We are the fuel...

If it has not been made abundantly clear to farmers how they are linked to the popular uprisings exploding (and I don't think that is hyperbole) across the Mideast, let me belabor the point.

It's about commodity prices and food, as much as dictatorship.

Of course, prices rose during the Egyptian protests only to fall back as it became clear that Mr Mubarak would depart without significant civil unrest. The same thing could happen this time around. But as the popular uprising gains momentum and moves across borders, bigger issues may loom. Iran is home to a restive opposition movement—and over 10% of the world's proven oil reserves. And if China were to catch the fever for democracy? It's difficult to know how that might impact the global economy. China makes up a much larger share of global activity than it did in 1989.
Amid all the uncertainty, one thing does seem clear: events have a way of building on themselves. The combination of high unemployment and rising commodity prices has fueled dissatisfaction across the Middle East. The resulting unrest is influencing commodity prices. And that, in turn, may make life more difficult for marginal households in other countries, setting the stage for still more political upheaval.
One watches and hopes for the best. But leaders of more stable countries need to be working hard to make sure they're prepared for the economic impacts of something less than that. [More]

In short, it looks to me that the unpredicted rise in food commodities has been so abrupt and injurious to so many, that political triggers have been tripped. The corrupt political regimes there barely coped with a semi-stable global economy. They have no capability of addressing a real challenge, and that is now baldly apparent to their people. For example, they don't even have the political skill to address the public with the spin and persuasion we routinely expect.

In Sayf-Al-Islam's rambling speech last night on Libyan State television, he blamed the current unpleasantness in his country on, as near as I can determine, crazed African LSD addicts. 

This isn't going down as well as Sayf had intended, and Libya seems less stable than 24 hours earlier.  Indeed, Sayf's off-the-cuff remarks managed to make Hosni Mubarak's three speeches seem like a model of professionalism, which I would not have thought was possible a week ago.  

Indeed, it is striking how utterly incompetent leaders in Tunisia, Egypt, and Libya have been at managing their media message.  Speeches are announced, then never delivered on time, and then delivered with production values that woulds embarrass a public access channel in the U.S.  It's like political leaders in the region have discovered blogs just as the young people has moved on to Twitter or something.  [Er, no, that's the United States--ed.]  Oh, right. 

Having just finished a week of intense media whoring, methinks that one problem is that most of these leaders have simply fallen out of practice (if they were ever in practice) at personally using the media to assuage discontent.  I've been on enough shows on enough different media platforms to appreciate that there is an art, or at least a tradecraft, to presenting a convincing message in the mediasphere.  Authoritarian leaders in the Middle East are quite adept at playing internal factions off one another.  That's a different skill set than trying to craft a coherent and compelling media message to calm street protestors no longer intimidated by internal security forces. [More]

He-Who-Must-Not-Be-Spelled provided an equally bizarre public performance last night. This is the backdrop grain traders are trying to game. Meanwhile, we are moaning about why we didn't hold onto our crops.

Thank goodness, we didn't. Like ethanol plants which will run out of $4 corn contracted in Dec 2009, the food industry is just beginning to adjust to higher input prices. This volatility takes some time to be felt, but it does impact the system.

3. The current 12-month inflation rate for finished consumer foods in January of 3.8% is only slightly higher than the 3% average over the last ten years, and is lower than six of the months over the last year, e.g. 4% for November, 4.6% for September, 5.7% May, 6.6% March, etc.

4. The average inflation rate for finished consumer foods over the last 12 months of 3.9% is lower than the 6.7% average from 2007-2008. 

MP: Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, but no signs yet of rising consumer food inflation (1.5% CPI food inflation through December 2010).   [More]

As demand and supply (in that order, I think) of meat forces prices higher, US consumers may be some of the last to become restive about food prices. Nonetheless, I believe it will come, and the obvious targets will be ethanol and farm subsidies.

And if the protests in the Midwest are mildly successful or even sufficiently disruptive, I would not rule out food-price rallies in Washington.

If you can't beat it...

Make it a crop. Amaranth is showing up in the grocery stores in "ancient breads".

The idea of making modern bread out of old-style grains isn't new. For decades, Glendale-based Food for Life has been making Ezekiel 4:9 Bread, inspired by the list of grains in the Bible passage for which the bread is named; the bread contains wheat, barley, rye, oats, millet, corn and rice.

Newer products assert that they're made with grains that "are true to their original form," as Trader Joe's Ancient Grain Bread (made with quinoa, oats, amaranth, Kamut, millet, teff and barley) states on its label.

The ancient grains — confusingly — are not all grains. Grains are technically grasses. By that standard, Kamut, spelt and wheat are all grains, but quinoa and amaranth are not. Still, the common term "grain" has stuck for all of them.

"Grains" such as quinoa, amaranth, spelt and Kamut are called "ancient" because they've been around, unchanged, for millennia. By contrast, corn, rice and modern varieties of wheat (such as hard white wheat and hard red spring wheat) have been bred selectively over thousands of years to look and taste much different from their distant ancestors, said Mian Riaz, director of the Food Protein Research and Development Center at Texas A&M University. Modern corn, for example, bears little resemblance to wild corn from long ago.

However, the fact that they're little changed from antiquity doesn't necessarily make the ancient grains more nutritious than modern ones, said Joanne Slavin, professor of food science and nutrition at the University of Minnesota. [More]

 Yes, that amaranth. I think.

Amaranth has been cultivated as a grain for 8,000 years. ^[1] The yield of grain amaranth is comparable to rice or maize. It was a staple food of the Aztecs, and was used as an integral part of Aztec religious ceremonies. The cultivation of amaranth was banned by the conquistadores upon their conquest of the Aztec nation. Because the plant has continued to grow as a weed since that time, its genetic base has been largely maintained. Research on grain amaranth began in the US in the 1970s. By the end of the 1970s, a few thousand acres were being cultivated.^[2] Much of the grain currently grown is sold in health food shops.
Grain amaranth is also grown as a food crop in limited amounts in Mexico, where it is used to make a candy called alegría (Spanish for happiness) at festival times. The grain is popped and mixed with honey. In Maharashtra state of India, it is called 'Rajgira' राजगीराjaggery in proper proportion to make iron and energy rich 'laddus,' a popular food provided at the Mid-day Meal Program in municipal schools. in the marathi language. The popped grain is mixed with melted
Amaranth grain can also be used to extract amaranth oil - a particularly valued pressed seed oil with many commercial uses. [More]

This reminds me of the Jerusalem artichoke (BTW. it is neither) scam way back in the '80s. It took some time to get rid of those residual populations, I can tell ya. I'm trying to imagine what kind of rotation you would use - especially for the crop immediately after.  Nor can I remember seeing amaranth settings for my combine.

