Anthropogenic soil change…

It's not enough many scientists think we're changing the climate, some also think we are fundamentally changing the land.

The dirt under our feet is being so changed by humans that it is now appropriate to call this the "Anthropocene (or man-made) Age," says a new worldwide overview by Duke University soil scientist Daniel Richter.

"With more than half of all soils on Earth now being cultivated for food crops, grazed, or periodically logged for wood, how to sustain Earth's soils is becoming a major scientific and policy issue," Richter said. His paper appears in the December issue of the research journal Soil Science.

"Society's most important scientific questions include the future of Earth's soil," Richter added. "Can soils double food production in the next few decades? Is soil exacerbating the global carbon cycle and climatic warming? How can land management improve soil's processing of carbon, nutrients, wastes, toxics and water, all to minimize adverse effects on the environment?"

"Each of these questions require long-term observation and analysis, and we know far too little about how to answer them in much detail," he said. "We need to work to sustain soils with a greater sense of urgency." [More]

This could be easier to sell to the "it's-human-hubris-to-think-we-can-alter-the-environment crowd" than man-caused climate change. We all know of farmed out, eroded soils. But measuring this change on a global scale could prove alarming, if it is actually possible. Or it might reassure us of nature's regenerative powers.

Anyway, it's another example of the way Google creates a tool and then uses are found for it.

The gospel of helplessness...

Marcia Taylor at DTNag notes even high prices aren't cheering grain farmers for long.

Renters are anxious about the morning after. "What's going to happen to our rents once prices crash?" asked a producer around the Kansas City-area. Some landlords want two or four-year contracts, other farmers said, but that can lock in high costs without potential income to pay it. Pass on the deal, however, and your neighbor is more than willing to farm the land.

"The mood has gone from 'Happy Days Are Here Again' to 'We Need Help," said an agricultural broker with grain clients nationwide. "Now the breakevens for corn are $3.50 to $3.70." He thinks growers need more tools to help hedge the costs of diesel and fertilizer, as well as their commodity grain. But futures contracts for fuel are too big for individual producers to use ("You'd need to consumer 42,000 gallons of fuel a week to make it work," he said. "A lot of my farmers use 4,200 gallons a year.") Hedges for fertilizer are even more unworkable. [More]

The ritual response to from the ag media to such agri-whining is patronizing placation: soothing words about being cautious and risk management and prudence.

Gag! Lookit, guys, if you are in the grain business and you think we need help right now, you are a victim of the gospel of helplessness that has passed for holy writ for too long. Subsidized farmers have been trained into an identity that will not allow for competence or confidence.

Like Grima Wormtongue whispering in Theoden's ear, we have been told by our organizations, our government, and our neighbors we are the "slow children" of the American economy - charming and deserving, but not fully capable of managing our affairs. This of course gives a reason to be for these voices, because if we were to grow up and live economically adult lives, we wouldn't need enablers.

This pernicious and debilitating doctrine has come to full flower. As I look at actual profits from my farm triple what they were just two years ago, a chorus of imagined despair rises around me. Producers smack in the middle of the greatest boom in history have no words of excitement or enthusiasm lest they be rightly identified as prosperous people who don't need outside charity.

And truly, they are not happy. And never will be, if they mistakenly fear self-reliance as high doom of capitalism, when it is actually the greatest gift. Our posture as hapless dupes and helpless pawns is so ingrained in our self-image we are desperately searching for corroborating evidence of hard times, however illogical.

Nuts to that! I am rejoicing, and like Theoden, choose to seize this chance for us to return to our true identity - a full partner that does not simply take from our fellow Americans, but gives back more in return. A nation dragging through a inglorious war, racked with economic frailty, and desperate for social comity deserves better than mewling from the people they have lavishly supported for too long.

It is way past time for the sector enjoying the biggest boom in the economy to stop fixating on ourselves and our needs and ask what we can do for our customers, neighbors, and nation.

Instead of our plaintive wail, "I wanna tell you my story" we should offer instead words of powerful encouragement. Farmers - the link between our people and they land we inhabit; the anchor of reliable productivity is not weakened or fragile. It holds fast and can moor our nation in troubled times. While all else may be uncertain in America, that fact should be our message.

America's farmers are here to serve, for a change. The backbone we have vaingloriously claimed to be is stiffening and picking up some load at long last.

Theoden awakes and the gospel of helplessness is proven a craven heresy.

When chefs get bored...


[Way more here]

[Thanks, San]

The Black Swan emerges...

And he looks like a geek. Author/trader Nassim Taleb has asserted for years of the danger of the black swan - an unexpected incident of high impact. In fact, he believes almost all consequential events in history come from the unexpected.

It is safe to say the idea of junior trader bringing down one of Europe's largest banks - Societe Generale (SocGen) - by virtually uncontrolled transactions wasn't on anybody's radar.

In its most detailed public explanation of the scandal to date, SocGen acknowledged on Jan. 27 that the trading positions taken by Kerviel had reached more than $73 billion, far exceeding the bank's roughly $50 billion market capitalization, by the time the bank learned of the problem over the weekend of Jan. 19-20. The bank said Kerviel took advantage of his knowledge of the bank's internal control systems, gained during his five years in back-office jobs.

