Monday, March 31, 2008

Toward a more uniform diversity...

The immigration debate fascinates me on several levels. First, there is the considerable ignorance about the cost/benefit ratio of immigrants. The wage competition pressure turned out to be much less than expected, for example.
Even economists striving hardest to find evidence of immigration's effect on domestic workers are finding that, at most, the surge of illegal immigrants probably had only a small impact on wages of the least-educated Americans — an effect that was likely swamped by all the other things that hit the economy, from the revolution in technology to the erosion of the minimum wage's buying power.

When Mr. Borjas and Mr. Katz assumed that businesses reacted to the extra workers with a corresponding increase in investment — as has happened in Nebraska — their estimate of the decline in wages of high school dropouts attributed to illegal immigrants was shaved to 4.8 percent. And they have since downgraded that number, acknowledging that the original analysis used some statistically flimsy data.

Assuming a jump in capital investment, they found that the surge in illegal immigration reduced the wages of high school dropouts by just 3.6 percent. [More]
Even the load on government budgets by illegal immigrants may be overblown.
Professor of Law [12] writes that the belief that undocumented migrants are exploiting the US economy and that they cost more in services than they contribute to the economy is "undeniably false". Lipman asserts that "undocumented immigrants actually contribute more to public coffers in taxes than they cost in social services" and "contribute to the U.S. economy through their investments and consumption of goods and services; filling of millions of essential worker positions resulting in subsidiary job creation, increased productivity and lower costs of goods and services; and unrequited contributions to Social Security, Medicare and unemployment insurance programs."[13] [More]
Second, you'd think from the English-only and cultural competition talk, Americans believe in the importance of greater uniformity in beliefs than other nations.

Well, not according to this research.
The two survey items that speak to diversity asked respondents whether they agreed or disagree with these statements:

It is better for a country if almost everyone shares the same customs and traditions.

It is better for a country if there are a variety of religions among its people.

Below are plots of the percent of respondents in each country who endorse homogeneity — i.e., agree that everyone should share customs and traditions and disagree that a variety of religions is better. (See the paper for fancier plots with means and confidence intervals.)

What's the deal with Greeks?

[More]

I think we allow what passes for public discourse on diversity to overcome the empirical evidence of the lives around us. And this survey demonstrates we may not be as intolerant as we can often appear in the media.
For my beloved, who loves elephants...



I know it's just training, but remarkable training at that.

[via MeFi]
Another colony collapse disorder...

We spent several shows talking about Colony Collapse Disorder in honeybees last year on USFR (Now on Channel 225 of DirecTV!!). Despite our best efforts, a lot of people still think it was caused by pesticides and GM crops. Mostly because they want it to be - not due to any particular hard evidence. And because it's way sexier than "bee flu".

And we are still not out of the woods on that battle.
After a year of research, scientists have not been able to come up with a cause for CCD, which killed millions of honeybees last year, according to Dennis vanEngelsdorp, a researcher at Pennsylvania State University.

“No one thing yet can account for CCD,” vanEngelsdorp said. “It is probably a lot of things working together.”

VanEngelsdorp updated participants at the beekeepers seminar held at the University at Albany about ongoing research to find a cause of CCD.

VanEngelsdorp talked about his research, offered possible causes of CCD and gave the beekeepers advice about how to keep honeybees healthy.

Researchers from across the country are helping to study CCD, including those from the U.S. Department of Agriculture, Penn State and the Pennsylvania Department of Agriculture. The public became aware of CCD in fall 2006, but vanEngelsdorp said the phenomenon probably started a couple years before that but was dismissed as varroa mites.

“Clearly, varroa mites can’t explain these loses,” vanEngelsdorp said.

VanEngelsdorp said the symptoms of CCD are the appearance of the queen honeybee, dead bees are not present, the remaining bees appear young and there are an insufficient amount of bees to care for the eggs.

Many believe that CCD is due to stress on the honeybees when they are moved, especially in commercial beekeeping operations that have thousands of hives.

VanEngelsdorp said he doesn’t believe the disorder is caused by stress from movement because beekeepers have been moving honeybees for hundreds of years. He said CCD is probably due to a bacteria or virus.

“It is increasingly likely that we are dealing with the bee flu,” he said. “Like the flu in humans it is worse some years than others.”

He said the researchers are currently gathering data to see how bad the CCD problem was this year. He said anecdotal evidence shows that it was about 80 percent as bad as the previous year. [More]
Well, that exercise could happen again, albeit in a less "children's book-y" species: bats.
It was broad daylight in the middle of winter, and bats flew out of the mine about one a minute. Some had fallen to the ground where they flailed around on the snow like tiny wind-broken umbrellas, using the thumbs at the top joint of their wings to gain their balance.

All would be dead by nightfall. Mr. Hicks, a mammal specialist with the state’s Environmental Conservation Department, said: “Bats don’t fly in the daytime, and bats don’t fly in the winter. Every bat you see out here is a ‘dead bat flying,’ so to speak.”

They have plenty of company. In what is one of the worst calamities to hit bat populations in the United States, on average 90 percent of the hibernating bats in four caves and mines in New York have died since last winter.

Wildlife biologists fear a significant die-off in about 15 caves and mines in New York, as well as at sites in Massachusetts and Vermont. Whatever is killing the bats leaves them unusually thin and, in some cases, dotted with a white fungus. Bat experts fear that what they call White Nose Syndrome may spell doom for several species that keep insect pests under control. [More]
Maybe we've all been watching too much "CSI - Pittsburg" on TV. We now expect a gorgeous scientist/spokesmodel to do a 10-minute test and announce THE ANSWER in time for the commercial. Real science rarely works that way. Or with folks who look like that, either.

There are several possible ways to think about this phenomenon. Has it happened before? Will it spread? Are there any valid comparisons with CCD?

Without doubt, agricultural practices will somehow be brought into this discussion, and my guess is local farmers will be outraged at being accused of anything.

It's time we grew up and realized that hazard goes with the job. We yammer on and on about working with nature and being out in the fields 24/7/365 (or more!). Who else are people going to point to when odd things happen outside - Wall Street bankers?

When people are scared and angry they will say screwy things - even rational, calm people like me. I have several posts on this blog to demonstrate that. Before we rev up the public relations machine (at the urging of PR professionals usually) why not just listen and wait for more information? Despite popular thought, instantaneous response has not always been shown to be a winning strategy. Devotion to the truth and respect for other has.

