Casualties of the Crisis...

The autopsies of the financial crisis are beginning to appear. One of the more thoughtful, albeit disturbing is from Justin Fox at the Harvard Business Review. He suggests three pillars of modern macroeconomic theory have taken big hits:

1. Efficient market hypothesis (EMH): investors act rationally in the long-term and markets are informationally correct.
2. Capital asset pricing model (CAPM): assets are priced by their risk
3. Maximizing shareholder value

This critique pretty much undermines much of what we all believe about open markets - not a comforting thought.

In the early 1930s, policy errors by governments and central banks turned a financial crisis into a global economic disaster. In 2008 the financial shock was at least as big, but the reaction was smarter and the economic fallout less severe. We actually had learned something in the intervening three-quarters of a century about how the economy and the financial system fit together.
But we hadn’t learned everything—and we still haven’t. In fact, macroeconomists and finance scholars clearly forgot some important lessons along the way. And the seeming success (compared with the 1930s, at least) of the 2008 bailouts and subsequent government and central bank actions may actually dilute the lessons of the recent crisis. In the 1930s and 1940s, the financial system was essentially built anew, with tight regulation and drastically changed attitudes about risk and responsibility. That approach surely had its costs, but it ushered in a financial-crisis-free era in the United States and Europe that lasted for decades. This time around, the system has survived more or less intact. That seems like a good thing, on balance; but it may also mean we’ll be having more learning experiences soon. [More]

While unsettling, it also fits with my growing belief that markets evolve to elude participants. It's almost a predator-prey model. It also leads me to think that the growing complexity of our markets should send us warning signals about what to expect from efforts to master them.

Fox suggests more, not fewer, market shocks even as we build financial instruments to seemingly manage them. We may simply be shuffling risk and disguising it better and faster.

In such an environment, the low-velocity and rudimentary nature of farmland stands as a stark contrast. I think we could see a significant part of our land price be contributed by the relative lack of sophistication of the asset.  Which would give us a formula something like this:

P = IV + CV + SV, where 

       IV = intrinsic value of capitalized returns

       CV = control value (for farmers, primarily) for future generations

       SV = simplicity value for understandability and low maintenance (cash the rent checks annually)

Regardless, the macroeconomic community is in the throes of self-loathing, and are certainly not offering rosy pictures of the future.

No good answer...

One of the manifold reasons why I haven't been posting much at all is trying to support a close friend with cancer treatments (esophageal). The outlook is problematic and I am deeply worried.

Suddenly as well, some information I had considered in abstract becomes more difficult to judge as well - for example, the cost of cancer drugs vs. their efficacy.

No one knew the price of Zaltrap at that point, but Leonard Saltz, who heads the gastrointestinal oncology group at Memorial Sloan-Kettering Cancer Center, had a sense of what was coming. Zaltrap’s effectiveness, in his opinion, was almost identical to that of Avastin, an FDA-approved cancer drug that had also been targeted at that same patient population. Several weeks earlier, Saltz had traveled to Chicago to inflict a little premonitory sticker shock on his medical colleagues. He reviewed the recent clinical results of both Zaltrap and Avastin when used as a “second line” treatment, after initial treatment had failed. As Saltz reminded the other oncologists, Avastin was modestly effective as a second-line treatment—it extended median overall survival by 42 days, the same as Zaltrap—but it cost about $5,000 a month and, like Zaltrap, would have to be taken for many months to achieve that modest clinical benefit. The overall cost was so high that Saltz devoted the end of his talk to a back-of-the-envelope calculation, delivered via PowerPoint, that recast the question in terms of health-care costs: If you extended the 42 days survival to a year, “what is the cost of Avastin for one year of human life saved?”
The answer was astounding, even to doctors who have grown inured to the zero-gravity economics of cancer pharmaceuticals. As Saltz worked his way through slide 73 of 78, he arrived at the bottom line: $303,000.
“Now, that’s essentially the cost of the bare-bones drug,” Saltz later explained to me in his office at Sloan-Kettering. “It’s parts, not labor. No money for doctors; no money for nurses; no money for pharmacists; no money for real estate, heat, and lights; no money for the needles, the IV tubing, the IV fluids, the anti-nausea medicines, the other chemotherapies that are given, because Avastin doesn’t do anything by itself. It has to be given with other drugs … I want to emphasize it’s not that we can have a year of life saved for $303,000. That’s probably less than half of what the actual cost would be when you factor in everything.” Zaltrap, he figured, was probably going to be in the same range.
Saltz’s message was not entirely unexpected. He has been warning about the danger of rising drug prices, to patients and to the health-care system in general, for the last decade. Having made this point to his colleagues, Saltz packed up his computer, took the next flight back to New York, and, after the FDA approved Zaltrap in early August, began to prepare—“not with great enthusiasm,” he conceded—the Zaltrap presentation he would deliver to the hospital committee responsible for approving any new drugs for Sloan-­Kettering’s pharmacy. [More well worth reading]

As we all get upset one way or another about Obamacare and the website issue, it is important to keep in mind that our status quo has some enormous problems - not the least of which is loss of consumer influence due to third-party payers. For example, my friend is looking at a second round of chemo, and I would almost bet he has no idea what it will cost - or the possible surgery either.