 

[Source]

Is this stuff much different from the loathsome pigweed of glyphosate resistance fame?  I don't remember the bright red color shown above, but maybe it never really ripened.

Now let’s look at the vilified pigweed for a minute. First the name, ‘pigweed’, makes it an easy target for demonizing. Who could possibly appreciate something so base as ‘pig’ and ‘weed’ combined?

Before we go any further, I would like to state the true and dignified name of pigweed: it is used to refer to several wild species of the genus Amarantus. The word comes from the Greek amarantos and means the “one that does not wither,” or “never-fading”.

This plant family includes a wide variety of species, some of which are cultivated for their nutritious leaves (oft-compared to spinach), others for their grain (which is actually a pseudo grain or seed). Various wild species of amaranth are saddled with the label pigweed, particularly in North America, and several of those now feature on the list of the world’s weeds that have developed a resistance to glyphosate.

(Apparently, the weedy types are also edible and taste much like the cultivated kinds. They simply don’t grow as large or produce as many leaves or seeds.)

The ‘never fading’ aspect therefore seems not just refer to the flower — which indeed keeps its deep reddish or rust color for a long time — but it also aptly applies to the sheer tenacity of the plant itself. It flourishes in a large variety of soils (from acidic to alkaline) and climates (from hot to cold); wild amaranth comes back without being planted; it grows in dry conditions; and some species thrive even in fields treated with glysophate — never fading. [More]

I suppose this stuff could catch on, perhaps in marginal areas. Or places with uncontrollable populations. Looks like a "Plan B" to me!

Amaranth grain can be popped, flaked, or ground into a high-protein flour. Currently in the U.S., more than 40 products contain amaranth grain in one form or another. The crop is well adapted to the midwestern and western U.S. It is drought tolerant and is best planted during late spring. Since the seeds are very tiny, some growers use insecticide boxes on their drills or planters to plant amaranth. Others use a vegetable seeder. The grain is harvested with a combine. Typical yields from amaranth range from 600 to 1,200 pounds per acre. [More]

I wonder what the weed control plan would be?

Another odd point: don't feed it to chickens.

Sequels suck...

The new version of Monopoly. With no money.

The classic tokens, properties, and plastic buildings have been retained, but there's no paper money; dice; or Chance or Community Chest cards.

The tower does all that, along with barking instructions to players, as seen in the vid below. An added feature involves sending a plastic cab around on a rail to dodge taxes, and the tower can sometimes announce random events like a horse race or property auction.

In classic Monopoly, players wheel and deal with each other, screaming for rent and hiding $100 bills up a sleeve or under the board. In Monopoly Live, they seem to be interacting with the computer. Is that the purpose of a board game? [More]

Plus you'd have to think up new ways to cheat.

Time to buy a Kindle...

Not just because I've been droning on and on about them, but to read "The Great Stagnation" by Tyler Cowen. It is only available in e-book form. I've followed his jaw-droppingly prolific and thoughtful econblog for years, and this short e-book captures many assertions he has made with clarity and solid supportive argument.

Basically the thrust of the book is America has captured all the "low-hanging fruit" - culture changing technology and business innovations like the cars, electricity, antibiotics, etc. that had the effect of lifting the whole economy regardless of income level. Progress (and especially income growth) from now on will be much more incremental and he is not at all sure it will trickle down far beyond the top layers.

Most well-off countries have experienced income growth slowdowns since the early 1970s, so it would seem that a single cause is transcending national borders: the reaching of a technological plateau. The numbers suggest that for almost 40 years, we’ve had near-universal dissemination of the major innovations stemming from the Industrial Revolution, many of which combined efficient machines with potent fossil fuels. Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities.

Although America produces plenty of innovations, most are not geared toward significantly raising the average standard of living. It seems that we are coming up with ideas that benefit relatively small numbers of people, compared with the broad-based advances of earlier decades, when the modern world was put into place. If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.

Will the Internet usher in a new economic growth explosion? Quite possibly, but it hasn’t delivered very good macroeconomic performance over the last decade. Many of the Internet’s gains are fun — games, chat rooms, Twitter streams — rather than vast sources of revenue, and when there have been measurable monetary gains, they often have been concentrated among a small number of company founders, as with, say, Facebook. As for users, the Internet has benefited the well-educated and the curious to a disproportionate degree, but apparently not enough to bolster median income.

Beyond the income slowdown, there is a further worry: an increasing share of the economy consists of education and health care. That trend is not necessarily bad, but in these two areas, results are often hard to measure. If health care costs rise 6 percent in a year, for example, that counts as higher G.D.P., but how much is our health actually improving? It’s an open question. America spends more on health care than other countries, but those expenditures don’t seem to produce uniformly superior results. And while there have certainly been gains in medical treatment, we may be overvaluing them. In education, we are spending more each year, but test scores have stagnated for decades, graduation rates are down and America’s worst schools are disasters.[More of his op-ed that summarizes the book]

There is plenty of fodder for discussions and the e-book has triggered an avalanche of response, the ones I thought best I include below. 

3. How do we get more value out of our health care and education dollars? This is where a lot of our money is going, and it's also where advances could do the most good. Unfortunately, the current trend is toward rapid growth in costs and, at best, stagnation in quality. If health care comes to consume 25 percent of our economy and we're not living substantially longer or healthier lives than we are today, that'll be a lot of growth we wasted. And growth we waste is little better than growth we don't have. But education and health care are firmly part of the political argument, and the political argument is becoming less and less focused on solutions and more and more about acting out resentments and anxieties and arguing about things we know how to argue about. In the health-care sector, for instance, we spend a lot of time talking about insurers and very little time talking about how to coordinate care for the chronically ill. Given what we want out of the system -- lower costs and more health -- that's downright backwards. In education, we talk often about unions but rarely about poverty or early-childhood programs. [More]

This above point by Ezra matches my greatest concern about our economic future: we will become a culture dominated by universities and hospitals, and we are already hurtling toward it, as factory workers re-train for visiting home care jobs.