We'll be hearing more about the bats and the bees. And then we'll work to find an answer and move on to get overwrought about something else.

It's not a perfect system, but it works.

Sunday, March 30, 2008

High on the Middle Ages...

I just finished the last installment of the Middle Ages lectures by Prof. Philip Daileader. More info here.

The last section was the High Middle Ages - roughly 1100-1300. It was outstanding. I cannot recommend it enough to fill 30 minutes at a whack with great teaching.

I have done a couple other courses by the same compnay, and they were OK, but not in the same league.

Until now. I just started "The Vikings" by Kenneth Harl. This guy is a match for Phil, I tell ya.

Mostly we think of Vikings like this:


But a better image might be
Regardless of their fashion taste, their history is fascinating and Harl delivers it with intensity and humor. Among other things I've learned:
  • Nobody wore horned helmets. Only Hagar, apparently.
  • Viking warriors were know to catch javelins thrown at them with bare hands. Historians are generally agreed the several accounts of this are likely true.
  • Vikings were less hierarchical and more of a coop than Western Europeans, giving them a huge tactical advantage over the thinner warrior (noble) class they faced on raids.
If you or a friend has a commute or is taking a car trip, these are perfect.

Enjoy.
Stopping to learn...

I have been a proponent for life-long learning, mostly as a way to keep aging minds sharper and as a defense against allowing your skill set to become obsolete. Those are still worthwhile goals, but the case for learning has recently been bolstered by an outcome that could not be more timely.
Like athletes or musicians, people who practice meditation can enhance their ability to concentrate—or even lower their blood pressure. They can also cultivate compassion, according to a new study. Specifically, concentrating on the loving kindness one feels toward one's family (and expanding that to include strangers) physically affects brain regions that play a role in empathy.

"There is such a thing as expertise when it comes to complex emotions or emotional skills, such as the one of cultivating benevolence," says Antoine Lutz, a neuroscientist at the University of Wisconsin–Madison who led the study. "That raises the possibility that you can train someone to cultivate this positive emotion." [More]
Humans have traditionally used culture to teach and transmit valuable skills and attitudes like compassion. But today, we can see the action in our brains. Moving the discussion from purely rhetorical to empirical data-based may allow more buy-in by members of society who have viewed such discussions as little more than psycho-babble.

Especially today, as entire nations (like the US) have embraced belligerence and confrontation as the solution to any dispute, understanding how our minds work, and how they can be more productive might offer other options. Such knowledge also offers an effective antidote to the effects of modern communications.

We are routinely shocked, angered and horrified by our ability to filter the worst stories of the day from 6.4 billion people and deliver them concentrated to you almost in real-time. Little wonder we have grown more callous and uncaring. To do otherwise would exhaust us emotionally and doubtless lead to despair. As we have adapted this way, maybe we have lost the ability to imagine better ways of living. In the process, I think we have neglected the skill of empathizing with others - true compassion.

That goal is worth learning about, and that skill is worth mastering.
In case you missed this in 6th grade...



Be the life of your next business dinner or family gathering. Take over the "Coolest Uncle" with your nephews.

Ah - the old jokes are the best ones.

[via Arbroath]

Saturday, March 29, 2008

Throw one more factor in...

[The response from Kirk below tied into this post as well. And also this comment:

I understand your frustration in being unable to forward contract as you would like. I manage a relatively small grain merchandising operation. We have offered forward contracts to our farmer customers for up to three years into the future. We still do.

Our greatest problem in going forward with this service has been the very large drain on capital caused by excessive margin calls. The secondary problem is the interest cost drain on our P & L. The last, but definitely not the least issue is the lack of convergence between cash and futures.
In our area, we typically think that we can buy a harvest basis postion with some predictability and merchandise that postion going forward without undue risk to balance sheet and P & L. Lately, it appears that any thought of convergence has been lost on the CFTC and that they have allowed the CBOT to become more of a momentum and sheer power game instead of the price discovery vehichle that I have defended for the last thirty years. I feel somewhat betrayed by the system and wonder if we do not have much greater problems ahead.

Renewable fuels have created tremendous opportunity for wealth creation in the rural areas, however, I am concerned that if we allow the marketing system to be swayed by sheer volume and tremendous, outside, non-agricultural interests we will lose the main assets that this economic system has always offered. Namely, stability, confidence and rule of law.

I don't pretend to have the answer, but I feel sometimes that the system is somewhat out of control.
]

As the administration works to avert even more serious economic problems, the call for tighter market regulation has come from all sides.
"I think the response to the disaster of the credit crunch is going to be clearly some increase in regulation," said Alice Rivlin, a former board member of the Federal Reserve. "The key is to do it well and not overdo. I think everybody is in agreement that the subprime mortgage market needs more regulation."

Indeed, mortgage lending is likely to be scrutinized more closely as a result of the new mood in the country over financial regulation. And several proposals are gathering support in Congress that would allow Americans facing foreclosures on their homes to have their mortgage reduced at a lower and federally insured interest rate.

Lyle Gramley, another former Fed board member, agreed, saying "it is widely recognized that regulation now has to be tightened somewhat" after years of innovations that produced complex investing products like swaps and derivatives of all sizes and shapes that can be traded almost worldwide, instantly.

"There is going to be more regulation regardless of whether people like it or not," said Raghuram Rajan, a business professor at the University of Chicago and former chief economist for the International Monetary Fund. "Once you've drawn the Fed into an expanded role, you have to ask how to prevent that thing from occurring again." [More]
But note the casual reference to merging the CFTC and SEC. The explosive growth of derivatives have left the government referees trying to figure out how to call the game, and it looks like they want one set of rules all over the gym.

This suggestion will not be attractive to the agencies involved I would guess. Crimony, we can't get airline pilots to agree on merged seniority, let alone the turf-guarding GS bureaucrats. Some preliminary steps to do so have already provoked truculence from all sides.
The CME Group wants to preserve the existing system, while the Chicago Board Options Exchange favors replacing the two agencies with a single regulator as new derivative products have blurred the distinctions between futures contracts and equities.

