joke. The tolerance of the Emperor Augustus in the face of quips and banter of all sorts was still being celebrated four centuries after his death. One of the most famous one-liners of the ancient world, with an afterlife that stretches into the twentieth century (it gets retold, with a different cast of characters but the same punchline, both in Freud and in Iris Murdoch’s The Sea, The Sea), was a joking insinuation about Augustus’ paternity. Spotting, so the story goes, a man from the provinces who looked much like himself, the Emperor asked if the man’s mother had ever worked in the palace. “No”, came the reply, “but my father did.” Augustus wisely did no more than grin and bear it.
Tyrants, by contrast, did not take kindly to jokes at their own expense, even if they enjoyed laughing at their subjects. Sulla, the murderous dictator of the first century BC, was a well-known philogelos (“laughter-lover”), while schoolboy practical jokes were among the techniques of humiliation employed by the despot Elagabalus. He is said to have had fun, for example, seating his dinner guests on inflatable cushions, and then seeing them disappear under the table as the air was gradually let out. But the defining mark of ancient autocrats (and a sign of power gone – hilariously – mad) was their attempt to control laughter. Some tried to ban it (as Caligula did, as part of the public mourning on the death of his sister). Others imposed it on their unfortunate subordinates at the most inappropriate moments. Caligula, again, had a knack for turning this into exquisite torture: he is said to have forced an old man to watch the execution of his son one morning and, that evening, to have invited the man to dinner and insisted that he laugh and joke. Why, asks the philosopher Seneca, did the victim go along with all this? Answer: he had another son.
Ethnicity, too, was good for a laugh, as the story of the Tarentines and the toga shows. Plenty more examples can be found in the only joke book to have survived from the ancient world. Known as the Philogelos, this is a composite collection of 260 or so gags in Greek probably put together in the fourth century ad but including – as such collections often do – some that go back many years earlier. It is a moot point whether the Philogelos offers a window onto the world of ancient popular laughter (the kind of book you took to the barber’s shop, as one antiquarian Byzantine commentary has been taken to imply), or whether it is, more likely, an encyclopedic compilation by some late imperial academic. Either way, here we find jokes about doctors, men with bad breath, eunuchs, barbers, men with hernias, bald men, shady fortune-tellers, and more of the colourful (mostly male) characters of ancient life.
Pride of place in the Philogelos goes to the “egg-heads”, who are the subject of almost half the jokes for their literal-minded scholasticism (“An egg-head doctor was seeing a patient. ‘Doctor’, he said, ‘when I get up in the morning I feel dizzy for 20 minutes.’ ‘Get up 20 minutes later, then’”). After the “egg-heads”, various ethnic jokes come a close second. In a series of gags reminiscent of modern Irish or Polish jokes, the residents of three Greek towns – Abdera, Kyme and Sidon – are ridiculed for their “how many Abderites does it take to change a light bulb?” style of stupidity. Why these three places in particular, we have no idea. But their inhabitants are portrayed as being as literal-minded as the egg-heads, and even more obtuse. “An Abderite saw a eunuch talking to a woman and asked if she was his wife. When he replied that eunuchs can’t have wives, the Abderite asked, ‘So is she your daughter then?’” And there are many others on predictably similar lines. [More]

So if you are reading or hearing me, and the thought arises that I'm using old material - it all is.

[via 3Q]
I'm not too proud or principled...

To gossip.

First, the dirt on Cargill.  Important sources asked me if I had heard about Cargill reneging on forward contracts.  I called some faces - in fact, THE Face for Cargill, who investigated.  It turns out (predictably, I must say) the rumor was overblown.

The fine print gotcha alleged had to do apparently with a delivery location change and the farmer was grumbling that Cargill wasn't paying the difference in trucking.  I do not label this "reneging on a contract", especially when the delivery point may actually be closed. This whole "tempest in truck" was likely predicated on the demise of Verasun, and Cargill's involvement as a supplier to some of the ethanol plants.  Cargill has not, does not , and will not default on forward contracts.

As farmers mourn the loss of $6+ March delivery contracts they sagely negotiated last year, it is understandable to look for co-conspirators, even if their contract was only with the dearly departed Verasun. Meanwhile, the supply chain for Verasun disintegrates, dragging down smaller elevators and producers alike. Switching to attack mode, I fear, is the wrong choice.