One great virtue of Cowen’s account is that he brings into the picture several overlooked trends that have played a large role in America’s historical economic ascent. Once accounted for, the more politically-motivated accounts of the country’s economic performance of the last 40 years are revealed to be incomplete at best (in the case of conservatives) or cartoonish at worst (in the case of Krugman). By upending the standard narratives that describe where the nation has been and where it’s headed, the book will influence your sense of the politically and economically possible.

Of course, there’s something deeply upsetting about his story, since it suggests there’s not much that can be done about some problems the nation faces: if the low-hanging fruit is gone, slower growth and lower rates of innovation are likely inevitable. And when Cowen says we simply must accept that as a nation “we thought we were richer than we were,” that’s tough for any optimistic American to hear. [More]

We are already rewriting history in our heads to imagine the past as free from many of the problems that plague us today, but the truth as Tyler points out, is probably closer to the explanation we simply didn't pay close enough attention to economic symptoms we now obsess over, such as median income going flat.

Going forward, Tyler raises several important questions. How do we encourage technological progress? How do we manage slow growth? And if and when we get a new round of technological breakthroughs, how do we manage those? These are his suggestions:

• Raise the social status of scientists
• Be part of the solution to the current rancor, not part of the problem. Don’t demonize those you disagree with.
• Have realistic expectations.
• Be ready for when more low-hanging fruit actually arrives because sometimes low-hanging fruit is dangerous
• Be prepared for a recession that could last longer than we are used to.
  

Let me comment on two of these. First, the point about raising the social status of scientists. In his state of the union address, President Obama made a big deal about innovation. But he did not highlight a single current scientist. Instead, he featured two brothers, Robert and Gary Allen, who own a Michigan roofing company. Good politics–but perhaps not the right message to kids.
Second, don’t demonize those you disagree with. The point Tyler is making that politics becomes a lot harder in a slow-growth economy, where expectations have to be ratcheted down. The center has a real purpose. [More]

On that note, I will stop quoting the many, many available commentaries. It is a good idea to resurrect a center. Not the center the right thinks we have now moved to, but one that is supported by solid research of what Americans truly value and what they are willing to trade to get it. I am encouraged moderates will once again become the action figures of the future as the extremes simply have no answers for Tyler's questions.

After considerable thought, I have begun to wonder is our tiny sector is immune from the stagnation. After all, we are seeing record incomes. But as he points out, this rise is only enjoyed by fewer and fewer of us. Even as a relatively fertile age of ag innovation helps to keep our output relatively low-priced, benefiting everyone else, it is also a powerful tool for concentration of farm income.

The problem with comparing our profession with other economic activities is this disconnect between macro statistics and individual well-being. In fact, we will likely see that the upcoming years of plenty will be enjoyed a very, very small number of farmers. Technology is, as Tyler says, labor-displacing.

Budget cutting...

Is easier said. As we watch the House struggle to actually agree on actual cuts to actual programs, instead of merely agreeing the whack billions in general, it was illuminating to me to discover cutting spending is now less popular than it was in 1980.

[Source]

(I note with interest the trend-defying attitude about defense cuts.)

 It shows that there is considerably less appetite for cutting spending today than there was in 1981. Considering how little spending actually got cut in 1981, this suggests that Republicans may have a lot less political capital to play with than they imagine. It also suggests that their strategy of front-loading spending cuts in the fiscal year 2011 is very ill-conceived. They are using up all the political capital they have for cutting spending in a way that is highly unlikely to be successful and that will not yield long-term savings. By the time they get around to doing something about entitlements, they may find that budget cutting exhaustion and frustration has set in and there is no support left for big budget cuts. It may be that they have one bite at the budget-cutting apple and they are squandering it. [More]

Bartlett certainly has a better feel for this than I do, but to me it suggests there is some confusion about the "will of the people". Getting too far in front of it can be dangerous to careers.

 This result and the weakness of our economy makes me tend toward considerable skepticism about how much even the Republicans will agree to cut, let alone the whole Congress. It also makes the longshot of the "grand bargain" look like the best horse to back.

 The gang of six – Coburn, Crapo and Chambliss along with Democrats Kent Conrad of North Dakota, Illinois' Dick Durbin and Mark Warner of Virginia -- have actually been meeting for months, but the episode shows how hard it will be for both sides to join hands and jump together into a public debate. If Social Security reform is the most politically radioactive issue in American politics, then overhauling Social Security, Medicare, Medicaid, defense budgets, discretionary spending and taxes all at once is akin to throwing oneself into a nuclear reactor. If you come out glowing, it's rarely in a good way.

Looming deficits will take drastic action to fix and the sacred cows, entitlements and defense chief among them, will have to be slaughtered. A successful grand bargain will require both parties to expend their combined political capital. Success promises mutual benefit, while failure ensures mutual destruction. [More]

In fact, I'm mildly optimistic after sufficient sturm und drang something will get done. It will be abused as too little/much, too fast/slow, and will be just enough to hold the the Hounds of Hell from our collective throats until another day.

It's just our way.

Take your meds...

Just don't ask.



I feel better already.

Good EPA, Bad EPA...

You can always get an applause line at a farmer meeting by bashing the EPA. But oddly, farmers fearing more regulation probably don't mean good regulation, just stuff that makes them change how they act.

Consider this overdue step in pesticide regulation pushed by the EPA.

Start counting. Glyphosate is now a Group 9 herbicide. Valor is Group 14. The new corn herbicide called Peak is a Group 2. The premix Capreno—it’s a Group 2 and Group 27. It’s all part of a new herbicide labeling system that groups products by site of action. Knowing the site of action is a key to developing a systems approach to managing weed resistance.

The Canadians know all about it. So do the Australians. Farmers in both of those countries have used a standardized numeric system to help them rotate herbicide chemistry for years. Peter Sikkema, a weed scientist at the University of Guelph, says farmers in Canada are much more likely to tell you they are struggling with Group 2 herbicide resistance than to mention ALS-resistance. “We adopted the system about 10 years ago,” says Sikkema.

 

...

