Sunday, August 26, 2012

I can relate to this...  

Actually, I have no choice.
How far do we have to go back to find the most recent common ancestor of all humans alive today? Again, estimates are remarkably short. Even taking account of distant isolation and local inbreeding, the quoted figures are 100 or so generations in the past: a mere 3,000 years ago.
And one can, of course, project this model into the future, too. The maths tells us that in 3,000 years someone alive today will be the common ancestor of all humanity.
A few thousand years after that, 80% of us (those who leave children who in turn leave children, and so on) will be ancestors of all humanity. What an inheritance! [More]
All together now: "It's small world after all..."

(Yes, I know you'll be humming it all afternoon.)
Junkbox, Episode 22.6%...  

That's our driest corn right now. We'll continue harvesting after the rain today. Yields from 60-180 through the field. Weird little "dead spots" that we think are just slightly lighter/higher ground.

Amazingly profound relief when fields are done - even with poor results. I think it's the idea that those fields can't get any worse.

The trek to Africa is starting to lurch toward reality. Jan may go along for while to see a big game park like Kruger. We'll start in South Africa visiting the Kongskilde people there and maybe some farmers, then she'll come back home and I'll go on to Mozambique/Tanzania.

That's the current daydream, anyhoo.

Friday, August 24, 2012

Letters from Africa #3...  

I'm studying the maps now.

Opportunities and Threats....
We arrived in the major port city of Dar Es Salaam Tanzania on Sunday.  The Indian ocean is incredibly beautiful here.  We count 20 ships just stuck offshore for up to three weeks waiting to unload the cargo onboard due to inadequate, poorly run facilities. We drove out to the city near our Tanzania farm yesterday, Morogoro.  The traffic we encountered leaving Dar Es Salaam was ridiculous.  Over 90 minutes just to get to the outskirts of the city. Our investor group is buying 80% of a 100,000 acre cattle ranch that a medical doctor & his brother, a commercial airline pilot bought many years ago to be the pilot's vocation after retirement.  Unfortunately, the pilot died and the heirs have struggled to figure out what to do with the land.  Our group proposed they retain 20% of it and work with
us in developing profitable crop & livestock enterprises here.  A nephew is accompanying us.  He informs us we could start a game farm business quite cheaply and get a quota of impala, cape buffalo, wildebeast, √©lan, etc.  He is an accomplished artist that paints wildlife art as a specialty

I am getting briefed on the rainfall patterns here, closer to the equator than Mozambique.  It seems there are two rainy seasons, one in August-September, a second in February through May.  As an old barley grower, I want to explore the idea of sneaking in a crop of barley during that first season.  There is a big demand by maltsters for good malting barley here.  The groundwater supplies in this part of the world will allow for irrigation with good quality & quantity at about 270 feet.  If, however, we can double crop without irrigation our numbers improve substantially.

To get a sense of the vastness of this area consider this.  The entire US corn crop covers 84 million acres this year.  The arable land in Tanzania and Mozambique alone is at least 125 million acres.  So you could plant 1.5 times the US corn crop in these two countries that look like a tiny slice of east Africa on a map.

Walking around on the property this morning I suppose I'm feeling a little like my great-grandfather felt when he first walked the land he obtained in North Dakota as compensaton for six months of back wages earned taking care of horses at a livery stable in Northfield Minnesota.  How does it "lay"?  It seems to lay quite well.  Almost flat with no rocks.  The trees are much smaller than in Mozambique, 8-12 feet tall, 2-4 inch diameter.  They should be relatively easy to clear with the D-7' s.  The soils near the ranch headquarters (which isn't much) are much more red in color than Mozy but based on the soil tests we have performed they are just as fertile as the darker soil near the river.

Unlike North Dakota, there is variety in the terrain.  Two hills covering about 10,000 acres that reach up to about 500 feet emerge out of the flat plain.  They are wooded but are within two miles of the major highway that splits the farm almost exactly in half.  We speculate about locating housing on the gentle slopes of these hills.

Two of the biggest nuts to crack to make this venture work are logistics and human resources.  Getting all kinds of stuff here in a timely and cost effective do we do it?  Containers, the internet, & aircraft are the key systems we will employ.  Forty foot containers loaded on large vessels are capable of moving large machinery great distances.  We have already sent four Versatile 875's over, one from my hometown of Wahpeton ND.  The top of the cab gets a haircut to fit, but is easily rewelded here.  Gearing up to load containers quickly and effectively is son Josh's task but we have access to lots of expertise to get us up the learning curve.