CBOE Chairman and Chief Executive William Brodsky was appreciative of the agencies' promised cooperation, but he is waiting to see whether their words are matched by substantive action. [More]
But just like 9/11 left us with the ghastly and freedom-diminishing Patriot Act, the hasty overreaction to this this credit crisis may undo years of patient deregulation which I believe played a big part in the longest run of prosperity in our history.

Perhaps the line between government control and free enterprise will always have to wander back and forth as new players have to learn the perils of not meeting in the reasonable middle. But I fear ideas like Sec. Paulson's look like vigorous government action, but shackle growth significantly for years to come.

Friday, March 28, 2008

Why my markets aren't working well...

First, this e-mail from a USFR viewer:
Moves like those have crimped farmers' ability to manage risk in volatile grain markets. "I never really saw this coming," says John Phipps, a farmer in Chrisman, Ill., who learned recently that his largest customer, Cargill, would no longer take his grain under previous terms. "Forward contracting is such a basic, fundamental and routine exercise." Now, "My entire marketing plan fell apart. [WSJ quote]
Shouldn’t someone who is the host of a farm program, and spokesman for an industry have had some clue that this was a concern. You had no idea that the volatility in the market might be causing problems for your local elevator. Maybe someone should be concerned with their local market and do all they can to support these markets rather than just expect them to be there for your convenience.
The correspondent is referring to my quotes in this WSJ article [Alas, now gated for non-subscribers][Update: A buddy found a work-around to see the article. Click here. Dude!!]

The important point right now is the author quoted me correctly. I do rely primarily on forward pricing for my marketing and I am temporarily flummoxed as to how to proceed.

But let me make one point clear: I am not, nor have I ever pretended to be a "spokesman for agriculture". In fact, the concept is repulsive to me.

I speak for my farm. Period. And I believe you should be the spokesperson for your farm - not some organization president, FFA contest winner or celebrity. Agriculture is far too diverse for any one voice to capture it accurately or fairly.

My views on subsidies (short version: hate 'em), mandates (ditto), and trade (the freer, the better) place me in a tiny minority of producers. While many who have been reading for some time realize this, I do not resent the majority who disagree with me. In fact, I am quite willing to be proven wrong, but few seem to offer any hard data to the contrary.

Now as to the forward pricing debacle. The commenter likely has not read my thoughts on this unfolding problem here in the mangled syntax and unedited text of John's World.

This will likely sound defensive, but here is why I was caught off-balance by Cargill's refusal to forward price: I believed in them. I did think this outcome was possible, but I thought they would be the last institution to buckle under difficult market conditions. Furthermore, I work hard to maintain good relations with my number one customer.

Scroll your memory back. The first hint was The Andersons, shortly followed by ADM. My assumption - since proven totally wrong - is this would spread completely to smaller grain originators.

But as this survey shows (albeit unscientifically) the refusal to forward price seems to be a problem for just some producers like me. The question is begged: How can small elevators boldly go where no big merchandiser will go?

Some backstory: I get my information from my Cargill service reps, Amy and Paul. We've been through a bunch of situations that required cooperation to adjust to unforeseen circumstances. We found answers to all of them over the years. And as I have written before, I like dealing with Cargill. Plus I really don't have many local options. Jan and I simply can't spend time hauling.

Meanwhile, something weird is definitely going on the at the CBOT.
Whatever the reason, the price for a bushel of grain set in the derivatives markets has been substantially higher than the simultaneous price in the cash market.

When that happens, no one can be exactly sure which is the accurate price in these crucial commodity markets, an uncertainty that can influence food prices and production decisions around the world.

These disparities also raise the question of whether American farmers, who rely almost exclusively on the cash market, are being shortchanged by cash prices that are lower than they should be.

“We do not have a clear understanding of what is driving these episodic instances,” said Prof. Scott H. Irwin, one of three agricultural economists at the University of Illinois at Urbana-Champaign who have done extensive research on these price distortions.

Professor Irwin and his colleagues, Prof. Philip T. Garcia and Prof. Darrel L. Good, first sounded the alarm about these price distortions in late 2006 in a study financed by the Chicago Board of Trade. Their findings drew little attention then, Professor Irwin said, but lately “people have begun to get very seriously interested in why this is happening — because it is a fundamental problem in markets that have generally worked well in the past.”

Market regulators say they have ruled out deliberate market manipulation. But they, too, are baffled. The Commodity Futures Trading Commission, which regulates the exchanges where these grain derivatives trade, has scheduled a forum on April 22 where market participants will discuss these anomalies and other pressure points arising in the agricultural markets. [More of a superb article that demonstrates why we need subsidy hatin', liberal newspapers like the NYT - they have got the world class journalists]
This event has left me speculating, especially with Cargill's tight-lipped non-explanation. Some thoughts I have entertained:
  • Cargill/ADM/TA could be in bigger financial trouble than smaller merchandisers, and be unable to handle additional margin risk. Man - that's hard to believe!
  • Cargill/ADM/TA are thinking even farther ahead. What if smaller competitors struggling to maintain hedges do fail. How cheap would they be to acquire then?
  • Cargill/ADM/TA thought the industry would follow them, like airline companies trying to raise prices.
  • Cargill/ADM/TA have better forecasts of a possible train wreck coming and choose not to be involved. I can see that as a likely reason.
  • Cargill knows I'll be back, regardless. The consequences of unilateral action are deemed small. Probably good logic, but not a congenial thought.
  • Cargill/ADM/TA are using me to help them protest the above convergence problem to the CFTC or anybody else who will listen.
  • Cargill is leveraging this bizarre market to induce more interest in their contracting programs. I grow non-GMO, and IP corn for them. Both are still contracting out into 2010.
  • Cargill/ADM/TA have made a strategic mistake that will complicate their efforts to source grain. If this corn crop especially looks iffy, what will they do to nail down supplies?
Any or all of those ideas could be right. I'll probably never know.

But the important thing is what has to happen for forward contract to return. Not knowing what criteria prompted the decision leaves me with even more wild guesses. But one thing is certain. My ideas of a "deeper" relationship with my customer (Cargill) has proven to be pretty naive. And such step changes in market practices tend to take some time to "live down" - assuming we will get back to former practices.