 

The new herbicide labeling remains voluntary in the United States, but the Environmental Protection Agency has requested that registrants add group numbers to labels. You can expect to see the codes pop up more frequently as the push continues to delay development of resistance. After all, Group 1 is much easier than saying acetyl CoA carboxylase or ACCase Inhibitor. [More]

Pesticide companies are not thrilled about this development, I'm sure, because suddenly changing names and reshuffling mixes will be less effective in giving the appearance of new chemistry.  I note that the US is coming lately to this rather obvious decision aid, and I'll bet real money without implied EPA leverage, it would not have happened.

 

We should also keep in mind the EPA is the controlling agency when it comes to the ethanol mandate. (Remember 2008 and Gov. Perry) As we have already seen in the case of E15, corn growers have a lot riding on the rulings from the EPA. Which makes me wonder about making them the whipping boy for every perceived grievance with government rules.

Winner-take-all publishing, and more...

The pattern of economic rewards shifting to small number of participants in a given sector is perhaps best illustrated in publishing. This has been noted before as technology allows a few authors to dominate sales.

In a winner-take all economy, however, small differences in skills can mean large differences in returns and we have moved towards a winner take-all economy because technology has increased the size of the market that can be served by a single person or firm.  Sherwin Rosen laid this out in a 1981 classic, The Economics of Superstars and Robert Frank and Robin Cook have a good popular account, The Winner Take All Society.  Here is how I explained it a few years ago in a post titled Harry Potter and the Mystery of Inequality.

J.K. Rowling is the first author in the history of the world to earn a billion dollars.  I do not disparage Rowling when I say that talent is not the explanation for her monetary success.  Homer, Shakespeare and Tolkien all earned much less.  Why?  Consider Homer, he told great stories but he could earn no more in a night than say 50 people might pay for an evening's entertainment.  Shakespeare did a little better.  The Globe theater could hold 3000 and unlike Homer, Shakespeare didn't have to be at the theater to earn.  Shakespeare's words were leveraged.

Tolkien's words were leveraged further. By selling books Tolkien could sell to hundreds of thousands, even millions of buyers in a year - more than have ever seen a Shakespeare play in 400 years.  And books were cheaper to produce than actors which meant that Tolkien could earn a greater share of the revenues than did Shakespeare (Shakespeare incidentally also owned shares in the Globe.)

Rowling has the leverage of the book but also the movie, the video game, and the toy.  And globalization, both economic and cultural, means that Rowling's words, images, and products are translated, transmitted and transported everywhere - this is the real magic of Ha-li Bo-te.

Rowling's success brings with it inequality.  Time is limited and people want to read the same books that their friends are reading so book publishing has a winner-take all component.  Thus, greater leverage brings greater inequality.  The average writer's income hasn't gone up much in the past thirty years but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires.  The top pulls away from the median.   

The same forces that have generated greater inequality in writing - the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization - are at work throughout the economy.  Thus, if you really want to understand inequality today you must first understand Harry Potter. [More, and please not the excellent links in this extract as well]

 Well, it just got worse, as Borders falls into bankruptcy.

Or some publishers may just drop their midlist authors. The blockbuster mentality in which publishers concentrate their marketing and promotion on the books they perceive as guaranteed sellers has long made the midlist author's life difficult. The additional financial burden imposed on publishers by Borders bankruptcy may well be the tipping point for many writers whose sales numbers are less than stellar.

It's an understandable strategy in difficult financial times. But books are so much more than a product. Books help us gain insight or perspectives on issues that matter. They allow us to escape reality and delve into stories or worlds unknown. They inspire us, educate us, change us. Their variety enriches both our culture and our lives.

Which means that ultimately, Borders' bankruptcy makes us all poorer. [More]

As the book industry collapses, publishers will be reluctant to bet on anything but proven winners. So expect short racks with Grisham, Brown, etc. How they will identify the next wave of these proven winners remains a mystery.

This concentration of income to a few is all very curious for the publishing industry, but that couldn't happen in agriculture, of course.  Or could it?

Think about the accrual of economic advantages to large operations. There are the obvious economies of scale, which lower fixed costs. But in addition, those who sell to us and buy from us love working with a much smaller number of customers/suppliers and often sweeten the transactions for big players: deeper discounts for machinery, special grain contracts, etc.

This in turn adds to their ability to dominate arenas like cash rent, which closes the positive feedback loop to push us toward a tiny number of large operations in grain farming.

At this point you might be expecting a rant about why this is economically and morally wrong, but I don't share those convictions. Once consolidations left us facing a handful of buyers (ADM, Cargill, CHS, etc.) and sellers (JD, Case, Monsanto, etc.) on each side of our business it became imperative for farms to grow in order to muster any leverage at all.

Right now we are simply pipelines - a ways for Monsanto to get revenue from Cargill, for example. The corporate decision is to calculate how large a flow the pipeline can tolerate. Read closely the corporate stock guidance from such entities and it becomes obvious they are not pricing to generate specific margins or cover costs, but simply what the farmer (pipeline) can bear.  The correlation between corn prices and fertilizer is convincing evidence of our feeble power in the marketplace. It is even more pronounced for landowners via rents.

One major balancing factor is competition, but that seems to come and go. While I am not claiming collusion, there is eerie coincidence in machinery, fertilizer, seed pricing, etc. especially in good times like now.

This trend will continue until farming entities of some sort emerge with commensurate power in the market. Already a 10,000 acre corn grower can wrest concessions, but once we are down to a few thousand such operations, individual power in the marketplace will begin to reappear, simply because each customer will represent significant revenue/profit.

This means like publishing, a few will make virtually all the money. And like publishing, technology will fuel this growth and make it impossible, I think, to divert.  While there will still be lots of farms, essentially all the production will coalesce into the few.

Our question is how to become one of the few. And I think that answer has not been fully developed yet. As more pressure is applied, innovative farm entities could provide the vehicles necessary to secure a future in grain farming. We just don't know what they look like yet.

Then what are good times for?...

I read Paul Neiffer regularly. He offers timely advice on accounting matters. But this post had me scratching my head. With considerable moral condescension, he advises us silly farmers how to manage the current wave of prosperity.

As an advisor, I would recommend that a farmer take advantage of these good times by doing almost the exact opposite of what is shown above.  In other words, when prices are very good, a farmer should:

 

• Keep their lifestyle the same or even reduce their living expenses,
• Pay the tax man with these high priced commodities, if you defer it, you will most likely get a lower price and owe no tax,
• Not covet the neighbor's half-section, but rather wait for the price adjustment and buy it for cash when times are bad,
• Expand their liquidity to at least 50% of annual sales,
• Keep their machinery for another year or two [More]

Let's break this curiously Puritanical admonition down just a little shall we?