The internet....the ability to send a PICTURE of anything we have questions about to someone in the US who has insight into the answer is a powerful tool.  We tested the time and cost of sending a 10 pound critical parts package last week.  It cost $300 and took four days to get to the Mozambique farm through the UPS channel.  We will find ways to collapse this supply system considerably. a 45 year pilot I am almost giddy about the flying conditions here.  Eight months of the year there  is essentially no severe weather, fog, ice, etc.   During the rainy season the systems don't get organized until noon so you get at least four hours of beautiful flying weather every day of the year!  The latest satellite--GPS systems will allow me to fly twin engine aircraft, now selling at very cheap prices over and create a highly effective shuttle system that links our two farms, 800 miles apart, within 5 hours of each other.
The aircraft we will start off with, the Piper Seneca, has already been approved to burn an ethanol-based fuel known as aviation grade E85.  Making ethanol at our farms will reduce the operating cost of our aircraft operations by 60%.

All for now, I will comment on human resources later.  Wallie

 It's not like I will be hauling in grain during February...

Wednesday, August 22, 2012

Letters from Africa...  

The following are dispatches from a man I am proud to call my friend, Wallie Hardie from North Dakota. Through a serendipitous chain of events starting with a daughter who is a nurse-missionary in Mozambique, he has somehow proceeded to start a farm there AND then buy 100,000 acres in Tanzania.

On top of it all is his admirable motivation of truly helping those most in need of help in a way only a great farmer could. The following are his recent letters.  I will add more and any pictures when they arrive.

The land...
The landscape of central Mozambique is stunning to a dirt farmer like me.  Gently rolling dark soils of mainly silt loam textures.    Out of nowhere these huge hills with steep granite facings pop up perhaps 20 acres in size with heights up to 300 ft.  Some are shaped like a football on a tee, others have very irregular shapes with the largest mass at the top, like a natural water tower.

The name of the farm here is Rei do Agro, king of agriculture.  Our intent is to convert these soils into highly productive producers of soybeans, wheat, barley, sunflower, and corn.  Our game plan is to clear existing trees, plant a single crop in December for two years, then install an irrigation system using SDI subsurface drip irrigation or center pivot on the third year.  The water will come from small reservoirs created by dams installed on seasonal streams that are abundant here.

Coming from the cold North Dakota tundra, the temps here are heavenly.  It is winter and the sun arcs across the northern sky from east to west.   It is 65 degrees at sunup with a high about 80.   Summer here (december) is 80 to 100, but that is also the rainy can get a 11/2 inch rain and be farming the next day!  After analyzing temp and rainfall data it is becoming quite clear we should plan on a triple crop, no till system that starts with a 1.5 to 2.0 maturity soybean that is planted in December and comes off in April.  Immediately followed by barley and wheat no-tilled into the soybean stubble.   The barley would be harvested in late July, the straw would be baled and later maize varieties would be planted with liquid fertilizer based no till systems.  As the wheat comes off, earlier varieties would go in.  This system would prevent the tendency for these soils to bake in the tropical sun.

The demand for all of these crops here is huge.  Soybean processors, barley malt producers, bakery's, and chicken producers have been in constant contact hoping to get some of our production because they cannot source enough to meet growing nutritional needs here in Africa.

All for now.  Next time I will share about the people here.     

The people...
The only word that comes to mind when describing the status of the people of southeast Africa....heartbreaking.  Less than 15% have jobs as we know them.  A large majority of the children are malnourished.  Almost everyone receives a three year maximum education and is functionally illiterate.  As we drive through the countryside we pass through countless villages where masses of people walk along the roadway, the women carrying stuff on their heads, all with perfect posture.  The men usually aren't carrying anything--"where are they going" I ask my partners, "who knows" is the reply.   I am struck by the homogeneity of the culture--everyone equally poor.

How is it that these folks seem stuck in a twilight zone of 40 year lifespans and hardscrabble living in this modern world?  Some Africans will tell you part of their problem has to do with good intentioned people giving them stuff & taking away the motivation to EARN a living.  Even our "Farmers feeding the world" program launched a few months ago is a quarter turn off.  Farmers should be about mentoring their African counterparts to feed their own continent with the incredible resources they have right here.