Demand is evaporating like a half-inch rain on a July afternoon. In 2009, the #1 Rule is : Don't go to war with customers.  In fact, don't go to war with anyone in your value chain - landowners, vendors, lenders, etc.  Trust has vanished and those who can prove to be trustworthy AND extend preemptive trust to others will not only strengthen their future prospects, but help to build the foundation of more efficient commerce for all of us.  Conflict is a luxury good, and we can't afford the economic deadweight it causes.

Disclaimer: Cargill is my number one customer, and I have many friends in the organization. They advertise in FJ Media and, to my great pride, sponsor USFR.  There is every reason to discount my opinion therefore, but I can show you thirty-five years of honest, reliable business dealings to back up my claims. In fact, more than once they have helped me find a solution when I struggled to meet my half of a deal.  Your experience may vary, but I have no qualms defending a good business partner, and you should stand up for yours during these days of anger and accusation.

Second, some verified recent cash rent numbers. (I would buy a used horse from these sources, in other words)
  • Central IL - 220+ bu. ground.  $400/A  3 years, annually upfront
  • Central IL - 220+ bu, ground.  $505/A
  • East Central IL - 190 bu. dirt.  $220-230 3 years, spring-fall pay
Does anyone besides me pick up a subtle discontinuity here?
For those of you who came in late...

This may be useful in understanding where the credit crisis came from.


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.


[via sullivan]

Thursday, February 19, 2009

Maybe the lack of horseshoes...



Prompted the invention of cornhole.

Ms. Hoffmann, a slender 33-year-old claims adjuster, is among this city's top players of a rapidly growing pastime. The game, best known as cornhole but also called Bags or Baggo, has become a craze in recent years at bars, tailgate parties and church picnics in the Midwest. It's particularly popular in Cincinnati, where folks say it originated more than 50 years ago as a backyard diversion, and has more recently grown popular in Chicago, Indianapolis and Milwaukee.
In the game, typically played two-on-two, players score three points each time they toss a 1-pound bag -- traditionally filled with corn kernels -- into a round hole cut into a slanted board about 30 feet away. A shot that misses the hole but stays on the board scores one point. Foes can knock each other's bags off the board to negate a point. The first team to reach 21 wins.
The game is drawing rival leagues, equipment vendors, and big sponsors. The four-year-old American Cornhole Association boasts about 20,000 members, who aren't required to pay dues. Chipotle Mexican Grill Inc., the Chicago Tribune and Visa are among the sponsors of the first Windy City Cornhole Classic on July 28 at Soldier Field, home of pro football's Chicago Bears. Beer companies often sponsor local leagues.
The maker of Golden Tee, one of the most popular coin-operated videogames of all time, recently launched a game called Bags. The company says it already has sold 3,200 of the bar-friendly games, so many that it can't fill new orders until August. A team of independent filmmakers recently completed filming "Cornhole: the Movie," a mock documentary reminiscent of the film "Dodgeball." [More]

 
[More]


Of course, I rarely frequent drinking establishments, so had not heard of this ummm...craze.  Perhaps some of my gentle readers are devotees of the sport?

And yes, I too am uncomfortable with the name.
Why I believe in production destruction...

Ukraine may be about to "Iceland". 

Bank analysts predict that Ukraine is heading for a historic default on its national debt, in a scenario that could complicate EU-Ukraine relations and have an impact on the recent Russia-Ukraine gas transit deal.
"The market is pricing in a probability of sovereign default of almost 90 percent," Commerzbank analyst Ulrich Leuchtmann told EUobserver on Monday (16 February). "It could happen in the next couple of quarters."
Ukrainian industrial production has plunged 26 percent compared to last year. The hryvna has lost over a third of its value against the US dollar and the International Monetary Fund is hesitating on payments of a rescue loan as Kiev declines to keep down public spending. [More]

Now imagine how this will affect their up-and-coming agricultural development, which was supported by credit from government as well as private sources.

In most cases, funding is available for normal short-term farm operating costs.  However, it is the lack of long-term credit that seriously constrains Ukrainian farms of all sizes from purchasing major farm equipment.  Today, there is no adequate legal infrastructure within for equipment leasing. This factor limits the options available for small farms.  Ukrainian Government policies aimed at protecting local equipment manufacturers have substantially increased equipment prices while limiting the availability of foreign equipment.  For example, high import duties limit access to reliable and reasonably priced spare parts for foreign equipment, while at the same time causing new equipment prices to be prohibitively expensive as compared to prices in nearby countries.
Domestically manufactured harvesters, coupled with the limited supply of imported equipment, can only partially replace the ever-increasing volume of spent farm equipment retired each year.  New equipment is 2-3 times more productive than what most farmers currently use.  Unfortunately, total equipment availability, and thus harvesting capability, has declined in recent years.  Despite no change in harvested area, total harvesting capacity has been declining over the past five years. Only increased per hectare yields, not higher harvesting efficiency, have allowed overall production volumes to rise. [More] [Note this information was last year]
It is one thing to moan about how bad our economy is here, another to be unable to get an operating loan under any circumstances.  That could be the case in Eastern Europe right now.