• OK, we should LOWER our lifestyle when things are good - and they are really, really good for most grain farmers at least right now. I'm assuming he would not advise raising expenses when the economics are worse, so is there any time we can - with our accountants permission, of course - trade the wife's car for one that starts most of the time or take the family to The Mouse?
• Now he is a market adviser predicting lower prices. How were the guys who sold out at previously "good" prices (say, $4.50) served by this advice to sell and "pay the tax man". They only missed a 50% pure-profit gain, that's all. (DAMHIKT) But then their taxes would have been higher - the horror! When a financial adviser starts predicting prices, it's time to ask what you are paying him for.
• Yeah, I'm sure that same piece of ground will show back up in a couple of years. Of course, this strategy hasn't worked for, ummm, 25 years or so, but someday it will. Land is not a fungible investment like stocks. My rule of thumb is you get one chance every generation for nearby land. The guys I see farming today aren't the ones who waited to buy when land got cheaper because then they were even more pessimistic.
• CPA's love liquidity and especially cash because it's easy to count and find ways to extract commissions on transactions. Can't do that with farmland. It just sits there all illiquid, appreciating, providing job security, and generating whopping returns. 
• Timing machinery decisions by "how good things are" is nonsense. These are productivity and economic analysis. Right now, for example, investing in new technology has been shown to be one the biggest components of profitability. I will grant that trading when there is a line at the dealer is a bad idea, but I suspect Paul has never advised farmers to trade at anytime, even though getting machined up before now and being able to pause for a year or two is looking like a good strategy.

It's disheartening to see such a (unintended, I'm sure) patronizing lecture on the handling of our own wealth. While I'm sure Paul has seen examples of unneeded extravagance that led to financial problems, I think these are increasingly isolated cases in our industry.

Accountants have a strong bias toward cash as THE FORM of wealth. There is never enough cash to make them happy, in my experience. But this David Kohl-like guidance on how foolish we are to deploy our gains in ways that make us happy or secure a distant future casts serious doubt on the objectivity of any financial adviser.

After all, if you know the answer is always going to be "no", why pay to ask?

JunkBox, Episode XXXOOOXXX...

Bright, shiny objects.

• Product name of the week.
• Even more not-good news for the dairy sector
• How to make trillions of dollars
• We are all The Media - and we're working for diddly-squat.
• Where flowers come from
• How to stop the current 67% loss of subsidized grain in India. (You read that right.)
• We Facebook deniers are choking on our words about now.

Food choice and income...

I was struck by Chris Clayton's casual semi-endorsement of food intervention by the government in a glancing reference in a recent column.

I was going to write this blog about people being able to use food-stamp debit cards in California at fast-food places. Yeah, really. But someone pointed out that in L.A. they have been doing that since 2005. It's still a big issue in other parts of California and, yes, I'm floored that we can let people use food stamps at a Jack-in-the-Box on one hand, and then preach about obesity on the other. [More]

This a curious, but widely held contradiction in farm country, I think. On one hand we rise up against foodies who want to tell us what to eat - stinkin' vegans, etc. At the same time, we are mightily offended at our tax dollars being used for the "obesity fodder" for the poor.

My question: Is fast food bad for poor people, but good for the rest of us or what?

I think the underlying issue, however, is twofold. First, we hold many unfounded ideas about who the poor are and how they live, and second we resent the necessity of utilizing those same folks to get the farm bill approved.


But much of what we think about food stamp (SNAP) recipients is inaccurate. It is a startlingly Red State phenomenon (check out this very helpful map) with Oregon, Michigan, Washington, and Maine thrown in. Which makes me wonder whether Republicans have really thought this latest rant against the poor through.


Other misunderstood characteristics:

There have been several notable changes in the characteristics of SNAP households between 1989 and 2009. Some of the most striking changes are noted here.
The primary source of income among SNAP participants shifted from welfare to work. In 1989, 42 percent of all SNAP households received cash welfare benefits and only 20 percent had earnings. In 2009, less than 10 percent received cash welfare, while 29 percent had earnings.
The percentage of households with no cash income of any kind more than doubled. In 1989, 7 percent of SNAP households had zero gross income. This increased to nearly 18 percent in 2009. Similarly, the percentage of SNAP households with zero net income, who received the maximum benefit, rose from 18 percent in 1990 to 37 percent in 2009.
The average SNAP household’s income remained close to 60 percent of the poverty level. When SNAP participation levels decline, average    household    income    rises    slightly. Conversely, income falls when participation levels increase. However, the variation is small, ranging from an average income that is 56 percent of poverty, when caseloads were rising rapidly in
1993, to 63 percent of the poverty level in 2000, when caseloads were low.
Households have gotten smaller. In 1990, the average SNAP household contained 2.6 persons. In 2009, the average had fallen to 2.2 persons. During this period, households with one person rose from 32 percent of all households to over 46 percent.
The percentage of participants who are children remained fairly steady. In 1990, half of participants were under age 18, about the same percentage as in 2009. However, the share of households with children fell from 60 percent in 1990 to 50 percent in 2009. This is primarily due to an increase in single-person households. [More]

Much of the animus toward the program may be quietly racial, as the image of an obese African-American single mother pops into farmer minds easily (based on my asking them when they begin their what's-wrong-with-America speech - hardly scientific but telling nonetheless).


But the racial profile is even less clear-cut.

Based on a study of data gathered in Fiscal Year 2006:

• 49 percent of all participants are children (18 or younger), and 61 percent of them live in single-parent households.

• 52 percent of SNAP households include children.

• 9 percent of all participants are elderly (age 60 or over).

• 76 percent of all benefits go to households with children, 16 percent go to households with disabled persons, and 9 percent go to households with elderly persons.

• 33 percent of households with children were headed by a single parent, the overwhelming majority of which were headed by women.

• The average household size is 2.3 persons.

• The average gross monthly income per SNAP household is $673.

• 43 percent of participants are white; 33 percent are African-American, non-Hispanic; 19 percent are Hispanic; 2 percent are Asian, 2 percent are Native American, and less than 1 percent are of unknown race or ethnicity. [More]

More concerning to me, especially as this recession still struggles to provide many jobs, is the growing cultural divide between the have-jobs and the have-nots. With empathy falling from favor, and a
just-world vindication of the poor deserving somehow their status, the idea a permanent underclass with virtually no upward mobility chances becomes more possible.