There is a remote village about 5 miles west of our farm that needed a source of fresh water.  We had a well drilling company doing two holes for our needs and it was not hard to spend an extra 12K to help them get a great well, of course pumped by hand.  Now they need some kind of business activity to get them on the first rung of the economic ladder.  Our plan is called the hub--outgrower model that involves a large farm at the center that has its own production systems, but also provides the infrastructure for small local farmers to access the knowledge base, inputs, machinery, and most importantly the transparent market to thrive in their own right.  We have our own Extension specialist on staff to implement this process.

An example, we are planning to install a small-scale ethanol production facility as a first step in our sustainability model.  This plant provides the engine for all kinds of good things to happen.  The feedstock will probably be cassava, a root plant that is essentially all starch and can be easily grown by small farmers on poorer soils.  Hundreds of farmers will have a new market for this crop.  The energy source will probably be wood chips.  With the thousands of acres of trees needing to be removed to build out the farm, this is a ubiquitous energy resource that employs many people.  Getting diesel and gasoline into the farm is difficult and costly.   Making our own fuel is a no brainer.  But running an ethanol plant requires highly skilled operators.  Finding and training these people won't be easy, but is the pathway that some will gladly take to break out of a cycle of hopelessness.

All for now,  next time I will talk about opportunities and threats.  
 Godspeed and safe travel, Wallie.

Sunday, August 19, 2012

The separation...  

Of Church and Plate. Agriculture has watched bemused as celebrities and the occasional real human embrace, umm...alternative diets.  But popular pastor Rick Warren takes it up a notch when he brings scripture to the menu.
This is a story about weight loss. Four young men are kidnapped by an invading army, forced against their will to their enemy’s teeming capital, into the heart of the palace of the enemy king. Their old names are taken away. Their clothing is stripped off, and they are dressed up in the stiff, stifling robes of the foreign court. They are kept under watch, instructed in a new language, forbidden the worship of their fathers’ god. They are offered riches and power in the king’s service, if only they give themselves over to the life of the court, sit at the king’s banquet table and eat his rich, strange food, answer to new names in a new language—if only they forget who they were. 
Did I say this is a story about weight loss? Excuse me: Pastor Rick Warren says this is a story about weight loss. The story is the Hebrew Bible’s Book of Daniel, and out of the wealth of details in this two-and-a-half-millennia-old book, Pastor Warren has plucked one in particular as the centerpiece of his church-sanctioned diet.
Daniel, one of the four kidnapped Jewish youths, “resolved not to defile himself with the royal food and wine,” and chose to subsist on vegetables instead, ending up as healthy as anyone in his captors’ court. So, as Time magazine recently reported, Warren has “launched the Daniel Plan, a comprehensive health-and-fitness program.” [More]
Actually, I have no problem with preaching against carbs, for example. But I think this is just one more example of ways fundamentalist orthodoxy can create conflicts with American ideals of freedom. Which is why we have wisely tried to keep as much daylight between government and religion as we have.

Bible-literalists in rural America may have to swallow hard to embrace this latest self-help interpretation from the same guy who launched a thousand study groups with "The Purpose-Driven Life".
  • EAT Delicious Whole Foods
    Have 70% of your daily diet consist of whole, living foods including raw or lightly cooked vegetables, fruit, raw nuts and seeds. The other 30% can include lean protein, whole grains and starchy vegetables.
    Don’t drink your calories (sodas, juices, alcohol). Drink water instead.
    Read the label: Avoid high fructose corn syrup, hydrogenated oils, nitrates, food coloring.
    Avoid the “white menaces,” flour, rice, potatoes and sugar (bread, pasta, cookies, cakes).
    Supplement your diet with high quality vitamins Omega-3, Vit. D, and a multi-vitamin.
    Eat nutritious breakfast that includes protein. Add healthy snacks throughout the day. Low fat lunches. Light dinners (don’t eat within three hours of bedtime).
MOVE Your Way to Health
Stay active daily. Find ways to enjoy exercise. God made our bodies for movement.

THINK Sharper and Smarter
Your decisions about the way you eat, move and think are results of your brain health.
  • Get 7-8 hours of sleep per night. Stress less with deep breathing and exercise.
  • Reverse risk of dementia and Alzheimer’s by learning something new: language, scripture.
  • Avoid brain robbers like; alcohol, drugs, smoking, and sports that can cause concussions.
  • Don’t believe the automatic negative thoughts in your head. Challenge and replace them with the truth! 
Aside from the admonitions against HFCS, rice, potatoes, etc., the warning about football will doubtless cause some controversy.  On the whole, the recommendations are in the mainstream of medical advice.