Looks like their ag output is in for a significant decline.

Wednesday, February 18, 2009

Uh-oh...

Corn growers are about to see another market test.

According to Beverage Industry Magazine, Pepsi will be launching "Pepsi Throwback" and "Mountain Dew Throwback," both of which contain sugar instead of high fructose corn syrup. The logos, seen above, were found through a search of the United States Patent and Trademark Office's Trademark Electronic Search System by BevReview.com, which reports that the trademarks were filed on January 9, 2009.
Sugar-soda aficionados seek out Kosher for Passover and Mexican versions due to the lack of HFCS, and Pepsi has been experimenting with sugar-sweetened versions of their soft drinks overseas. (See: Pepsi Raw) [More]

No amount of public relations handiwork can completely overcome consumer preference when they simply are choosing what they like.  The question is: what do they like?

Will you try it?
Amaze your friends, confound your enemies...

With this nugget of profound knowledge: The first day of a new century will never be a Sunday.


Just call me the Cliff Claven of Agriculture.
I could still break my neck...

Wii meets Google Earth



How long before wii controllers replace our tractor steering wheels?

[via andrewsullivan]
Rice whiplash...

Boy - you just get home from a food riot and get your effigies cleaned and put away and BAM!
A delegation from Thailand, the world's biggest rice exporter, is asking Vietnam to help it stabilize the tumbling price of rice -- the latest indication of how agricultural markets have changed in the months since riots over food costs gripped parts of the developing world.
Industry experts aren't expecting any major price-fixing accords between the two countries, which together control about 45% of global rice exports.
...
Just a few months ago, residents in poor countries took to the streets to protest the soaring price of rice and other food. Since then, grain prices have fallen about 30% from their peaks in mid-2008, according to the Food and Agriculture Organization of the United Nations.
The price of Thai rice, a global benchmark, has dropped to about $600 a ton from nearly $1,000 in May. Rice prices in Thailand probably would have fallen further, analysts say, without a government program that buys excess supplies from farmers. In Vietnam, which doesn't have such a program, prices have fallen to about $450 a ton.
[More]

Wonder how many of those 100# sacks of rice I saw going out of Sam's Club last year are becoming mouse food right now?
Maybe subsidies are the problem...

It would seem subsidizing good food choices doesn't work very well.
But the sobering corollary to talking about the public costs of bad diet is that we don't really know how to change the way people eat. Diansheng Dong and Biing Hwan-Lin recently conducted a study for the USDA's economic research service modeling the likely impact of a 10 percent discount on fruits and vegetables for low-income Americans (defined here as incomes below 130 percent of the poverty line). They concluded that the policy, which would cost $580 million, would increase the consumption of fruits by 2.1-to-5.2 percent and vegetables by 2.1-to-4.9 percent. It's not nothing, but it's not much. The graph below shows the effects of the policy, the effects of the policy doubled (20 percent off fruits and vegetables), and in the final column, how far even the double-subsidy world is from the USDA's recommended consumption of fruits and vegetables (which is probably still too low!) [More]


Oddly, subsidizing flavor-dense foods does seem to work. Farm policy has probably made meat and HFCS easier to afford than otherwise.  (OK - jump on me for criticizing our meat consumption, but I have witnessed cattlemen ordering chicken entrees after their doctor and a defibrillator revised their thinking of how much is enough.)
Last but by no means least, I don’t think it makes a ton of sense to talk about subsidizing fruits and vegetables without talking first about un-subsidizing corn, soy and the corn ‘n soy derivatives that artificially drive down the price of Fritos and Big Macs. The policy argument for subsidizing healthy eating is convincing enough to me, but obviously is going to fly in the face of widely held anti-paternalist sensibilities. The case against subsidizing unhealthy eating, by contrast, is totally unimpeachable. [More]
As long as we make policy decisions based solely on immediate economic returns while conveniently ignoring the choices we are making to meet our own personal health goals (like living past 55), we cripple the ability of free markets to guide consumers to better outcomes.
Yeah - and my weight has increased "significantly"...