Strangely enough it is this disconnect that leads many to embrace the conviction that the poor are poor because they make really dumb economic choices. I'll ignore the astonishingly stupid economic decisions we now recognize the rich and middle class made in the last few years, and focus instead on new research that suggests to me I would probably be making similar decisions in similar circumstances.

There are also serious cause-and-effect arguments to be made on this assumption.

There is so much nonsense here it’s hard to figure out where to start. First of all, some of the factual claims aren’t even supported. For example, on obesity, they cite a study finding that obesity declines with educational level. Then they assert: “Given the strong correlation between education and income, there is little doubt that the poor have more trouble maintaining a healthy body weight.” Yes, given the above, it is likely that there is a negative correlation between obesity and income; but it is also likely that that negative correlation is explained by education, not by poverty. Couldn’t they have made the effort to find a study with the facts they need instead of just assuming?*

Second, and more importantly, if we assume for the purposes of argument that more poor people are obese, it’s an enormous leap to say that this is because they make worse judgments. There are many other possible explanations. Here are a few, each of which I find more compelling than the behavioral one:

• It’s more expensive to eat healthy food than unhealthy food.
• Many poor people work long hours or have limited child care options, which makes it harder to buy and cook healthy food from the grocery store.
• Poor people have worse health care than rich people.

[More]

 One other than springs to mind for me is access to grocery stores vs. fast food. 

People who live in poorer neighborhoods in the U.S. are less likely to have easy access to supermarkets carrying a wide variety of fresh produce and other healthy food, an analysis of 54 studies confirms.

But they probably have plenty of unhealthy fast food joints to choose from, Dr. Nicole I. Larson of the University of Minnesota in Minneapolis and her colleagues found.

"The research I reviewed suggests there is a need for new policies and other local actions to address the problem of poor access to healthy foods in many lower income, rural, and minority communities," Larson told Reuters Health.

Evidence is mounting, Larson and her team note, that segregation of neighborhoods by "income, race, and ethnicity" plays a major role in US health disparities, and accessibility to healthy -- and unhealthy -- food may be a factor. [More]

And from a straightforward dollars per calorie calculation, fast food is a far better buy than ingredients. Which of course, is another problem, but on one level obese poor people are making Adam-Smith-approved choices.

This is especially true for the unemployed. Until you have experienced this personally or a  close family member, it is easier to promote the idea SNAP and similar programs enable slackers. Doubtless there are many who game the system, but there are more, I believe, folks like this:

Whatever the demon or deity, I was, of course, grateful. But 15 months of unemployment does something to you, changes you. The obvious horrible thing about poverty, of course, is that you can’t buy things, but poverty also dices and shreds whatever self-esteem you might have left after losing your job and your apartment. I remember the weekend I had $3.48 in the bank and was hoping my food stamps would electronically replenish on Monday so I could eat, and recall wondering whether there was a state of the soul beyond humility. [More]

The acid test is when you know some folks personally who use SNAP, and for whom it makes a big difference. Many of these people may be new users in the last few years and are deeply embarrassed by their situation, but I for one am glad we have this type of safety net particularly because of my profession. Farmers should have a natural interest in hunger, I would think.


No government program works perfectly, and before I would throw stones at SNAP participants for their choices, I would ponder how I would rationally explain economically some of my government handouts and what I do with that money.


If we are outraged about food advocates wanting to tax soda, for example, why are we upset about welfare recipients buying soda? Let's pick one side and stay on it.

I may not leave home again...

Some speeches and a granddaughter birthday party the last few days - and when I get home, this news:

1. The last movie theater in Edgar county has closed.
2. The last public golf course also.
3. My health insurance company is selling its business to another company - unknown ramifications for our doctors and coverage.
4. The IL Department of Revenue can't find my withholding payments for half of 2010.
5. Our 40th Anniversary Eastern Mediterranean cruise with a two-night stop in Egypt is now an Eastern Mediterranean Cruise with a two-night stop in Istanbul. (Any bets on an uprising in Turkey now?)
6. This piles on the the closing of our Deere dealership and last restaurant in Chrisman, BTW.

Things, indeed, do fall apart.

I can't write jokes this good...

Correction of the Week:

[Source]

JunkBox, Episode BRRRR...

The theory is the ground/roads will be in good shape to move grain. But working in single-digit temps is never easy.

• One reason I shoot for average market prices: when you average women's faces it turns out pretty good. [More]
• Foresters getting head start on climate change.
• The only way compromise happens is when it has to. The reality of repeal odds are making it more obvious compromise is a better way.
• The fight against food regulation is inextricably linked to a fight against commodity subsidies. I still think the end of farm programs will come from farmers' favorite politicians.
• It's not so much a tunnel as a traffic pipeline. Pretty cool way to build one, IMHO.
• Grain prices just keep getting cheaper (for some).
• Kindles just keep getting better.
• If you've read a Malcolm Gladwell book, you'll appreciate this.

I'm finishing "Mao's Great Famine".  It is horrifying and a must-read for farmers who want to understand their Chinese counterparts. I'll review it soon.

Another shot across the bow...

As more shells are lobbed from right and left over what to cut from the budget, some interesting linkages are forming. For example, the anti-junk-food-tax lobby could be a perfect partner for no-subsidy proponents.

If you were watching the Superbowl in the DC area last night, one of the ads you saw came from the No Food Taxes coalition (which includes 7-Eleven, Alcoa, the Mid-Atlantic Petroleum Distributers Association, American Airlines, McDonald's, and many more). It showed a sensible-looking woman putting soda into her shopping cart and complaining that "some politicians" are "trying to control what we eat and drink with taxes." Pulling into the checkout lane, a deep-voiced announcer intones, "government needs to trim its budget back, and leave our grocery budgets alone." Watch the ad here.
It's evidence of how seriously the sugared drink industry takes the threat of a soda tax. And, in the interest of balance -- I did link to the ad -- here's David Leonhardt making the case for one. But a federal soda tax doesn't currently exist and, if it did, it would reduce deficits, so it's not really a great place to concentrate your energies if you want to reduce budget deficits and ensure a level-playing field in the snack foods aisle. That said, however, I'd like to propose common cause with my brothers and sisters in the Coca-Cola Company. Government does need to trim its budget back. And it probably should be doing less to influence us in the checkout lines. So let's make this the year we finally end subsidies to the corn industry. Deal? [More]

While it is hard to see serious cuts in corn subsidies when guys like Gingrich are genuflecting at the Altar of Iowa Ethanol (to the horror of many on the right), there seems to be a growing weight of concern that farm subsidies be pushed farther up the list of "Things to Cut".