My job (as I see it) in the value chain for grain is to stand in the "risk gap" for the production phase. Weather, bugs, etc. are my risks and how I derive compensation from my market. I have relied upon Cargill to arbitrate the marketing risk as their specialty - offering simplified ways for me to take advantage of price opportunities and for them to nail down supplies.

I did not whine about the enormous basis supposedly needed to offset the volatility in forward contracts, but find it hard to swallow that 70-80 cents doesn't provide them enough cushion. However, my job is not to tell them how to do their business, it's to decide to do business with them.

Nothing is more unnerving than to look around in uncertain times and see an empty space where your partner used to be. As one correspondent pointed out, maybe the old adversarial approach is the only realistic one.

So I need to belatedly look for new customers for my soybeans. It has also slowly dawned on my that this abrupt change in policy now throws doubt in my mind on all Cargill's warm, fuzzy words about "helping me prosper". Perhaps if they add "usually" on the end.

Don't get me wrong. We'll adjust to this curve ball. But if the report Monday proves to be bearish for beans, I'll probably grouse about my inability to sell ahead of the report - which I had planned on like I almost always do. And market advisers who had incorporated forward pricing as part of their strategies (almost all to some extent, IMHO) will likewise have to scramble to find another tool. What is funny is Cargill had been flogging the use of Market Pros to sell part of your grain as a marketing service.

I think this decision will have long half-life, especially in the minds of producers. It will in mine.

Every time I get a good idea...

Somebody beats me to it. Like a clock using an Etch-a Sketch that erases itself every minute and redraws the time.




I just about had it all worked out, too. Except for the drawing part.

[via InformationNation]
Are we sprawled out?...

A USFR viewer recently wrote to object to high farmland prices and how urban development is likely causing them. You can see my answer during the "Mailbag" segment at the end of the show, but I stumbled on this really interesting piece that puts another perspective in suburban expansion. The quiet return to the city from the suburbs - or at least the emergence of a vibrant new group of urban residents - has changed both the picture and the reality of the suburb. In the process the business model of the suburb underwent a drastic revision.
Until recently DuPage County had been one of the big winners during the forty-year decline and imminent collapse of Cook County. Major corporations fled Chicago’s failing downtown and moved to DuPage’s open spaces and tax-friendly towns. Working class homeowners on the west and southwest sides of the city sold their bungalows and bought ranch houses, Cape Cods, and new town homes in Wheaton and Naperville and Downers Grove. Families troubled by the city’s public schools happily sent their children into shining new facilities and well-equipped classrooms. County government prided itself on its lean budgets and effective service-delivery.

By the date of the meeting, however, the developers who had helped double DuPage’s population in just 30 years had run out of land. The income generated by their construction efforts had dwindled to a trickle. Education and public safety costs continued to climb. Scores of specialized local districts and commissions—water, sanitary, and others —absorbed hundreds of millions of dollars that never made it into the general operating budget of the county and were subject to little, if any, scrutiny or oversight. And residential real estate taxes—the backbone of the county’s budget due to the long-standing agreement to attract and retain business by keeping commercial taxes low—soared.

...

DuPage is not alone, of course. In Nassau and Suffolk Counties in New York, in Montgomery and Baltimore Counties in Maryland, in Bergen and Essex and Middlesex Counties in New Jersey, in almost every mature suburb in the northeast and Midwest and mid south, families face these same conditions. A Roman Catholic pastor I met in Nassau County described it as suburbia’s midlife crisis. It may be part of America’s midlife crisis as well.

No longer young, no longer trendy, no longer the place to be, no longer without apparent limitations or constraints, these places, like people, have developed ways of avoiding reality. [More]
These social and demographic forces have been at work for some time, but now they are joined by economic punches like energy costs and real estate price declines. Given the delay factor inherent in real estate taxes, the forecasts for those tax revenues must be horrific for the next few years.

I have long been less than hysterical about urban development. After Richard Bruegmann published "Sprawl: A Compact History", I found some justification for my position. [Read my review here]
What this iconoclastic little book demonstrates is that sprawl is not the anomalous result of American zoning laws, or mortgage interest tax deduction, or cheap gas, or subsidized highway construction, or cultural antipathy toward cities. Nor is it an aberration. Bruegmann shows that asking whether sprawl is "good" or "bad" is the wrong question. Sprawl is and always has been inherent to urbanization. It is driven less by the regulations of legislators, the actions of developers, and the theories of city planners, than by the decisions of millions of individuals—Adam Smith's "invisible hand." [More]
It would seem those invisible hands are moving in other directions now. Maybe mall is beginning to pall. (Sorry - couldn't resist) Regardless, the fact that more people have the ability to choose can only be a good thing.

And if we can just keep our real estate finance system from imploding, even more citizens will have the chance to determine what our cities will look like with their decisions.

Thursday, March 27, 2008

I hear an "Amen"...

Great opinion piece in the Chicago Tribune regarding health care costs.
First, Americans need to forget about the myth of a free lunch. Workers are not getting something from employers while paying nothing. They are paying for their health insurance, including the premiums supposedly contributed by their employers.

Second, to help the struggling middle class, we need to get health-care costs under control. There is no way to have a sustained rise in middle-class incomes without restraining the growth in health-care expenditures. Similarly, if we want government to invest in better primary education and more affordable colleges we need to find a way to hold down the cost of health care. We are robbing our children to pay for medicine.

We need to rewrite the social contract in America. We need to get employers out of providing health insurance. It is one of the most inefficient ways to get people covered, and it impedes efforts to keep costs down.

Instead, we need to provide all Americans with a standard benefits package regardless of their income, employment status, health status or age. This will provide Americans invaluable peace of mind, defuse labor-management conflict and get people to focus on value and determining whether more health care is worth the added costs. [More]
OK, these guys have some horsepower going for them like advanced degrees and actual expertise. But remember I reached the same conclusions with little more than an engineering education and some pliers.
I think historical architectural detail is important...

Especially when it deals with history that hasn't, ummm, actually happened yet.

So before you remodel that living room, scope out some accurate drawings to make the final result something that makes visitors say, "OMG!!!"


[More bridge recreations here to suit any taste]

Of course, I suppose some of you will stick to Berber carpet and vaulted ceilings, etc.

(Yawn)

[via presurfer]
The integration deepens...