Say what you will about the ACA, but one thing I think is a step in the right direction is the introduction of consumer choices in how much they want to pay in premiums as well as out of pocket costs. Transparency will change consumer behavior, I think quickly. At the same time, many people insured by employers are finally getting some idea how expensive their medical coverage is.

Of course, this is not a discussion I would broach with my very sick friend, but it is clearly one of the biggest reasons we spend so much on medical care in the US compared to other countries.Cancer drugs have become a very big business, even though they serve what one expert has described as a “boutique” market. An estimated 1.7 million Americans will be diagnosed with cancer this year, according to the National Cancer Institute, and more than 580,000 people will die from some form of malignancy. In 2012, the overall market for “oncologics” reached nearly $26 billion a year in the U.S. alone, and annual global sales are projected to total $85 billion by 2016, according to the IMS Institute for Health Informatics.

What is sobering about this booming business is that, as a group of oncologists wrote earlier this year, “most anti-cancer drugs provide minor survival benefits, if at all.” They often (but not always) reduce the size of inoperable tumors, but they rarely eradicate the disease. For relatively uncommon malignancies like testicular cancer, some forms of leukemia, and lymphoma, drugs effectively cure the disease; for the common “solid tumor” cancers (lung, breast, colon, prostate, and so on), which account for the vast majority of annual cases, drugs buy some time—precious time, to be sure, but time usually measured in weeks and months rather than years. And even though many of the newer drugs are less toxic, they often still have to be given with older drugs whose side effects include nausea, hair loss, fatigue, and decreasing blood counts. One anti-cancer drug produces a skin rash so severe and disturbing, according to Saltz, that some patients have been asked by employers not to come to work. [Same]

We are rationing already of course, but informally, and generally by economics, rather than some measure of return on the dollar. The very thought is distasteful, but our squeamishness could direct our economy into one dominated by end-of-life health care. Good news for drug makers and caregivers, but not an optimal or even desired outcome in my view.

Regardless, I know I cannot think rationally about this right now, but wish I could. Grief mixed with protracted suffering makes it hard to think well. And then I get angry for feeling sorry for myself, instead of Dan.

We are exactly the same age as well. Funny how that coincidence rivets your attention as well.

Well, enough sniveling. What I need to do is figure out actions what might ease his struggle, not mine.

The answer is...

 Lobbyists!  I read some self-serving drivel before masquerading as opinion, but this one is remarkably upfront. about how to help agriculture achieve a successful trade agreement with the EU.

There is a need to engage seriously through government relations work instead of simply public affairs work to counter commonly held views across Europe. Past failures can also be attributed to an American lack of sensitivity about the Brussels lobbying scene. No European tries to lobby Senate or Cngress without the help of a DC lobbying firm. For good reasons. So why do some American companies still think they can handle themselves? While there is real money at stake. US companies should seek professional lobbying services on the TTIP issue, and especially lobby firms that understand the agricultural EU politics, process and rules of engagement in Brussels. They should rely on firms that understand sensitivities in Europe. Companies that will rely on specialized lobby firms, which will come up with the most convincing arguments by understanding the political and social realities on both sides of the Atlantic will have the best chance to change Brussels’ stance on GMOs now.
So while the differences in transatlantic approach towards GM foods pose a concrete threat to the conclusion of the trade agreement, the trade talks themselves provide the ultimate opportunity to enable the authorization and cultivation of GM crops in Europe. The TTIP would be the biggest free-trade deal in the world. According to the Centre for Economic Policy Research in London a trade agreement which eliminates tariffs and reduces non-tariff barriers could boost US and EU economic growth by more than $100 billion a year.
Geiger is managing partner of Alber & Geiger, a leading EU lobbying law firm. [More]

I'm sure mercenary soldiers used much the same pitch to medieval rulers back in ye olde day. 

Junkbox, Episode MMXIII ⟐...

Close to overload this harvest.  Will explain in a post later, I hope.

• "Sleep, the innocent sleep that knits up the raveled sleeve of care" - Shakespeare was closer to the the science than he imagined.
• The boom everyone is suspicious about
• Engineer meets Halloween
• The problem with wind energy or why we really, really need better battery technology
• Not the Cato I thought they meant
• Not even moose deserve this

Thanks for reading.