The problem for me is the same as the above writer: since when did Scripture devolve into a glorified self-help book? While it has always offered guidance for life, I don't find it to be the end authority on health any more than on science.

Strict "Biblical living" seems to have an attraction that reappears every so often in modern cultures. And time and again, the impracticality of its misuse reduces its power in areas where it can truly work miracles.

The Daniel diet is a good enough idea. Selling with a theological endorsement is inappropriate and unhelpful to both health and religion.
Junkbox, Episode LSMFT...  

If you know what the episode number means, you're old enough to read this post.
Corn at 24% and ears dropping off the stalk. Wind damage from recent rains. 2012 may be all about soybeans for us.

Thursday, August 16, 2012

It's not the left...  

You need to worry about if you want subsidies. Consider this tweet from Josh Barro, conservative economist with impeccable credentials:

@jbarro:Farmers talking about why they need subsidies sound almost exactly like teachers talking about why it should be impossible to fire them.
I never imagined the wind down of ag subsidies would be effectively abetted by farmers angry over obscure ideology. But that appears to be the way they will vote.

Whatever. You go guys.
MY CPI...  

I've always been skeptical of inflation numbers. Since they are calculated for the nation as a whole, how accurate can they be on the nano-economic level - me?

For example, if your home is paid for and you're not sending kids to college, why should those prices affect your spending power? Obviously, the government cannot provide individual inflation measures, but as we say these days, "There's an app for that."

Calculate your personal inflation rate here. Then use it to determine your real interest rates and opportunity costs. Beware - your number could be higher than the US average.

Mine? -0.14%.

It's not just feed costs...  

There's the cage issue and now this:
 A new study suggests eating egg yolks can accelerate heart disease almost as much as smoking.
The study published online in the journal Atherosclerosis found eating egg yolks regularly increases plaque buildup about two-thirds as much as smoking does. Specifically, patients who ate three or more yolks a week showed significantly more plaque than those who ate two or less yolks per week.
It may seem harsh to compare smoking with eating egg yolks, but lead study author Dr. David Spence says researchers needed a way to put it into perspective since both eating cholesterol and smoking increase cardiovascular risks - but the general public believes smoking is far worse for your health.
The issue is with the yolk, not the egg, says Spence, who is also a professor of neurology at the University of Western Ontario's Schulich School of Medicine & Dentistry. "One jumbo chicken egg yolk has about 237 milligrams of cholesterol."[More]
Now throw into the mix news that long-range studies are sifting out some myths about cholesterol in general. For example, maybe there is no such thing as "good" cholesterol.
Cholesterol in the blood is carried by particles called lipoproteins, which come in different sizes and densities, according to the researchers. There is a well-established connection between elevated LDL levels and heart attack, and decades of research - including genetic studies similar to the new study - paved the way for the development of lipid-lowering drugs known as statins.
But research has been less clear on HDL, since a study more than 30 years ago found the higher levels of HDL a person had, the least likely they were to have a heart attack. Mouse studies since then have reported similar findings, but researchers haven't been able to prove the link conclusively. The new study may provide the clearest evidence yet of the role HDL plays, the researchers said.
"Through our research, we have found that all roads that raise HDL do not always lead to the promise land of reduced risk of heart attack," said study co-author Dr. Benjamin F. Voight, an assistant professor of pharmacology at the University of Pennsylvania, said in a university written statement. [More]
Even more alarming (to Big Pharma) is the heretical idea that statins aren't the panacea.
Statins such as Lipitor and Crestor are among the most widely prescribed drugs in the world. Their effectiveness in lowering LDL cholesterol has been firmly established; however, the overall impact upon the health of those using statins is questionable. Serious side effects such as liver damage, cataracts, muscle pain and renal failure have been known for some time, but thought to be rare; however recent evaluation of statin use outcomes reveals that the risks may in fact outweigh the benefits. Is the practice of prescribing statins as a preventative measure for individuals with borderline LDL likely to cause more harm than good? Perhaps, exercise, good diet and plant sterol supplements should be the vigorously endorsed as the frontline treatment, prior to any consideration of statin therapy. [More]
The egg yolk study strikes me as a little narrow and solitary in the research literature, but it was large enough to be respected. After having outlived a mound of bad press a few years ago, this cannot be helpful to the egg industry. If egg producers are infighting over cages, they may miss this health broadside that could really lose them some market share.