The stark contrast between agriculture and most of the economy is drawing even more investors. While we have seen it big-time in the grain markets, hedge fund money now is poised to take a more permanent seat at the table.
Ospraie Management LLC, the $9 billion hedge-fund firm founded by Dwight Anderson, agreed to buy ConAgra Foods Inc.'s commodity trading and merchandising operations for $2.1 billion.

The ConAgra Trade Group will be renamed Gavilon LLC when its sale to Ospraie's Special Opportunities fund is completed, Omaha, Nebraska-based ConAgra said today in a statement distributed by Business Wire. The unit has 144 facilities, which are mostly located in North America, and employs 950 people, ConAgra said.

``Buying such assets gives a greater insight into the entire supply chain and helps to complement trading activities,'' said Christopher Peel, chief executive officer of London-based Blacksquare Capital LLP, which invests in hedge funds. ``You get an edge over those that don't have access to the information.''

Hedge funds and securities firms are acquiring stakes in companies that produce and transport commodities to aid their trading of futures contracts amid a six-year rally in prices. Ospraie, based in New York, started its Special Opportunities fund two years ago to buy stakes in commodity producers such as agriculture and mining companies.

Gavilon will be involved in buying and distributing grains and fertilizers, as well as commodity trading and risk management, ConAgra said. Its offices will remain in Omaha. [More]
While farmers are peddling doom on the horizon to Congress in order to prevent payment reform, mucho dollars are betting commodity prices remain lofty for some time, largely due to foreign economic growth (read: China) and the resultant demand.

The willingness of a hedge fund to get into commodity trading directly also hints to me that waves of "outside" money will be commonplace. I think this is also clearly evident in aggressive outlook and pricing strategies by input suppliers like seed and fertilizer.

Farmers will be making their money by coping with powerful adjacent links in the supply chain, both our customers and vendors, who have already gone through consolidation and face less market competition. Until the number of industrial farms has shrunk to allow some increased leverage in both buying and selling, farmers will gradually devolve to pipelines for money from Cargill, ADM, etc. to Monsanto, Case, Agrium, etc.

Everybody hates big farms, but the conclusion I keep reluctantly coming back to is really large operators will be the most likely operations to be capable of thriving in that economic environment, regardless of government policy or popular sentiment.

Big money simply breeds big farms.

Wednesday, March 26, 2008

A question we don't want answered...

The talk of mandated health insurance as a fix for health care costs has raised the interesting question of whether mandates are constitutional.
A health insurance mandate is essentially a forced contract, in which one party (the insurer) gets to set the terms. You must buy their policies, even if you prefer to self-insure, rely on alternative medicine, or obtain treatment outside the system. In constitutional terms, such mandates may constitute a violation of due process or a "taking of property."

Requiring Person A to give money to Person B is a "taking," whether or not something of value is given in return. Let's say the state required every resident to buy milk, on the rationale that milk consumption benefits public health. That's either a constitutionally forbidden taking (of money) or a violation of due process.

These constitutional rights aren't absolute. Given a compelling enough reason, government can interfere with your person and property. It can require, for instance, that your child be vaccinated before attending public school. But there is usually an opt-out, such as private or home schooling.

We are not aware of any opt-outs for most people in the mandatory health insurance plans being discussed. [More]
While I support a better method for providing health care - I oppose mandates, mostly because it's a way for legislators to tax without appearing to. The issue for farmers, of course is any time mandates are discussed in a legal context, the ethanol mandate might be used as a precedent.

Ethanol backers really don't want a right-leaning Supreme Court to open that can of worms.
A new kind of bullying...

I was struck by the characterization of the cotton market in this recent article in the Delta Press:
Investors with little idea of cotton fundamentals continued to bully the cotton market into unheard of volatility and the biggest price swings in recent memory. The question for panelists at the Ag Market Network’s March 13 teleconference, is when supply and demand will calm the tempest.

Right now, it’s not happening, according to Carl Anderson, professor Extension specialist emeritus, Texas A&M University. “If it was, then why are cash prices well below futures prices. I still believe in market fundamentals. I do not think it’s possible to change the economics of supply and demand over the long run.

“However, over the short-run, a lot of things can happen and we hope they’re not severe enough to damage the entire marketing section of the U.S. cotton industry.”

Anderson noted fundamentals point to lower prices, especially for old crop cotton. Lagging export shipments led to USDA reducing U.S. raw cotton exports by a significant 1.2 million bales in its March 11 World Agricultural and Supply Estimates. That reduced expected exports from 15.7 million bales to 14.5 million bales, “and I wouldn’t be surprised to see that decrease another 500,000 bales.”

Declining exports would push carryover to 9.4 million bales, or about six months of cotton offtake for the United States.

Fundamentally, “this means there is no shortage whatsoever of U.S. cotton,” Anderson said. “The world surplus is not much better, with USDA raising world carryover almost 2 million bales from February to March. Textile demand is weak and getting weaker. World stocks are also close to six months use.”

Anderson says the United States still appears ready to produce less cotton than last year, even with the run up in prices. “I doubt that 90-cent futures last week (March 3-7) bought many acres because not many people could lock in that 90 cents with a reasonably-priced option or contracts just dried up.”

Texas A&M Extension specialist John Robinson says usually one would expect the market to calm down after the spike in prices like the one that occurred in early March. But the market continued to have volatile aftershocks for several days. [More]
To be sure, cotton may be undergoing a simple chain reaction from acreage battle which began with corn and has now rippled into any crop that needs acres. The last few days have been tough for "fundamentalists" but not without happy opportunities for producers. If we decided to close markets to just investors who know what the fundamentals are we would definitely not like the outcome. And many of us may not be able to pass the test.

Besides how do we really know those "bullies" don't know something about future production that others don't?

It's an odd bully that forces you to take his lunch money.
It says a lot...



When a sea lion can bust a better move than you.

[via Andrew Sullivan]

Monday, March 24, 2008

These sound familiar...

Tyler Cowen, whose self-recognized economic brilliance is nonetheless real to me (I can understand about 37% of his posts) occasionally throws a shaft of light on topics that seem to apply to our little corner of the economy. Consider his recent words on what went wrong with the economy.
To understand the depths of the current crisis, let’s go back to an apparently unrelated episode in economic thought: the socialist calculation debate. Starting in the 1920s, Ludwig von Mises, the leader of the so-called Austrian School of Economics, charged that socialism was unable to engage in rational economic calculation. Without market prices, he reasoned, no one knows how much economic resources are worth.