(Kevin - I'll answer your debt question after corn harvest)

Seriously, $70?...

 Gary Schnitkey has been churning out analyses from FBFM numbers. This one surprised me.

The "no insurance" farms had average net farm income per acre of $210 per tillable acre while http://farmdocdaily.illinois.edu/2013/10/2012-drought-net-incomes-insurance.html with insurance" farms averaged $279 of net income per acre (see Table 1). The difference in income between the two groups was $69 per acre ($279 - $210), with this difference roughly accounted for in crop insurance payments.

Am I missing something here?  The worst drought in decades and crop insurance showed a whopping  $70 payback?  Wouldn't that just cover the last three years or so of premium?

What I think is happening is individual farmers don't have any way to look at the what-if scenario and only look at the huge insurance check.  If they had no insurance it seems like the higher prices make a kind of insurance for others.

Note also the caveat buried in the text of the report.

Factors other than yield also impact income distributions. One factor was timing of grain sales. In 2012, those farms with more pre-harvest sales tended to have lower incomes than farms with fewer sales. Obviously, timing of grain marketing will not have the same impact in different years.

I think it is hard to overestimate this factor.  But on average the results speak for  themselves.


Hey!  I posted from the field on my iPad!

Thoughts on Washington...

 While all bets are off in this historic event, let me lay our some information that is guiding my estimate of what could happen in the near future.

First, the unprecedented phenomenon of "The 80"

In short, these eighty members represent an America where the population is getting whiter, where there are few major cities, where Obama lost the last election in a landslide, and where the Republican Party is becoming more dominant and more popular. Meanwhile, in national politics, each of these trends is actually reversed.In one sense, these eighty members are acting rationally. They seem to be pushing policies that are representative of what their constituents back home want. But even within the broader Republican Party, they represent a minority view, at least at the level of tactics (almost all Republicans want to defund Obamacare, even if they disagree about using the issue to threaten a government shutdown).In previous eras, ideologically extreme minorities could be controlled by party leadership. What’s new about the current House of Representatives is that party discipline has broken down on the Republican side. On the most important policy questions, ones that most affect the national brand of the party, Boehner has lost his ability to control his caucus, and an ideological faction, aided by outside interest groups, can now set the national agenda. [More]

Now add in the Boehner problem. He's just not a very good or far-sighted Speaker.

Yes, Speaker John Boehner has a very hard job. He is leading a party riven by conflict. He is mistrusted by the Tea Party. He's found that he has to lead from behind lest he watch his initiatives fail on the floor of the House.But Boehner routinely makes his job harder than it needs to be. He didn't have to go around irresponsibly promising his members a "whale of a fight" on the debt ceiling. He could bring legislation to the floor with Democratic votes and, if that endangers his speakership, he could try to cut a deal to keep control with Democratic votes. He could also simply try and govern in a more responsible way and, if that means losing his position, so be it.

If Boehner wanted to, he could cut deals to pass comprehensive immigration reform, a grand bargain on the budget and the permanent end of the debt ceiling. All that might mean that is he's not speaker in 2015 and is, instead, a rich lobbyist, or a well-paid university professor, or a member of multiple corporate boards, or maybe even just a member of the House of Representatives. It's not such a horrible fate. [More of a really helpful analysis from Ezra]

One other factor I just ran across this morning. Compromise is not favored. At least, not yet.

Americans are perfectly, identically, symmetrically split on whether the GOP is justified in demanding major changes to Obamacare in exchange for funding the rest of the government, according to a new Pew Research poll. It's just another reason why this shutdown isn't likely to end any time soon.Asked whether Obama should agree to a shutdown deal that includes changes to his health care law, the "yes" responses among Republicans, Independents, and Democrats went 77 percent-40 percent-18 percent. Asked whether the GOP should agree to a deal to fund government without health care changes, the R-I-D responses were practically palindromic: 14 percent-43 percent-75 percent. [More]

Finally, I have come to believe the idea of sending the economy down the tubes is not all that abhorrent to Republicans as they feel it will be attached to Obama. lacking apparent economic savvy and dependent of simplistic economic analogies like comparing the government to a family, they have no idea how disastrous slipping back into recession would be, or how few arrows we would have to slay the bear again.

While I think the economy can take an considerable blow from Washington, should it truly lose all growth momentum, I am deeply concerned about the possibilities. Perversely, I find myself almost wishing the R's would rediscover in a hurry why Hoover was wrong so long ago should that awful outcome arrive and they assume full control of government. 

The ensuing recession will not be solved by slashing taxes and regulations, cutting entitlements, and balancing the budget. We may get to watch that happen, however.