Wednesday, August 15, 2012

By the way, Doctor...  

Does treating for mild hypertension do any good?
Hoffman, of UCLA, says that it is always possible to dismiss “inconveniently negative” evidence, like that in the Cochrane review, because no study can test every possible dosage or combination of medicines or duration of treatment. Thus it is always technically possible that some untested formula might work. But he calls the Cochrane review “the best evidence currently available” about the effects of drug treatment on patients with mild hypertension and says that its results fit with what is known about diminishing returns—and the potential for dangerous side effects—when treating people with less severe disease. He also objects to the idea of treating “unless and until we know for sure that it’s a bad idea,” suggesting instead that “we shouldn’t subject patients to possible harm unless and until we have reasonably good evidence that it’s worth doing.”
Given the possibility that future trials will identify at best a small, currently nonapparent benefit, it seems clear that the best thing for doctors to do would be simply to tell patients the truth—that while the best current evidence doesn’t support routine treatment of mild hypertension, we really don’t know for sure. But we do know this: Emphasizing far more effective—and evidence-based—approaches, such as exercising, quitting smoking, and following a Mediterranean diet, seems to be a very good idea. And besides, they work. [More]
Another conversation I will be having at my annual physical.

Tuesday, August 14, 2012

I'm just sayin'...  

Connect these two dots...
Consider the federal government. Of the 23 cabinet members, only the Secretary of Energy and the Administrator of the Environmental Protection Agency have engineering or natural science backgrounds. Even they are exceptions. Of the 22 former heads of the Department of Energy and Environmental Protection Agency, only three had engineering training. The majority were lawyers.
In Congress, out of 535 members, six are engineers and one is a physicist. (All told, there are more accountants, musicians, and talk show hosts.) By contrast, eight of the nine members of the Chinese Politburo, the highest-ranking officials in China, have engineering degrees. [More]

Meanwhile, Chinese citizens give a 90% approval rating to their national government. Approval rating for the US government is around 17%. 

Mere coincidence.

I think not.

Monday, August 13, 2012

Junkbox, Episode VINO...  

What an odd pre-harvest sentiment has settled in around our community. All the anticipation of a dentist appointment.
  • Who answers political polling calls? (Not many, anymore)
  • Our biggest energy natural advantage could be...water.
  • I've called it a tax on the stupid. Why not make it a tax on the stupid rich?
  • Your lyin' oven
  • Oh yeah - the losses are going to be big.
  • Will Marcellus be the baby name of the future in PA?

Sunday, August 12, 2012


According to freshman in college...
History, a record of things left behind by past generations, started in 1815. Throughout the comparatively radical years 1815–1870 the western European continent was undergoing a Rampant period of economic modification. Industrialization was precipitating in England. Problems were so complexicated that in Paris, out of a city population of one million people, two million able bodies were on the loose.
Great Brittian, the USA and other European countrys had demicratic leanings. The middle class was tired and needed a rest. The old order could see the lid holding down new ideas beginning to shake. Among the goals of the chartists were universal suferage and an anal parliment. Voting was done by ballad. [More]
A hilarious/depressing  collection gleaned from actual papers by one professor.
Better let your breath out...  

Like many observers, the addition of fiscal hawk Paul Ryan to the Republican ticket strikes me as bad news for those hoping for a farm bill anywhere close to the dream of a full safety hammock net:
If the president is for it, House leaders are going to be even more entrenched against it. Moreover, passing a farm bill would highlight lawmakers approving a measure that the Republican vice presidential nominee has strongly criticized in the past and unsuccessfully tried to change by demanding further program cuts. They simply can't pass a bill that would appear to be an affront to one of their own now running on the presidential ticket.
In his budget plan, "The Path to Prosperity," Ryan stated that lawmakers should reduce or eliminate direct payments, which was considered a foregone conclusion. But, like President Obama's budget proposal, Ryan also sought in his plan to "reform the open-ended nature of the government support for crop insurance, so that agricultural producers assume the same kind of responsibility for managing risk that other businesses do."
The "record-breaking prosperity of American farmers and farm communities" demand re-examining federal farm programs "to ensure that taxpayers aren't funding support for a sector that is more than capable of thriving on its own," Ryan stated. [More]

Chris has this nailed, I think. The first quoted sentence is the important one. I can see Obama moving from farm indifference to admiration for a new political chip by taking up the farm bill cause in stark contrast to Ryan's longstanding opposition. And Republicans simply cannot even hint at agreeing with this president on anything, at least not before the election is over.