The subsequent poor performance of planned economies bore out his point...The irony is that the supercharged capital markets of the American economy are now — at least temporarily — in a somewhat comparable position. Starting in August, many asset markets lost their liquidity, as trading in many kinds of junk bonds, mortgage-backed securities and auction-rate securities has virtually vanished.

Market prices have been drained of their informational value and thus don’t much reflect the “wisdom of crowds,” as they would under normal circumstances. Investors are instead flocking to the safest of assets, like Treasury bills.

The absence of trading is a big problem. Financial institutions have been stuck holding illiquid assets, whose value cannot be easily determined. Who wants to lend to the institutions holding them? No wonder there is a credit crisis and a general attitude of wait and see. [More]
I would suggest that the influx of various forms of investment/speculative/homeless money has overwhelmed the ability of the corn market for one to determine the price of corn. Further, the lack of confidence shown by customers like Cargill in the market as a reasonable arbitrator between buying and selling is proof of this failure. While commodities are not illiquid, can wheat really be worth $20?

To me this suggests that at least some of the action that will be taken to revalue questionable assets like CDO's and swaps might be useful to commodities. Then again they might not help at all, but I will be watching to see if and how some order is reestablished there for clues to the resumption of more normal trade in our world.

Another post-mortem offers fewer analogies for our sector.
The seeds of today's disaster were sown in the 1980s, when financial services began a pattern of growth that may only now have come to an end. In a recent study Martin Barnes of BCA Research, a Canadian economic-research firm, traces the rise of the American financial-services industry's share of total corporate profits, from 10% in the early 1980s to 40% at its peak last year (see chart 1). Its share of stockmarket value grew from 6% to 19%. These proportions look all the more striking—even unsustainable—when you note that financial services account for only 15% of corporate America's gross value added and a mere 5% of private-sector jobs. [More]
While it can be fairly argued that the growth in our assets like land and commodities is out-sized for our contribution to the economy (about 1% using the same measure as this article for the financial sector), the linkages to corporate pay and regulation don't seem that applicable to me.

Still another look back focuses on financial engineering - and the resultant failure of checks and balances within the financial sector.
This may sound odd, because two types of stakeholders in Bear Stearns were made to pay for their excessive risk taking. Shareholders have lost their shirts and thousands of employees will lose their jobs, which should teach Wall Street a grim lesson. But two other types of stakeholders have been given a huge break. As of 10 days ago, Bear's lenders did not expect to get their money back in full; thanks to a $30 billion credit line from the Fed, the lenders now look comfortable. Equally, Bear clients who had bought swaps and other derivatives faced the prospect of their contracts being rendered worthless; that danger has receded. Moreover, the Fed has announced that it is ready to provide emergency loans to other investment banks. The incentive for private lenders and buyers of derivatives to monitor banks' risk has to some extent been blunted.

This is a subtle shift, not a dramatic revolution. Lenders and derivatives traders have been bludgeoned in recent months; it's not as though they have zero reasons to be cautious. But the shift is disturbing nonetheless. The case for financial engineering was questioned by serious people even before we landed in this mess. And we have no good way of turning back the clock. [More]
The idea of devising market instruments that even those most knowledgeable pretend to understand doesn't really apply perhaps to simple puts and calls - which market advisers are badgering us to embrace. But I have not taken the time to become intuitively comfortable with them, and I suspect many who think they are may be mistaken.

Nor am I convinced that Fed intervention will lower the perception of risk by lenders in the future as Mallaby fears. The jury is out on the longer term fallout from the Fed action, but the pain will taint the memory of such products and schemes for some time, perhaps.

There may be little overlap between what's happening on Wall Street and LaSalle Street - other than the investors involved. Still it is hard to escape the impression our commodity pricing system is under power distortion from new forces of unprecedented size. The thing that tickles the back of my mind is our unfortunate tendency to adopt a less than optimal solution to the futures problem that will rapidly become entrenched to exclusion of better solutions. The first OK idea will drive out later great ideas as a rule.

But hey - this blundering along has gotten us this far. And given us the QWERTY keyboard, too.

The humor tip-off...

Consider this comic:


[More of Dan Piraro's work]

Now before some of you get all righteously indignant, ponder what happens to ideas in our culture today. Even the most powerful concepts and noble ideals sooner or later become the target for humor. And for trends, it's a sign that the edge is slipping off the public fascination with the idea.

Humor is how we sort out what we think about uncomfortable idea. It is also how we can drill down the the key thought at the center of those ideas.

Bottom line: adding some humor to the food war is one good step toward starting the hard work of finding some common ground.

And we will.
The light is dawning...

I have long advocated a posture of listening, explaining and patience in the public opinion battle over genetically modified plants (GM) in agriculture. Here is why: every day, every hour generates hard data on the safety and efficacy of these products. Simply waiting for this mounting evidence to sway doubters one by one may not make corporate boards reach their profit curves as rapidly as possible, but it does make the profit curves higher and longer.

Getting out of consumer's faces, stopping the acrimony against alternative foods (and their to date questionable benefits) costs less, allows room for consumers to change their minds with without appearing to cave, and generally raises the level of public conversation on this sensitive issue. Time is on our side - why not use it slightly better?

I was reinforced in my belief by this article in the Boston Globe - hardly a mouthpiece for GM adoption. While proponents could start linking and touting this in press releases, I think that lessens its power. Why not show some faith in the much doubted ability of people over time to eventually embrace rational solutions?
For anyone worried about the future of global agriculture, the story is instructive. The world faces an enormous challenge: Its growing population demands more food and other crops, but standard commercial agriculture uses industrial quantities of pesticides and harms the environment in other ways. The organic farming movement has shown that it is possible to dramatically reduce the use of insecticides, and that doing so benefits both farm workers and the environment. But organic farming also has serious limits - there are many pests and diseases that cannot be controlled using organic approaches, and organic crops are generally more expensive to produce and buy.

To meet the appetites of the world's population without drastically hurting the environment requires a visionary new approach: combining genetic engineering and organic farming. [More]
In short, take a look at how fast self-serving boasting palls from NCAA competitors and choose instead to celebrate with farmers and consumers a powerful tool to advance agriculture.