While I still believe in powerful self-righting forces of our system, they unimagined political characteristics of today's Washington have negated many of those historic tools.

Junkbox, Episode MMXIII ⫔...

Definitely football weather. Too bad I'm not into football.

• Is gossip over?
• Hey - lighten up on the One Percent.
• The level in your pocket
• Stan Collender is all over #cliffgate
• Coke and meth and teeth. No, as in Coca-Cola.
• One more reason why on-line education will become the norm.
• Another look at cancer treatment
• The fact that dare not speak its name.

Beans to cut. Later, druids.

Aw, c'mon, Mr. Secretary...

I'm certainly no stranger to cheap demagoguery, but this lump is a sad example of obfuscation and pandering at the same time.

If the Obama Administration had a jazzy slogan like that it might read: Every Farm Boy a Doughboy.That, at least, appears to be the policy of Obama’s Secretary of Agribusiness Tom Vilsack. For months Vilsack has been delivering the same speech at chicken and peas dinners across the country, the gist of which is that America’s farm mothers are brood sows, birthing sons to be recruited into the army and made into fertilizer. Said Vilsack:

The U.S. population is now categorized as 16 percent rural. Despite that low percentage, more than 40 percent of the men and women who serve in our armed forces are from rural America. Young men and women from America’s farms continue to lead the way in protecting our country and making us the top military power in the world.

Farm boys grow up with a sense of wanting to give something back, Vilsack says. If we lose that value system, we’ll lose our military might.Mind you, that’s the USDA chief talking, not the chairman of the Joints Chiefs of Staff. Welcome to America’s new agriculture policy: Grow large crops of farm boys for use as cannon fodder. [More]

Jeez - where to start!

A. The author of this article is totally clueless here as well, and apparently unable to google "rural". He conflates "rural" with "farm". Let's try some of that fancy arithmetic stuff: 16 percent of the US population (~320M) would be over 50 million people. WTF! WE constantly remind people only 2% are farmers and we know that's a wild overestimate of the number of actual producers. So where are all these folks?

B. To begin with, there are NINE (!) different USDA definitions of "rural". This excerpt leads me to believe Vilsack's speech inventor is using Definition 7. Wade through it yourself, but it's pretty clear it includes lots of what are clearly "city folk". It definitely doesn't mean "lives on a farm".

[Click to enlarge to barely readable]

Put simply, the current makeup of the all-vol­untary military looks like America. Where they are different, the data show that the average sol­dier is slightly better educated and comes from a slightly wealthier, more rural area. We found that the military (and Army specifically) included a higher proportion of blacks and lower propor­tions of other minorities but a proportionate num­ber of whites. More important, we found that recruiting was not drawing disproportionately from racially concentrated areas. [More]

[Note the above study also uses Definition #7 of rural]

C. I can't find a definitive source but anecdotal information suggests young people are not necessarily driven by fervent ideals so much as a lack of employment opportunity near home, the GI Bill educational benefits, and more chances of equal treatment for minorities.  I'm not discounting patriotic motivation but it is not the only factor and there is no evidence to suggest it is stronger in rural youth. A better link is the much higher unemployment in the rural South especially.

D. It is a tortured chain of logic to link national security to a farm bill and subsidies so farmers will keep supplying sons and daughters to fill soldier slots. Also a little nauseating, IMHO.

Vilsack is scraping the bottom of the barrel here. While I am glad I served, I joined because I was going to be drafted and frankly for a little adventure at 21. It was one of the best decisions of my life, but I did not then nor now imagine myself doing anything heroic. It was my job for 5 years. They paid me to do it.

The Secretary's cheap exploitation of military myths is undignified and uninformed by actual fact.

Exhibit G: Growing inequality...

While there were stark differences in salaries when I was choosing my major (almost 50 years ago), the gap has become truly shocking.

[More]

There are very sound reasons for this, but more to my point is the decreasing number of majors to fill in the middle. These gaps would be OK if not echoed all across our economy, with a clearer and clearer divide between "will-haves" and "will not haves".

Sound reasons also do not seem to mitigate the consequences of vast inequality. Even if justly allocated, do we want to live in a society of rich and poor? More importantly to me, have we damaged many of the ladders that allow not only climbing up the ranks, but provide an avenue of recovery if you slip out of the top brackets. Scarily enough, we are raising the penalties for losing a job, catastrophic illness, and other career interrupting events. If you drop down, I think it is increasingly likely you will stay down.

And so will your children.

Junkbox, Episode MMXIII ⩏...

First field of beans about done. Not mine - can't say.

• Where stuff is grown in the US
• The Walton's estate plan. (No, the Walmart ones)
• Are firefighters the "brakemen" of the future?
• Any minute now, you'll hear one.
• Ogallala running dry?
• Why I may be sold out by October 15.
• St. Francis and biotech

Is it me or is it droughty in here?