It's not like the measure was sailing along anyway, and with increasing stridency from the Tea Party and right-wing think tanks, all bets are off on all parts of the bill.

In fact, my strongest inclination is that a combination of whopping crop insurance payouts by the government, budget cuts, and chickens like ethanol (which has always been controversial) coming home to roost, the next farm program could be so meager most farmers will opt out due to a very low benefit/hassle ratio.

In the process, we may find ourselves oddly happier and more in control of our farms and futures.
The inflation groundswell...  

Another noted economist who is normally counted among inflation hawks sees some value in moderately rising prices:
Second, many (if not necessarily all) central banks will eventually figure out how to generate higher inflation expectations. They will be driven to tolerate higher inflation as a means of forcing investors into real assets, to accelerate deleveraging, and as a mechanism for facilitating downward adjustment in real wages and home prices.
It is nonsense to argue that central banks are impotent and completely unable to raise inflation expectations, no matter how hard they try. In the extreme, governments can appoint central bank leaders who have a long-standing record of stating a tolerance for moderate inflation – an exact parallel to the idea of appointing “conservative” central bankers as a means of combating high inflation. [More]
But oddly enough, even as I look for more government action to raise inflation expectations, hard assets only increase in attractiveness for a place to store wealth. Farmland, for example could prove an investment for all [economic] seasons, as it is a legendary inflation hedge. While this was widely held during the bubble of the seventies, I think it would at a minimum be as good a choice to mitigate general inflation as any alternative, and undoubtedly better than cash, since inflation will precede interest rates.

Thursday, August 09, 2012


I think I know what the buzz-phrase of our day means.
The sooner the market regulators figure this out, the better off investors will be. Until then, we have a Central Bank driven market (if not quite CB run economy, as Congress has abdicated their role). The hated phrase Risk Off/Risk On actually translates into “What will bankers do next? Here is my guess and here is my bet.”
As noted above, “if the flaw is systemic, it requires only a small twist of fate for the next incident to result in disaster.” That is what we have today. The combination of HFT/Algos and Central Bank intervention has turned the concept of fundamental investing into a quaint anachronism.
“Modern disaster prevention can and should be about stopping trouble before it strikes, not cleaning up afterward.” I suspect that one day, things like macroeconomic trends and earnings will matter much more than they do today. It is likely going to take a significant dislocation to get there. . . [More]
As alluded to in the Junkbox above, I will be exploring more of the myth challenging work about investing being done by economists. It seesm to be confirming my belief there aren't many attractive (safe, rewarding, understandable) places to put cash these days.
Junkbox, Episode CD...  

Time to make this crop go away.
On a lighter note, we just received last night our largest single rain event since last November - 2.75". Way too late for corn, except maybe the high amylose, but could help fill a few bean pods. The coverage was minimal - about 5 miles wide, 10 miles long.

Wednesday, August 08, 2012

Tuesday, August 07, 2012

Coming soon...  

 To an exchange near you:


This astonishing GIF comes from Nanex, and shows the amount of high-frequency trading in the stock market from January 2007 to January 2012. (Which means that the Knightmare craziness of last week is not included.)
The various colors, as identified in the legend on the right, are all the different US stock exchanges. You might think there are only two stock exchanges in the US, but you’d be wrong: there are only two exchanges where stocks are listed. There are many, many more exchanges where stocks are traded.
What we see here is relatively low levels of high-frequency trading through all of 2007. Then, in 2008, a pattern starts to emerge: a big spike right at the close, at 4pm, which is soon mirrored by another spike at the open. This is the era of traders going off to play golf in the middle of the day, because nothing interesting happens except at the beginning and the end of the trading day. But it doesn’t last long.
By the end of 2008, odd spikes in trading activity show up in the middle of the day, and of course there’s a huge flurry of activity around the time of the financial crisis. And then, after that, things just become completely unpredictable. There’s still a morning spike for most of 2009, but even that goes away eventually, to be replaced with sheer noise. Sometimes, like at the end of 2010, high-frequency trading activity is very low. At other times, like at the end of 2011, it’s incredibly high. Intraday spikes can happen at any time of day, and volumes can surge and fall back in pretty much random fashion.
It’s certainly fair to say that if you take a long, five-year view, then you can see a clear rise in trading activity. But it’s also fair to say that there’s something quite literally out of control going on here. Just as the quants at Knight found themselves unable to turn off their machines for 30 long minutes last week, the HFT world in aggregate seemingly has a mind of its own when it comes to trading patterns. Or, to put it another way, if there’s a pattern here, it’s one incomprehensible to human minds. [More]
This is a computerized battle between "algobots" - algorithm-driven computers trying to make tiny bits of money very rapidly and repeatedly. Supposedly this was going to make the markets more efficient, but doubts are beginning to rise among observers everywhere of every political view. Known as high-frequency trading (HFT), it has been a real money-maker for exchanges, but it seems diminishing returns are setting in.
I agree. The problem with HFT isn't that we know it's dangerous, it's that we don't know anything at all. It's become flatly too complex for even its creators to understand what their creations are doing. Here's an example. The heart of HFT is speed: even the speed-of-light delay can make a difference, so most HFT shops locate their computers as close to the stock exchanges as possible. Even a few milliseconds can make a difference. At least, that's what a company called UNX thought until it moved from Burbank to New York:
This is where the story gets, as [Scott] Harrison put it, weird. He explains: “When we got everything set up in New York, the trades were faster, just as we expected. We saved thirty-five milliseconds by moving everything east. All of that went exactly as we planned.”
“But all of a sudden, our trading costs were higher. We were paying more to buy shares, and we were receiving less when we sold. The trading speeds were faster, but the execution was inferior. It was one of the strangest things I’d ever seen. We spent a huge amount of time confirming the results, testing and testing, but they held across the board. No matter what we tried, faster was worse.”
“Finally, we gave up and decided to slow down our computers a little bit, just to see what would happen. We delayed their operation. And when we went back up to sixty-five milliseconds of trade time, we went back to the top of the charts. It was really bizarre. I mean, there we were in the most efficient market in the world, with trillions of dollars changing hands every second, and we’d clearly gotten faster moving to New York. And yet we’d also gotten worse. And then we improved by slowing down. It was the oddest thing. In a world that values speed so much, you could be slower, yet still be better.”
The problem here isn't that UNX's move failed, it's that Harrison still doesn't know why it failed. Until we do, allowing HFT bots to control our equity markets is just begging for a catastrophe.
And that's where the transaction tax comes in. HFT works by making tiny amounts of money on a huge number of trades. Even a tiny tax, maybe a quarter of a percent per trade, would make HFT unprofitable and would put our markets back in the hands of human beings. Those human beings will still screw up, but at least there's a limit to how fast and how badly they can do it. [More]
I think the lesson is clear for farmers: Enter at your own risk. If you think this is confined to stocks you are thinking wishfully. And if you think individual investors can compete in such a trading environment, you don't understand the nature of the problem.

Our commodity markets will likely become completely counterintuitive as more HFT creeps into their volume. Farmers won't play the board - they will be little noticed roadkill.

Monday, August 06, 2012

The state of play...  

Climate change remains the forbidden topic for farmers. Even as new reports buttress anthropogenic global warming, few producers buy into it. Consider Chris Clayton's experience recently.
I spent much of the past week on a bus with about 50 members of No-Till on the Plains. The bus was filled with farmers from Oklahoma, Kansas and Nebraska. We picked up others from the Dakotas and Canada who also joined parts of the tour.
They were skeptical about the impacts of climate change due to carbon emissions amounting to a mere 392 parts per million. But these farmers do believe in the value of putting carbon back into the soil. Farmers on the tour and the farmers we visited see a critical need to reduce soil erosion, increase organic matter on the soil and reduce the export of nutrients off the land. [More]
There is no reason to support carbon sequestration unless it causes heat-trapping GHGs. So how can producers hold illogical positions with such ferocity? (Note the comments on the above post)

The answer may be in in what Jonathon Haidt described as the moral foundations, because we are not making a scientific decision here - we are making a moral (right/wrong) choice. For social conservatives he found that preserving the institutions that support a moral community is their highest value. [Good summary here]

For example, when choices are presented that violate loyalty to our [conservative] group, it is wrong to do so. Period. Evidence/science/reason be damned. This devotion to this moral foundation yields wonderful social capital: cohesiveness, strong ties, discipline, predictability, etc. But it has the effect of making such groups susceptible to falling off cliffs, as they cannot change direction easily or with any speed in the face of even severe challenges.

Consequently the cognitive dissonance of holding mutually exclusive logical positions is somehow seen as less important than honoring our allegiances. But being reminded of it is upsetting because we can only answer in moral, not scientific terms.