This winter.  A curious omission in the profit report from Deere.
Worldwide agricultural sales are projected to fall about 2 percent as the dollar strengthens and farmers grapple with higher credit costs. Sales in Western Europe are now expected to fall as much as 15 percent and “decline significantly” in Central Europe and the Commonwealth of Independent States, including Russia. South American sales may fall as much as 25 percent, wider than the 20 percent decline the company projected in November. [More]
So, why do we have percentage projections on demand from lots of places, except Russia, et al.?  I have no idea, but if they were looking to highlight this fact, they accomplished their mission.

My guess is "significantly" means "you don't wanna know".  Or maybe, like the rest of us, they don't have a clue.
Corn acres and sunk costs...

As we awake this morning hoping yesterday's markets were a really bad dream (no such luck), more fuel is dripping onto the flaming controversy of corn acres.  One assertion is many producers had time last fall to apply some very pricey fertilizer and have prepaid some equally expensive seed, hence they are locked in to growing corn.  This is a strong argument.

I suspect this outlook also has to do with changing your mind, something we are not very good at as a profession.  Our customers rely on it as well. It shows up in the deeply ingrained, albeit economically questionable, conviction that rotation will pay off better in the the long run than trying to grow what the market seems to be wanting each year.

But if you have parted with the money, that is a sunk cost, and should not be part of your break-even calculations for your crop mix. 
In economics and business decision-making, sunk costs are costs that cannot be recovered once they have been incurred. Sunk costs are sometimes contrasted with variable costs, which are the costs that will change due to the proposed course of action, and prospective costs which are costs that will be incurred if an action is taken. In microeconomic theory, only variable costs are relevant to a decision. Economics proposes that a rational actor does not let sunk costs influence one's decisions, because doing so would not be assessing a decision exclusively on its own merits. The decision-maker may make rational decisions according to their own incentives; these incentives may dictate different decisions than would be dictated by efficiency or profitability, and this is considered an incentive problem and distinct from a sunk cost problem.
For example, when one pre-orders a non-refundable and non-transferable movie ticket, the price of the ticket becomes a sunk cost. Even if the ticket-buyer decides that he would rather not go to the movie, there is no way to get back the money he originally paid. Therefore, the sunk cost of the ticket should have no bearing on the decision of whether or not to actually go to the movie. In other words, it is a fallacy to conclude that he should go to the movie so as to avoid "wasting" the cost of the ticket.
While sunk costs should not affect the rational decision maker's best choice, the sinking of a cost can. Until you commit your resources, the sunk cost becomes known as an avoidable fixed cost, and should be included in any decision making processes.[1] If the cost is large enough, it could potentially alter your next best choice, or opportunity cost. For example, if you are considering pre-ordering movie tickets, but haven't actually purchased them yet, the cost to you remains avoidable. If the price of the tickets rises to an amount that requires you to pay more than the value you place on them, the cost should be figured into your decision-making, and you should reallocate your resources to your next best choice. [More]
It simply doesn't matter what applied fertilizer cost, since that money is gone. When you drop input costs like that out of your profit calculations, corn looks like a winner even at dismal prices.  Beans simply lack the gross income.

This may be what is going on in farmer brains, but conveniently set aside too often is the whacking loss that will still be realized since despite not being used to compare planting choices, sunk costs have been paid.  For those have there by constrained their range of choices by prepaying, two words: accrual accounting.  Letting a tax decision you made waaay back in your career (to advance crop input costs) lock in your actions regardless of market signals may not optimize your results.

My guess is shifting to accrual accounting would drastically improve our thinking process by neutralizing our inordinate glee from postponing (NOT eliminating) income taxes.  You're talking to a man of 60 who's trying to figure out how to unwind these strategies.  It's not easy or cheap.

Nor are those applied inputs necessarily all sunk costs.  To be sure, if you applied N you're hosed, but the P & K could be better considered unfortunate, but still valuable inventory additions. After all they are still out there, right.  And they could be available for corn in 2010.

Those of us who have yet to apply/buy such inputs have a more different set of numbers - which demonstrate a loss that may be preventable.  While we don't deserve the good fortune of a break because we were poorly prepared last year, we don't have to squander our advantage right now.

Sunk costs are hard for our brains to deal with rationally.