One  more reason...

Why most marketing strategies are useless (IMHO). We are kidding ourselves as producers if we think we are going to consistently outfox the market.

The truth is we're not even in the real game.

Take the grain titan Cargill. The largest private company in the U.S., Cargill has gathered and shipped a bulk of the world’s supply of wheat and corn for more than 100 years. Nowadays, however, Cargill also sells billions in derivatives to food companies, and runs two massive hedge funds, managing morethan $14 billion for investors. Or take Louis Dreyfus, another major grain trader. In 2008, Dreyfus launched its own fund enabling investors to bet on food prices. By 2011, the fund had grown so fast it stopped accepting new money.Trafigura, the third largest global trader of energy and metals, runs nine funds that together manage approximately $2.5 billion. Last year Glencore, a metals and mining giant, and Vitol, the world’s largest independent oil trader, financed a $10 billion loanfor a Russian oil company. As businesses struggle to secure large sums from traditional banks, analysts say these companies could continue filling in for banks as a source of capital. Recently, some experts have also noted that extensive interlinkages between commodity markets and the financial system could pose systemic risks to the global economy."To the extent these companies [are] trading commodity contracts and selling investment products, they seem virtually identical in their scope of activities to the banks," said Marcus Stanley, policy director at Americans for Financial Reform.Unlike the banks, though, most trading companies are privately owned, release scant information, and escape most regulation. Goldman Sachs and J.P. Morgan might obscure their commodity activities to the public, but they are still obliged to privately disclose them to the Federal Reserve. Firms like Vitol and Cargill, meanwhile, operate in near secrecy. They must register their hedge funds with the Securities and Exchange Commission, but no regulator sees the full stable of their businesses. The lack of rules around “insider trading” in commodity markets also opens a backdoor to manipulation. [More]

Now add in Black Box trading and I think drawing all the clever lines on bar charts is busywork for people who struggle with a random world. And boy, is it!

We're losing...

 The public relations struggle to define commercial farms.  This Chipotle ad is getting rave reviews and could be going viral.


I don't think we have good responses to counter these images. And passing ag-gag laws is really a step in the wrong direction IMHO.

Meanwhile, the GMO battle I declared over seems very much alive.

Four of the world’s largest chemical corporations currently use some of Kauai’s best agricultural lands to test their new pesticide and GMO technologies. Kauai residents are concerned about the impacts of this industry on the island, and through “Right to Know” Bill 2491 are seeking basic information to ensure that the community is protected.Bill 2491 would also establish buffer zones between pesticide application and schools, hospitals, residential areas and waterways, mandate that a health and environmental study be conducted to better understand the impacts of the agro-chemical/GMO industry on the island, and put a temporary halt on expansion of the industry while the study is being conducted. [More]

The real difficulty is the ideological argument here. Farmers want to maximize individual rights, and that's exactly what these GMO opponents are advocating. Forcing others to accept products because "we" or the government know what's good for them would never get a favorable reaction from farmers. It's the climate change position in reverse. 

This is also part and parcel of the devolvement of government action to the local level as state and federal regulation becomes less effective. For a tiny minority like farmers, supporting federal overrides is a really bad strategy. 

We've played fast and loose with science and thus enabled this kind of resistance. Actually, if GM companies and users are successful, I would be troubled by the implications for their own consumer rights. If we can force our views on others do we really thing it won't happen to us?

Life is a moving target...

From the list of "policies that aren't working like we thought they would", this interesting take on why monetary policy (interest rates) don't deliver the bang for the buck they used to.

What’s the theory? To start with, monetary policy works by changing the cost of borrowed money. When growth is weak, a central bank cuts interest rates, which in turn makes spending, consumption, and investment more attractive. You’re more likely to buy a house or a car if the interest rate is 3 percent than if it’s 5 percent, for example. But crucially, the use of borrowed money is a crucial way that these lower rates translate into higher economic growth.But borrowing money is disproportionately an activity of the young. Economists call it “life cycle hypothesis of saving” — people use credit to smooth out what they can consume over the course of their lives. When just embarking on a career, a young person might take out major loans for education and for buying a house and car. As they reach middle age, they will tend to have paid down some of that debt while also building savings. By the time they hit retirement age, they should be net creditors, with significantly more savings than they still owe in debt.

That would imply that in an older society fewer people are actively using credit products. Which should in turn imply that a central bank turning the dials of interest rates will be less powerful at shaping the speed of the overall economy. [More]

I find this idea persuasive. In fact, older Americans are beginning to despair at low interest rates, since they are on the receiving end of money rental. Meanwhile record low rates still can't seem to put m all the excess money to work.