Sunday, March 23, 2008

Mostly local is just local...

The local food movement, and their new social category, locavores have done much to elevate too many awarenesses about the ethics of eating. But as I have long suspected, not too many of these folks were math majors.
It is not that the concept of food miles is wrong; it is just too simplistic, say experts. In fact, balancing your diet with its carbon costs turns out to be a fiendishly tricky business. Consider these two staples: apples and lettuce. The former are harvested in September and October. Some are sold fresh; the rest are chill stored. For most of the following year, they still represent good value - in terms of carbon emissions - for British shoppers. But by August those Coxs and Braeburns will have been in store for 10 months. The amount of energy used to keep them fresh for that length of time will then overtake the carbon cost of shipping them from New Zealand. It is therefore better for the environment if UK shoppers buy apples from New Zealand in July and August rather than those of British origin. [More]
To be fair, some local food advocates have tried to adopt more rational approaches. This whole exercise points out how important it is to make market prices reflect all production costs - even externalities like environmental impact One reason I support a carbon tax, is locavores wouldn't have to preach to the unsaved - the price sticker would do it for them.

Sadly the near-universal abdication of fiscal responsibility by politicians means the only option for voters is to resist new taxes despite any attendant benefits simply because their elected representatives cannot be trusted with new income. Which is a shame, because some of the cost-benefit ratios are pretty low.
Now I can finally get some sleep...

Like many of you, I have been wrestling with the problem of whether boomerangs work in space.


Now we know: Yup.
Easter is for everyone...

I'm off to make biscuits for our Sunrise Service and breakfast, but this bit of news cheered me as a bonus to the familiar uplift of Easter.
Mikhail Gorbachev, the last Communist leader of the Soviet Union, has acknowledged his Christian faith for the first time, paying a surprise visit to pray at the tomb of St Francis of Assisi.

Accompanied by his daughter Irina, Mr Gorbachev spent half an hour on his knees in silent prayer at the tomb.

His arrival in Assisi was described as "spiritual perestroika" by La Stampa, the Italian newspaper.

"St Francis is, for me, the alter Christus, the other Christ," said Mr Gorbachev. "His story fascinates me and has played a fundamental role in my life," he added.

Mr Gorbachev's surprise visit confirmed decades of rumours that, although he was forced to publicly pronounce himself an atheist, he was in fact a Christian, and casts a meeting with Pope John Paul II in 1989 in a new light. [More]
Know hope this day.

Saturday, March 22, 2008

Add health to the shopping list...

Looking at the Top 10 Best New Food Beverage Products, it's not hard to see a trend. All have some health benefit (most commonly lower calories).

For the last 13 years, IRI has published its New Product Pacesetters report, an analysis that showcases the ten best-selling new food and beverage products in the US.

In 2007, IRI said health and wellness "reigned supreme" and the analysts saw the trend as a "fundamental shift" in the way US consumers perceived food.

No longer were US consumers just looking at food as a source of enjoyment and satisfaction but as a means to deliver specific health benefits.

In 2008, IRI believes functional_foods will "win big" - it will be interesting to see whether that prediction comes true.

Most interesting to me is how this flies in the face of food inflation. I suppose the cost of food is still relatively low for many (but not most) consumers and they may make up the target market for new food products.

More intriguing to me is what is happening in food portion control. It turns out our eyes can trick our appetites, so dieticians are finding ways to counter this illusion.
Over the past few years, the tried-and-true technique of food journaling has expanded online with Web sites that let you upload photos of your meal – which you snap with a cell phone or digital camera – to keep an eye on potential portion distortion. [More]
To my own horror, Jan and I have begun asking for "senior" choices simply because of the size (well, OK, the price break doesn't hurt, either). And we are no longer embarrassed to split an entree.

I mean, the restaurant more than makes it up on our wine selection.


They shoot them, don't they?...

My commentary this week on USFR (to be posted Monday) will doubtless provoke spirited reaction from those opposed to horse slaughter, as I think reconsidering the issue will become almost impossible to avoid. Not being a "horse person" in any sense of the word, I have learned to appreciate the immense size and economic power of the equine industry, however, and my conversations with horse owners here in my community found all in agreement that a problem is escalating.

There is a quiet battle raging in the horse industry over the 1-2 punch of skyrocketing feed costs and the close of horse slaughter plants. Some results at mathematically obvious.
Local sale barn operators say a 2007 ruling that closed a DeKalb, Ill., horse-processing plant -- the last in the United States -- along with high feed prices and high fuel costs has severely depressed a market already saturated with horses that were bred during better economic times. They say current legislation pending in Congress that would ban sending horses to slaughterhouses in Canada and Mexico would leave the region's horse owners without viable options to get rid of unwanted animals.

Greg Johnson, owner of I-90 Expo Center horse sale in Sherburn, Minn., said some owners see the writing on the wall and are trying to get rid of their horses.

"The bulk of the horses are suffering," he said. "A lot of people that have had horses for years just want to get rid of them now."

Cleone Uecker, who runs South Dakota Horse Sales in Corsica, said the horse market peaked five years ago. It seemed everyone was buying stallions and broodmares, she said, even if that meant taking out loans or switching from raising cattle to horses.

Before the ban on slaughtering, she said, a 1,000-pound horse that couldn't sell as a trained saddle horse would bring about $600. [More]

Some problems are more vague - such as rumors of abandoned horses in public parks and range land. And claims of horse being abandoned at higher rates than before are strongly disputed especially in Kentucky.
Despite the dramatic stories, it's hard to pinpoint just how deep the problem goes.

Dr. Robert Stout, Kentucky's state veterinarian, says no statewide figures are available on how many horses have been abandoned or neglected or how many, if any, have died.

However, Stout says he's convinced there is a problem.

"My perspective is that it's probably due to the drought we had and the shortage of hay and other foodstuffs, coupled with higher prices," he said. "It's probably more of an issue than it has been in previous years."

Lori Neagle says the Kentucky Equine Humane Center, by far the largest rescue organization in the area, has taken in more than 140 horses since opening about a year ago. Many, though not all, of the cases were related to high hay prices. Other rescue groups report receiving much smaller numbers. But since there is no comprehensive list of centers statewide, it's unclear how many horses have been rescued.