Last March, I decided to tackle my physical fitness by setting some big goals for myself. One of those was to go from couch-potato to marathon runner in about six months. To goad myself into action, I paid about $100 (non-refundable, non-transferable) to sign up for the Portland Marathon (which is being run at this very moment).
For a while, this seemed like a brilliant idea. Having paid for the marathon in advance, I was motivated to train so that my money didn’t go to waste. I began to run with a group. I lost weight. I felt great.
At the end of May, however, I hurt myself. I took some time off. I didn’t worry too much, because there were still four months left before the marathon. But when I tried to return to running, the pain persisted. I went to see a physical therapist. June turned to July turned to August. Eventually I decided that maybe I could walk the marathon. I’d paid $100 for it, dammit, and I wasn’t going to let that money go to waste!
Over the last couple months, however, I’ve come to realize that I’m engaging in the sunk-cost fallacy again. The fact that I’ve already spent $100 for the marathon is meaningless. It’s a sunk cost. It’s not recoverable. What matters is the future cost in time and money. And, as it turns out, health.
I could have continued to push myself to prepare for the marathon, but the most likely result would have been additional doctor bills and physical therapy visits. I would be spending future money attempting to make past money “good” again.
Instead, I’ve changed my focus.
I’ve begun to prepare for the 2009 Portland Marathon. I’m running short distances (three miles) a couple times a week. I’m lifting weights to build my leg strength. Meanwhile, I’ve learned a lesson. In the future, I won’t sign up for the marathon until later in the summer, when I’m sure that I’m physically ready to go. [More]

This admittedly off-topic example of sunk costs illustrates how much we dread realizing a loss.  As long as the grain is unpriced we can, with varying degrees of legitimacy, fantasize about making a profit.  Once we cash the check, those happy moments are no more.  Brains don't like those feelings.

Overall, I think a fair analog for corn acres could be percent of normal fall applications that actually got spread. As cash corn drops below $3 the odds that any of the high-priced fertilizer and other inputs gets fully utilized drops with it.

I may well be wrong on corn acres, and they will be much higher than I think. But a case can be reluctantly made that this year is one to minimize losses versus maximizing profits.  In that case, coping rationally with sunk costs will be a crucial component of our planning.

Tuesday, February 17, 2009

One charger to rule them all...

If we can still afford new cell phones in 2012, they will finally have one thing in common.
You'll be able to charge any new mobile phone from the same universal charger beginning on January 1, 2012. Except the iPhone.
A new charging standard was announced by the GSMA Tuesday at the Mobile World Congress in Barcelona and endorsed by 17 mobile handset manufacturers and service providers, including heavyweights such as Nokia, Motorola, Qualcomm, Sony Ericsson, and Samsung.
The charging standard will be based on the industry-standard Micro USB interface. The iPhone, however, both charges from and communicates with computers and accessories using Apple's proprietary 30-pin Dock Connector. [More]
Well, it didn't take them as long as hydraulic connectors for hoses.

Monday, February 16, 2009

Things my mind can't handle...

3-D street art, for one.

(Click to enlarge)
Residential buildings and a couple of business are strung together. The look falls to an apparently quite normal street of a German, medium-sized town. But an apocalyptic scene offers itself to the observer. The floor has burst and lava flow into a raging sea there where cars ran once and the people followed their weekday. Nothing is like it once was. The superior elemental force forces its way. Appearances are deceptive. If one looks of the right point of view, Muellers three-dimensional painting becomes the perfect illusion. [More astounding work]
[via neatorama]
FWIW...


Maybe you know someone this could help.
Dear John,

This is to invite your suggestions.

Do you know of high school students or others who are showing this rare and valuable combination of talents and interests?

*  Journalism/communications skills and interests. They may be showing interest and potential through their writing, reporting, speaking, broadcasting, debating, photography, "new media" skills, group leadership and other kinds of personal and mass communications.

* Background or interest in agriculture, food or rural aspects of society.  They may be showing it, for example, through their agriculture studies or their involvement with FFA, 4-H, or other rural or natural resource organizations.

You probably know, from personal experience, that young men and women with these interests often are not aware that they can combine them for satisfying careers as agricultural journalists and communicators. So we welcome your help in identifying high school and community college students, and others, with this special combination of talents and interests. 

Please send, by return e-note to evansj@illinois.edu, the names of such students and any contact information you may have.  We will be pleased to call their attention to career possibilities they may never have considered. If they are interested we will also acquaint them with ways and resources to prepare for this career field.

Thanks for your consideration and suggestions. Also, best wishes and please let us know if we can provide further information or help in other ways.

Sincerely,

Karlie Elliott, Senior, and Jim Evans, Emeritus Faculty
Agricultural Communications Program
University of Illinois at Urbana-Champaign

Email:  evansj@illinois.edu
Phone:  217-684-2354
Mailing address:            Agricultural Communications Center
                                    510 LIAC, MC-633
                                    1101 S. Goodwin Avenue
                                    Urbana, IL 61801