Case #2: Hunger. Here in agriculture our answer to growing food insecurity has been to pay farmers to grow more. But there are catches to this obvious solution, as well. Poverty and waste.

In a 2012 paper, Rebecca Bratspies, of the CUNY School of Law, makes the case that increased food production is not the way to resolve food insecurity. Rather, the problem comes from food distribution. For the past decade, she says, food production has increased faster than population growth. Yet, in the past 35 years, the number of people experiencing food insecurity has nearly doubled: 500 million experienced hunger in 1975; by 2010, it was 925 million. Food production doesn’t alleviate poverty, Bratspies argues; it’s a “social commitment to an equitable distribution of food” that will actually help those suffering.

In the U.S., nearly 49 million people live in food-insecure households. However, theUSDA says that our food waste is equal to 30 or 40 percent of the national food supply. That’s 36 million tons of food uneaten, food that the National Resource Defense Council says “eats up 10 percent of the total U.S. energy budget, uses 50 percent of U.S. land, and swallows up 80 percent of all freshwater consumed in the United States.” Reducing food losses by 15 percent, the NRDC continues, would be enough to food to feed at least 25 million people experiencing food insecurity. [More][My emphasis]

Of course we have an answer for the problem of poor people not having enough money to buy the food we grow: government assistance. No - wait, I forgot. We're going to shutdown government in order to CUT food aid (SNAP), and send more of the farm bill $$ to well, me. Yeah, that makes sense.

Case #3: Breakfast and obesity.  We all know the right answer - breakfast is the most important meal of the day. But are we looking at cause and effect or simply correlation?

The mere fact of this association doesn’t tell us very much about what breakfast really does, of course, and it’s possible that the case for eggs and toast has been overblown. A study published last week in the American Journal of Clinical Nutrition starts with this simple fact—that in spite of all these association studies, no one knows exactly what skipping breakfast might be doing to our bodies. The study goes on to make a disturbing claim: Scholars in this field of inquiry—breakfast science—have been fudging facts and misinterpreting the science. The literature shows signs of research bias.That doesn’t mean any of the studies described above is fraudulent or dubious. There certainly is a link between skipping meals and getting fat, but Andrew Brown, a nutritionist at the University of Alabama at Birmingham and lead author of the new critique, points out that large surveys of people’s diets and their health are at most suggestive. Lining up several dozen of them in a row doesn’t add much more value to their claims. It could be that my yuppie morning ritual really keeps my BMI in check, perhaps by changing my metabolism or helping to control my appetite. But it’s also possible that my breakfast habits do nothing for me on their own, and that they only correspond to some deeper determinants of health.As a breakfast-eater, for example, I’m more likely to work out than other people. At least that was the finding of a breakfast study from 2008, which also found that breakfasters tend to be rich and white, and less likely to indulge in cigarettes and alcohol. Any of these factors might protect someone from obesity and diabetes, so it’s hard to know what role might be left to eating breakfast. There are other confounds, too: People with lousy sleeping schedules may have less time for making pancakes. So what makes them fat—missing breakfast or not getting a good night’s rest? Here’s another: People who are trying to lose weight often make a point of missing meals. The fact that they’re on a diet, though, suggests that they’ve been gaining pounds, not shedding them. Does skipping breakfast make them fat, or do people who are getting fat choose to skip breakfast? [More]

In short, if you haven't learned to keep and open mind on as many beliefs as you can, you may be heading for rude shocks and future shock. We live in a complex world, as as it becomes ever more interlinked, teasing out what will happen when we do X is going to be tougher and tougher.

Which is why I am a big supporter of random trials.  Imagine if we could do that with the farm bill. 

The scarce market argument...

 For land prices. As asset bubbles are being spotted like financial Yeti all around the globe, people are trying to see some sense behind the prices. In this analysis about the boom in classic car prices see if the reasoning resonates with our favorite asset.

From our vantage point — and it certainly is a lay vantage point when it comes to classic cars — there seem to be three core attributes associated with vintage automobiles.The first is uniqueness.Value related to uniqueness is understandable since it relates to how easily an object or item can be sourced, replicated or mass produced. For now, there is little chance that a classic Bentley will be perfectly replicated. Value applied on these grounds seems rational enough.
The second is utility.Though, while this may be a bonus, we’d argue that in classic cars this is not necessarily a core value since most classic cars are notoriously unreliable and hard to maintain.In fact, a lack of utility can even be part of the appeal for classic car enthusiasts, since the joy of ownership is often linked to the challenge of maintaining the cars in working order, or getting them up to scratch.The third attribute, arguably the most important, is historical importance to car enthusiasts and sector specialists. [More]

The third point may be a bigger contributor to land prices than we think: land has continues to stand unchallenged as an historic form of wealth, and because it is intrinsically tied to location it also is a repository of history. To know an ancestor or beloved grandparent walked/bought/farmed an acre is to add the same type of value as knowing your childhood movie idol owned an item. Think of Spock's napkin or Jon Voight's car. Funny doesn't work without a wide acceptance of the underlying truth we feel.