Ginny Grulke, the horse council director, says that while she's received "lots of reports of abandoned horses from people who are credible," her group has been unable to compile "quantifiable numbers."

Some groups, like the Humane Society of the United States, contend that reports of abandoned horses in Kentucky and elsewhere are wildly overblown. "We've been unable to find a factual basis for most of the stories we've seen," society spokeswoman Stacy Segal said. [More]
In arguments like this, where any compromise would require disavowal of a deeply held belief even in the face of convincing evidence seldom is resolved. Mostly the world adapts to it quietly and we outlive the fallacy.

The economics of horse ownership, the direction of the overall economy, and the lack of buyers of last resort tend to make me suspect this problem is not only real, but growing. But the answer may not be to reopen horse slaughter facilities, although I support looking into this. For the reason I mentioned horse activists have allowed themselves little room to maneuver on that issue. But as more and more animals wind up in incapable ownership another solution equally repugnant to some may be offered.

License and regulate horse ownership. Require credit checks and horse care training programs - just like buying a car. Make disposal costs part of the upfront purchase price as we are now doing for appliances, perhaps via mandatory insurance policies. The advent of animal identification should also be a priority for activists to ensure animals are correctly linked to responsible owners. In short, treat horse like cars.

I'm not crazy about introducing this type of hassle into the horse industry, but the absence of alternatives will likely lead us to more stories like this one.
The number of abused and abandoned horses is growing in Sonoma County, and local officials say the poor economy is partly to blame.
Bob Garcia, Sonoma County’s veteran animal control officer, said he’s seen this trend before: When tough economic times hit, horses are neglected.

“It just costs a lot of money now to feed a horse . . . We saw more horses abandoned last year than in the year prior to that. It seems like there’s a trend in that direction, which is concerning everyone.”

There were 18,000 horses in Sonoma County in 2005 according to the most recent survey of the population conducted by Sonoma State University. That was up from 14,000 horses in 1998.

Grant Miller, a veterinarian contracted to provide medical services to horses seized by the county, said in 2006 there were only three abuse cases requiring horses to be taken from properties. That number jumped to 30 in 2007. And 2008 opened with two more cases, which head to court this week. [More]
Horse advocates rightly point out there is scant data to support linkage of the slaughter ban to horse abandonment, but the anecdotal evidence is mounting as horse rescue facilities are being overwhelmed and the market plummets for old horses. And the rise in horses exported for slaughter offers economic proof of the depth of the problem.

If the data should manifest, it will take a great deal of spin to affect the suffering, I'm afraid.

Thursday, March 20, 2008

And they don't cause obesity...

For many of you long-time readers, prepare to be dazzled by an atypical even-handedness on the topic of farm subsidies. First my post on subsidies and terrorism, and now this. While I never really bought into to DCP's-cause-fat-kids argument, neither did I defend our farm program from this charge.

The basic thrust of such assertions was that by subsidizing corn, HFCS was made cheaper and hence we all drank too much pop, and got fat. Over time, the anti-HFCS theory became a movement.

But as corn growers now loudly point out, the price of corn doesn't make food (much) more expensive, which in reverse means it can't really make food much cheaper either. Recently economists at UCD agreed, but with interesting collateral damage.
Compared with other factors, the policy-induced differences in relative prices among various farm commodities have played only a tiny role in determining excess food consumption and obesity in the United States. U.S. farm subsidies have many critics. A variety of arguments and evidence can be presented to show that the programs are ineffective, wasteful, or unfair. Eliminating farm subsidy programs could solve some of these problems, but would not even make a dent in America’s obesity problem.
Well, I think that sets the record straight. But as you might suspect, the researchers did find some tiny problems with our farm program (other than being "ineffective, wasteful, and unfair", of course).
The policy economics of the sweetener market raises some issues that merit some explicit discussion. Farm subsidies are responsible for the growth in the use of corn to produce high fructose corn syrup (HFCS) as a caloric sweetener, but not in the way it is often suggested. The culprit here is not corn subsidies; rather, it is sugar policy that has restricted imports, driven up the U.S. price of sugar, and encouraged the replacement of sugar with alternative caloric sweeteners.

Combining the sugar policy with the
corn policy, the net effect of farm subsidies has been to increase the price of caloric sweeteners generally, and to discourage total consumption while causing a shift within the category between sugar and HFCS. In this context, eliminating the subsidy policies would result in cheaper caloric sweeteners, and if anything more rather than less total consumption of sweeteners, with a switch in the mix back toward sugar.
The bottom line is a solid academic reaffirmation of our farm policy as having little effect on food prices, just which food we choose. In effect, you could say we need even higher sugar prices to make HFCS more expensive, and junk food less available.

Wait...

Meanwhile what we do know is farm subsidies create discomfort among the recipients when the payments are revealed. The EWG introduced this transparency to the US years ago, and it has proven more effective than imagined at mobilizing formerly indifferent taxpayers (and especially media) into subsidy opposition.

Transparency is now easier than ever, whether by computer-crunched databases or cell-phone cameras. Our buddies in the EU are about to find out what happens when the payout list is an annual headache.
European Union governments will soon have to reveal to the outside world exactly how much they hand out in subsidies to their farmers from the EU's huge agricultural support policy, putting an end to years of secrecy.
By the end of April 2009, EU countries must publish an annual list of beneficiaries that get cash under the Common Agricultural Policy (CAP) and how much each one has received. At present, there are no rules to force EU governments to do this.
A vast support programme worth some 44 billion euros ($69.57 billion) a year, the CAP eats up close to half the entire EU annual budget.
The subsidy-heavy system is fiendishly complicated and has spawned dozens of studies that attempt to peer into its darkest corners.
EU countries will have to publish the full name, municipality and, if possible, postal code of all recipients on nationally-managed websites with a search tool to enable the public to see how much money each person or company received.
Cash amounts would be broken down in direct payments to farmers and other support measures, the European Commission said in a statement. The Commission, the EU executive, will also run its own website with internet links to each national site. "This is taxpayers' money, so it is very important that people know where it is being spent," EU Agriculture Commissioner Mariann Fischer Boel said. [More]
Your farm, like mine, may be miles from the nearest McDonalds, but trust me, it's on some radar somewhere. We need to get used to doing business in the noonday sun with everybody watching. It's not fun, but it's a definite trend.