In fact, the uncertainty around ethanol would skyrocket should even a minor production problem surfaces this spring and corn prices get even crazier. As it is ethanol is skating on very thin ice - barely meeting the cost of capital.

The graph below divides the price of ethanol into three components: the net cost of corn in ethanol (corn costs less distillers grains value), natural gas and other costs (see the previous paragraph) in ethanol, and the ethanol operating returns. A positive operating return does not necessarily imply profits as other costs, such as plant financing, and returns to capital, must be taken into account, but a positive operating return does signal the potential for profits in the industry. The horizontal line (at 25 cents per gallon) aims to represent the costs of capital. Profits are implied under the current set of assumptions when operating returns exceed the horizontal line. [More]

[Click to make readable]

Looking at this chart, loss of any subsidy would collapse a business model already on the edge. So would substantially higher interest rates (cost of capital) or lower ethanol prices or lower DDG prices...

Meanwhile, $6 corn is beginning to show up at the meat counter. Undoubtedly, and rightfully, the protein sector will point the finger upstream. At which point, even Iowa's primary might not be enough to preserve the political subsidies.

Today's Big Game...

A classic showdown: me, Quickbooks, and TurboTax vs. Department of the Treasury, Internal Revenue Service. Longtime opponents with craft and guile to spare.

I can't wait to see the final score.

No wait - I don't want to see the final score.

Anyhoo, I suspect I'm not the only Schedule F filer opting for enormous rapid writeoffs (depreciation) via the many tax incentives, only to rue the day in years to come.

Actually, we all know who wins in the long run...

Ow...

So I'm replacing another toilet in my house for something to do. (Before they get down to two teaspoons per flush). Of course this involves several trips to my workshop about 100 yards away.

All morning a gentle, fluffy snow has fallen over our smooth glare of ice.

OK, after 4, yes 4! falls within about 30 feet, I'm shuffling along like, well...

It's not working that well...

The way it is. It remains a brutal and slow slog for health care reform, now in its ugliest political phase. But reform of access to health care is just one aspect of correcting the problems of a system that is far too costly and far less effective than it could be.

One reason for the ineffectiveness is the powerful profit motive influence on medical research. It's not a inherently bad, but this is what you get when there are no cost controls from either free market forces or regulation: sloppy reports and even sloppier media coverage.

If you follow the news about health research, you risk whiplash. First garlic lowers bad cholesterol, then—after more study—it doesn’t. Hormone replacement reduces the risk of heart disease in postmenopausal women, until a huge study finds that it doesn’t (and that it raises the risk of breast cancer to boot). Eating a big breakfast cuts your total daily calories, or not—as a study released last week finds. Yet even if biomedical research can be a fickle guide, we rely on it.

But what if wrong answers aren’t the exception but the rule? More and more scholars who scrutinize health research are now making that claim. It isn’t just an individual study here and there that’s flawed, they charge. Instead, the very framework of medical investigation may be off-kilter, leading time and again to findings that are at best unproved and at worst dangerously wrong. The result is a system that leads patients and physicians astray—spurring often costly regimens that won’t help and may even harm you. 
...
But at NIH Ioannidis had an epiphany. “Positive” drug trials, which find that a treatment is effective, and “negative” trials, in which a drug fails, take the same amount of time to conduct. “But negative trials took an extra two to four years to be published,” he noticed. “Negative results sit in a file drawer, or the trial keeps going in hopes the results turn positive.” With billions of dollars on the line, companies are loath to declare a new drug ineffective. As a result of the lag in publishing negative studies, patients receive a treatment that is actually ineffective. That made Ioannidis wonder, how many biomedical studies are wrong? [More of an important article]

Compared to medicine climate science is a model of clarity. But the linkage between research results and product sales is so strong, and as public research funds constitute a smaller part of the support, this problem could get much worse.

Much of the problem comes from our collective math anxiety. We want certainty, not probability statistics. If more of us understood what a standard deviation meant, we could scrutinize flash reports from medical research with more expertise and parse out the meaning for our lives.

Which leads me to this medical report.

Researchers said they have identified a combination of four genes that appear to play a critical role in determining whether prostate cancer in its early stages will go on to become an aggressive, lethal disease.
The information could enable doctors and patients to make better decisions after the diagnosis of prostate cancer, a disease that is commonly overtreated today, researchers said. [More]

It turns out the sample was small (400) and long term studies have yet to be completed.  But my guess is when a test for these genetic markers is available in a few years, guys my age will all be getting one. While I hope it helps and stops the unnecessary interventions now common, it will likely be my sons who really benefit, and only after more and larger tests are completed.

One reason this misapplication of research problem exists could be the self-serving impatience of the aging Boomers. And impatience is very expensive. However it is done, America must come to grips with the idea now clear in other areas of economic activity: you can't have everything. Our system currently tries to finesse that rule, and quietly ration care by capacity to pay or by employer.

And even more of us...

Suddenly become uninsurable. The rapid advancement of genetic testing has bioethicists in a quandary.

There are lots of different answers to Pence’s question, why test for incurable diseases like Alzheimer’s disease? Now that the tests are becoming available, researchers can identify people who are at higher risk of falling ill earlier, and enroll them in studies to uncover how the disease progresses. This will also allow scientists to enroll subjects in clinical trials earlier for new drugs aimed at preventing the disease.
Testing is not just about therapy. People can also use the information to help plan their futures. Perhaps they will drop out of the corporate grind and become Caribbean sailing captains. Or they will arrange their affairs so that they can receive good care when they do fall ill. Of course, some people really may not want to know. In which case, they are perfectly free to not take the tests. The only people who seem especially overwrought and unable to handle the results of genetic testing are bioethicists. [More]

I find interesting the intellectual debate over whether to tell patients of bad test results, but still think the problem will be dwarfed by the larger issue of making the individual health care market virtually non-existent, should health care reform be dismantled. The thinking the status quo was good enough ignored some unsustainable trends, not only in health outcomes and costs, but mostly in coverage.