The report in question is sobering.
Before 1980, excessively hot summers were practically non-existent. More recently, found a new study, summers that averaged 3.3 degrees Fahrenheit hotter than normal have become common – covering about 10 percent of land area around the globe each year – up from an average of just a few tenths of a percent in the 1950s, 60s, and 70s. In some recent years, super-hot summers have struck as much as 20 percent of the Northern Hemisphere.
Statistically, the pattern is too extreme to be considered a result of chance, found a new study, which pointed a finger directly at global warming as the underlying cause of the recent spike in extra-hot summers.
With projected warming over the next 50 years, the study predicted that summers averaging 5.5 Fahrenheit above normal will happen regularly. In a decade, nearly 17 percent of the globe will likely be experiencing scorching summers each year.
“The problem is that there’s always this caveat when people say, ‘Well, you can’t blame any individual event on global warming,’” said James Hansen, a climate scientist at the Goddard Institute for Space Studies in New York.
“But what we show is that you can blame this strong change in the bell curve (of temperature distributions) on global warming. And that change has really made a remarkable impact on the chance of the likelihood of extreme weather events.”[More]
 While the time period of the report is relatively short, the math is persuasive. But math is not where it's at for many of us. So powerful are affiliations on the far right, that any position that even hints of agreement with Obama (who seems to be the focal point) is betrayal.

This is also, I think, why compromise is simply not in the cards any time soon in Washington. In fact, that's what I'm planning on. If Obama is defeated (which is the object - conservatives are less focused on electing Romney), it may be more flexibility to negotiate will emerge. Another possibility is that social conservatism will fall prey to its own demographics and simply constitute a diminishing fraction of the political spectrum, allowing them to vote no and have less effect.

The farm bill is in deep trouble, regardless. [Note: other observers disagree] The far right doesn't like anything about it and will throw ag under the bus to cut off food stamp "spongers". For that part, almost no economist of any stripe likes ag subsidies, and the far right (AEI, Heritage, Cato) positively despises them.

Crop insurance is very vulnerable and the timing could not be worse. Just as climate change has me rethinking the odds on crop insurance, actually having to pay more if not all the premium complicates the matter. This could be the last year of a well-cushioned safety net, at least one paid for by other taxpayers.

Sunday, August 05, 2012

Major League Opening Sentence...  

I submit this entry:
When most Americans talk about good-tasting water, they’re talking about water that tastes like their own spit. [More]
Actually a very informative article for us drought-ravaged drinkers. As water tables drop, the old well water can take on an interesting new flavor.
Disaster may be too mild...  

At the risk of agreeing with The Gulk, I think more of us may be getting some rude surprises as we venture into fields that until recently looked decent, if not lush.

The availability bias is clearly in play here, I admit. But, if his experience matches others in areas that have actually had some rain, but didn't pollinate well, more than the Eastern Corn Belt is corn toast.

And his assessment of a "terrifying corn balance sheet" is not hyperbole, I suspect. I also bow to his undoubtedly clearer thinking: he has crop insurance. I do not.

IL on the whole doesn't do well with CI. Over the long term, we get about 43¢ back from every dollar in premium. But that's for the whole state. When you look at my "darn-near drought-proof*" acres, the payout is even less attractive.

 [Click to embiggen] [Source]

Once again, I accept full and final responsibility for my lack of insurance and the consequences due to a Black Swan event like this. I just wish I hadn't spent the last two years preaching about BS events, even pointing out climate change as our most likely BS possibility.

Still, it looks like early planted, early maturing hybrids will make something with three digits. I think we will also see some hybrids with a total FAIL across farms as a result of this year. Which makes seed supply a huge question mark.

But as I thought about it in church this morning, what I think will occur in our professional community will be very similar to a death in the family. Farmers will fluctuate between anger, grief, despair, determination, and courage during a drawn out mourning period. We will know professional embarrassment (This is MY field?) and personal reassessment of how competent we think we are.

It will take time and frankly, rain, to bring closure. So if we're still warm and dry by say, Thanksgiving, I expect some unprecedented decisions and actions. These reactions will impact those around us and along our value chain.

History looks like this. And we are slowly realizing that's what we are writing right now. That's a good thing. If you know it's one for the record books, you want to leave a good account of your own part.

Even if you have to fake it.

*Actual brag from the author. File under: Hubris In Progress