When it come to land next to me, it is truly a scarcity market. And given my conviction that extremely large amounts of liquid assets are looking for a long-term home, farmland could be a semi-scarce asset that can at times possess some attributes of fine art or a Duisenberg. 

This means that using tools that select the best stock for your 401K may not help when making land decisions, especially if you farm. 

Slouching toward legality...

Every now and then I see the claim marijuana is the "most valuable US crop".

Reuters reported Dec. 18 that public-policy analyst Jon Gettman estimated the value of the U.S. marijuana crop at $35 billion annually, with California, Tennessee, Kentucky, Hawaii and Washington each producing more than $1 billion worth of the illegal drug each year. Gettman estimated the annual California marijuana crop to be worth $13.8 billion.
The estimates were based on previous federal reports showing that the U.S. produced more than 10,000 metric tons of marijuana each year.  At $1,606 per pound, that makes the crop worth at least $35 billion, compared to $23.3 billion for U.S.-grown corn, $17.6 billion for soybeans, and $7.4 billion for wheat. [More]

First, this was 2006, so the commodity numbers are much lower than current prices, and it also uses street value - not "farmgate" - prices for weed. Finally, the estimate comes from a partisan source, not disinterested economists. Something smells funny about this claim (heh).

So as the nations moves fitfully toward legalizing cannabis, what are some better numbers to estimate the importance of this ag product and its possible effect on the economy?

Well, that turns out to be a tough question. I started by trying to find out large US consumption is. As you might guess, the estimates are even worse than NASS on the soy crop.

Consequently, all the data presented above suggests the most reliable estimate of annual supply is one that takes each of four most prominent estimates into consideration: 1) the 21,865 mt estimate based on seizures and domestic production; 2) the 17,000 mt estimate reported by the Library of Congress; 3) the 8,700 mt estimate generated by combining State Department and NDIC reports; and 4) the 9,830 mt consumption estimate above derived from National Survey data. The average of these four estimates of supply is 14,349 mt of marijuana available in the US on an annual basis. [More]

But a more recent (2010) Rand study refutes this number.

The $20 billion figure appears to come from multiplying a $525-per-pound2 markup by an estimate from the Mexican government that 35 million pounds were produced in Mexico and then rounding up. However, no data support the claim that U.S. users consume 35 million pounds (~16,000 metric tons [MT]) per year, let alone that they consume this much marijuana from Mexico. (This point is addressed in detail in Chapter Three.) This is three times the United Nations Office on Drugs and Crime’s (UNODC) (2009) upper bound for total U.S. consumption and nearly four times the amount estimated by the Drug Enforcement Administration (DEA) (DASC, 2002). [More]

Note the ~15,000 MT estimate is from the same guy who made the previous value estimate. His estimate that we import about 50% of consumption is also echoed by other sources, but that claim seems to be more widely accepted as a reasonable guess. Perhaps a better estimate:

No one can know the actual value of the domestic marijuana crop with any certainty, as most cultivation is hidden in the shadows, all the more since federal prosecutors began cracking down in states that have legalized medical marijuana. The authors' best guess is that it’s worth about $2.1 billion to $4.3 billion.How legalization would affect the value of domestic pot production and potential tax revenue is another complex question the authors attempt to untangle.While legalizing marijuana could double or triple consumption, the authors point out that it also would dramatically lower the cost of production, with growers adopting highly mechanized, large-scale techniques used by big agricultural companies.Under this scenario, marijuana could become the cheapest legal intoxicant, far cheaper than alcohol. The authors suggest a legal market dominated by high-potency marijuana would produce annual tax revenues of a few billion dollars nationwide.By comparison, alcohol and tobacco each bring in $10 billion or more per year, according to the book.So what about California, where the pot industry is a fixture in some counties and growers boast of producing the most potent and most valuable strains in the country?The authors don’t speculate. However, 2010 figures from the U.S. Department of Agriculture, the most recent available, rank grapes at the top in California, worth $3.2 billion annually, followed by almonds ($2.8 billion), strawberries ($1.8 billion) and lettuce ($1.6 billion).That means that if one values the nation’s marijuana crop at the high end of the authors’ estimate, about $4 billion, California would need to account for more than 75 percent of domestic production in order for pot to rank as the state’s top cash crop.Inflated valuations are not the sole domain of marijuana advocates. The authors suggest that there are incentives for law enforcement officials to pump up the potential value of marijuana to present their seizures in the most favorable light. [More]

By this time I have reached the conclusions that 1) any economic analysis regarding farm income, tax revenue, or economic  impact from legalization should be viewed with great skepticism, and 2) marijuana today probably is not close to being our most valuable crop. 