It appears clear that this recovery will not be providing great jobs with full coverage, and the trend for workers even with insurance to pick up more of the tab will dampen wage growth and the economy for the foreseeable future.

We may reach the tipping point of shrinking coverage faster than we thought unless "repealers" begin to ponder how fast traditional insurance is failing the population.

What to do...what to do?...

A loyal reader sends in his stop-action video of the storm in LaGrange, IL.



Although I had to travel for USFR Thu and Fri, the layer of ice still puts the kabosh on travel.  On our country roads if you slip off the crown in the middle of the road, you tend to slide ever so gently into the shiny ditch.


[Thanks, Sterling]

What up with the IRS?...

For all of you who do your taxes, and mail out the 1099's, you may have noticed this year the addresses began with "Department of the Treasury, Internal Revenue Service, Kansas City, etc."

The DOT part is new. Why?

Maybe the IRS is getting techy about the cranks who claim they really, really aren't government officials.  I was unfamiliar with this particular conspiracy genre, so here's some disturbingly Beckian rant for your frigid morning.

The Internal Revenue Service is not an agency of the United States government. It is true that not only can it NOT be found in Title 31, but it is nowhere to be found in the entirety of Title 5 U.S.C.

Congress THOUGHT it created it but it didn't. Just look at the 1100 manual and it tells you so. Congress only created the Commissioner's Office. He then hired the private collection agency people and used them as the tax collectors. In fact, I defy you to find any IRS employee listed as an Employee of the United States Government with a United States Employee Identification number that has been hired by any District Director in the country. Now I suggest you look at 27 Code of Federal Regulations Section 250.11 and therein you will find the definition of "Revenue agent." That definition reads "Any duly authorized Commonwealth Internal Revenue Agent of the Department of the Treasury of Puerto Rico."

I now refer you to the "Secretary" described in 26 U.S.C. 6301. Does it not state, "The Secretary shall collect the taxes imposed by the internal revenue laws?" Yes it does. Now Congress mandated this by 68A Stat 775 and you cannot disagree. Does not 26 U.S.C. state that this "Secretary" may make a return based on the information he has if a person does not make a return? Yes it does. Does not 26 U.S.C. 6001, 6011 and 6012 refer to this "Secretary?" Yes it does.

Now, if the Revenue agent decides to prosecute, he approaches the Attorney General and this "Secretary" as noted in 26 USC 7401 to prosecute upon concurrence between both the Attorney General and this "Secretary," is this not correct? Yes it is and all the above is undisputable. Is it now contrary to any rational man that this "Secretary" can only be one person and not many. [And on it goes...]

This kill-the-taxman-and-our-problem-will-be-over thinking is a subset of the thoroughly disproven "starve the beast" strategy of curbing government spending.  As Drum points out it, actually makes spending easier.

Conservative Steve Chapman summarizes recent research showing that cutting taxes does not, in fact, "starve the beast." That is, it doesn't motivate the public to demand lower federal spending as deficits rise. In fact, it does just the opposite:

Forced to pay for everything they get, right away, Americans would undoubtedly choose to make do with less. But given the opportunity to party now and pay later — or never, if the tab can be billed to the next generation — they find no compelling reason to do without.
Think of it this way. If you want people to consume more of something, you reduce the price. If you want them to consume less, you raise the price. For most of the last 30 years, federal programs have been on sale, and they've found lots of buyers.

True enough. The Republican Party has basically taught Americans that deficits don't matter. We can have all the government services we want and there's no need to pay for them. Under the circumstances, who wouldn't want more government services? [More]

The larger problem for the IRS is budget cuts. I mean, who doesn't want to make tax evasion easier? 


Yeah, that will help close the deficit...

OK, I'll admit I'm a little cabin crazy...

But even I had to stop eventually after scanning dozens of Better Book Titles.

My favs (so far):

 Moby Dick

 A Christmas Carol

 The Giving Tree

Beowulf

After 12 hours...

Our power came back on. I wept like Michael Landon.

But other than that, the Big Storm has not been as advertised right here, and I think I know why.

[More] [Click to embiggen]

Uh-oh...

Just had a 5 second power interruption. Normally, if they power drops for more than 2 seconds it means we're on our own, but maybe we just dodged a bullet.

The forecast for Edgar County is not a happy one, however. We have about 1/2" ice on the ground and 1/4" on the trees.

Our main computer is on an emergency bus powered by our automatic generator (possibly the best $3500 I have ever spent) so I'll probably keep posting for something to do.  But this could be a bad one for folks in my area. Aaron and I were speculating about trying to move snow with ice under the drifts.

Be careful out there.

Can't buy a break...

Jeez - the Australians in Queensland can't get seem to find the end of the tunnel.  Or storm.

Still cleaning up from devastating floods that killed some 32 people, residents along a wide swath of Queensland’s north coast are now being told to brace themselves for what may become the largest cyclone the “sunshine state” has ever faced.
Cyclone Yasi is expected to slam into the Queensland coast around 1 a.m. Thursday local time, packing winds of more than 250 k.p.h. (155 m.p.h.). This puts it on a par with the force of Hurricane Katrina, which devastated New Orleans in 2005 and clocked winds of 175 m.p.h., before weakening as it neared the coast.
...
Yasi is also threatening around a third of Queensland’s sugar cane crop. Australia is the third largest sugar exporter in the world and Queensland grows more than 90 percent of the country’s sugar cane. The state’s banana crop, another major earner, is also expected to be severely impacted. This latest hit comes as Queenslanders clean up from floods that have caused some $5.6 billion in damage. [More]

For me there is something terribly wrong about center pivot fields underwater.

 

OK. Now imagine you are a Chinese government official and you source food supplies for your increasingly wealthy and expectant citizens. One of your best sources can't get out from under clouds (Australia) , another came up short on their corn crop (US) and the rest are fighting La Nina-related production problems.

Now you turn on TV and see popular uprisings triggered in large part by people who want cheaper and better food, and expect their government to make it happen.

I would do three things:

1. Root for appreciation in the value of the yuan to boost my buying power overseas.
2. Keep my domestic inventory numbers very secret (assuming I even believe them).
3. Buy at any price to get what is needed. Those dollars stacked up in Beijing won't be getting stronger anytime soon anyway.