Junkbox, Episode MMXIII ⨸...

 Group 2 beans are pushing toward harvest next week. Or being pushed...

• Great series from James Fallows on mid-American towns. If you have a connection to Holland, MI or Sioux Fall, SD, please check out his posts. If you don't, you'll still enjoy them.
• Squirrels - we hates them!
• Why I am bearish on interest rates.
• How to tell your pilcrow from your diple.
• Darrin Newsome does some Broadway re: soybean prices. (Wait for it...)
• The remarkable end of East Germany. Well done, indeed.
• Why demographers get gray. And is Lincoln now a girl's name?
• Ya gotta be careful dealing with guys from "Sern" Illinois

If you don't have a camera on the back of your combine or grain cart, please cough up the $200 to prevent a tragedy.

Just not funny...

Believe it or not, I never could understand the joke about "cow tipping". Mostly, I knew it to be absolutely impossible and failed the test of humor for sheer illogic.

But obviously this fable is alive and well.

Let's get this out of the way: Cow tipping, at least as popularly imagined, does not exist. Drunk young men do not, on any regular basis, sneak into cow pastures and put a hard shoulder into a cow taking a standing snooze, thus tipping the poor animal over.While in the history of the world there have surely been a few unlucky cows shoved to their side by boozed-up morons, we feel confident in saying this happens at a rate roughly equivalent to the Chicago Cubs winning the World Series.The evidence against cow tipping is immense, and backed up by both farmers and the laws of physics (more on that later), but the simplest bit of proof we can point to: YouTube.

It even includes some serious math to back this up.

I'm sure this will put an end to all those tremendously un-funny jokes.

Junkbox, Episode MMXIII ⨳...

 Our annual trip with our dinner club to the local lake for boating, overeating, and highly-disciplined wine consumption. And home before 10 pm.!

• After we explored the problems of Syria, and South African gold strikes, the conversation turned to nature, such as: Why do buzzards urinate on their legs?
• Digital drive-in doubts
• Is a two-year extension the next farm bill outcome favorite?
• I vote for the portable body scale and the silicone wine glasses.
• Wait - Asians in California conspire to take over public schools? WTF? (about 2/3 way down)
• Very cool population distribution graph
• Are orchestras over?

Cut beans in two weeks. No idea about yields. Meanwhile winds keep blowing the corn over.

Does this really happen?...

 Part of an e-mail from a friend:

On the grain front, got a call from my closest grain dealer, asking me to change delivery of my remaining August corn to his elevator in southern Lancaster County. He is loading trucks to go to Georgia with corn and does not have enough in the bins to fill the trucks!!! Apparently there is an area that needs corn and likely does not have rail access. The trucks are hauling wheat to the flour mills in this area and taking corn back. Can you say 'long haul'. The story is there is corn nearby, but rain is delaying harvest, so they are coming to Pa, an already corn deficit state for 'surplus' corn.
There are stories of some 1 million bushels still in bins in Pa however. I talked to a trucker who was loading corn out of a bin that the producer told him was 4 years old. I just wondered where he has been the last 2 years with an opportunity to sell in the last 14 months at 9.69 a bushel. I also realize that the truth sometimes can get in the way of a good story.

Man, I have trouble keeping corn until June.  I can't imagine 4-year old corn, but I've hear these stories all my life.  We had trouble with bins picking up moisture this spring, so Maybe they dry it to 12% or something.

Meanwhile, I have always needed to turn grain into money to like, buy groceries, and pay off loans, so maybe I never really had the right circumstances.

FWIW, we had a storm last night to boost our August rain total to .51", which means it won't be a new record low. While there was modest wind, it sure broke a lot of corn over. Is it me or are new hybrids remarkably wind-sensitive?

Junkbox, Episode MMXIII ∀...

 I'm having drought-flood whiplash. This month could be the driest on record for our farm.

After receiving more rain in the first seven months than all of last year. FWIW, I think corn, and especially soy yields are literally evaporating.

• Look for more on this from me after I have done more research. 
• Discovery Channel sells out
• I think this idea's time has come
• Finally, a genre ready-made for me: farm-lit
• Nothing in his career became him like the leaving of it (Apologies to Will)
• Fuel cells - alive and pushing ships
• More than you want to know about cashews

I have switched from Firefox to Chrome as my default browser. FF suffered several speed and hangup issues. Very happy with Chrome.  

Beats buying a new computer.