The bank's explanation, however, didn't mention the warning flags raised earlier. According to prosecutor Marin, SocGen's middle office, accounting department, and risk department had raised questions about Kerviel's trades in recent months, as had Eurex, the derivatives exchange operated jointly by Deutsche Börse (DB1GN.DE) and the SWX Swiss Exchange stock markets.

The fact that even a relatively junior trader could wreak such mayhem has spurred urgent calls for banks to toughen their internal controls. "Every bank in this area will be overhauling their compliance arrangements, their IT security…all of the nuts and bolts stuff," says Howard Davies, the dean of the London School of Economics who formerly headed Britain's Financial Services Authority. Some relatively simple measures might have prevented the debacle, Davies says, such as changing computer passwords more frequently or requiring traders to take two-week vacations during which other employees handle their trading portfolios. [More]

It's hard not to dismiss this financial debacle with barely suppressed giggling. First, they are French, and hence fair game for ridicule. Second, it wasn't my money. Third, who doesn't enjoy really, really, rich people and snooty institutions falling on their faces. Finally, it doesn't change the price of corn or the rainfall in Brazil, so I'm bored already.

Only Taleb may be right for not just banks but commodity funds and US derivatives as well.
The rogue trader scenario seems to keep popping up, despite solemn assurances by financiers that they have learned their lesson. As the scandal deepens it seems this was anything but the truth.

While I am not busy looking for what can go wrong to our happy little boom in grain farming, I am curious about the wild and unprecedented action in our commodity exchanges. This level of free-wheeling trading is not all that dissimilar from derivatives action, and we have more new entrants wandering around the pits than ever.

If companies like Cargill are concerned about the nature of grain futures trading and the National Grain and Feed Association is increasingly more alarmed by unexpected events, the idea of serious breakdown in the soy pit during August, say, suddenly crosses the line from preposterous to hmmmm.

More interesting is the realization that we are running out of reliable institutional risk merchants. It may be that grain bins and prompt settlement upon delivery will become a grain producer's soundest defense from any flock of black swans.

Now's our chance...

For the last two decades the big winners in agriculture have included many geographically fortunate operators. Their family farm just happened to be close to the new Interstate exit and they were able to to exchange 200 acres for 2000.

Of course, those 2000 acres were acres that locals failed to step up and buy. Or could not begin to, because of the price. Regardless, 1031 exchanges have created the seeds of an "agristocracy" based not on merit but good fortune.

But in fairness, almost all successful farmers today can be labeled as lucky. The accident of birth or marriage can make an indifferent ag talent into a success. When you don't have to pay rent, you can have a poor marketing or production record and still survive.

The current perhaps brief window of enormous farmer margins and low interest rates offers an unparalleled opportunity for farmers to reclaim some lost ground (literally). Best of all, 1031 exchanges may be a long time returning in force, judging from the commercial real estate market. If they are closing big box stores, they don't need new locations.

Taken together, these closings amount to a tiny fraction of the nation's retail space. But they're indicative of a larger retrenchment under way, one that is likely to continue. America's largest chains—from Wal-Mart to Home Depot, from Starbucks to the Gap—are all in slow-growth mode in the oversaturated domestic markets. Circuit City and Sears are just two national retailers who may find it necessary to shrink their national footprints in 2008. And with consumer spending having slowed, it's much more difficult for landlords to fill newly vacated space. [More]

This may be no more than a brief lull, but if farmers don't take advantage of it, we can assume they prefer to become a pure service industry to a "landed gentry".

Here it comes...

An economy sliding into recession is a bad time for food inflation, but guess what?

"Corn is by far the most important ingredient in food rations in the production of dairy, meat and eggs," said Bill Lapp, head of Omaha-based Advanced Economic Solutions, a consulting firm that studies food prices for the food industry. "It will eventually translate into higher prices for (pork and beef) as well."

Demand for corn will continue rising in coming years, analysts say. The energy bill passed in December by the U.S. Congress will require 15 billion more gallons of ethanol from corn, driving up not just the cost of meat, dairy products and eggs, but of anything containing high fructose corn syrup. The price of the sweetener, found in everything from crackers to ketchup, has already risen to 20 cents a pound from 14 cents a pound a year ago.

The demand for corn-based ethanol has meant that farmers are devoting less land to other crops, driving down yield and increasing prices.

"It means less production of soybeans and wheat and other crops," said Westhoff. "That will affect consumers … From cereal to bread. You name it."

But the high price of corn and government mandates can't be blamed for everything.

Worldwide grain stocks are at record lows and prices at record highs, thanks to weather in Australia, Canada and Europe. Demand for dry milk has shot up because of drought in Australia, creating a much larger export market and driving up dairy prices here, from milk to cheese to ice cream.

"It's a lot more complicated than ethanol means higher prices," Westhoff said.

And it's not just an American issue. Growing demand for food, higher energy and fuel costs, and lower grain stocks have conspired to drive up food prices as much as 37 percent worldwide, according to a United Nations food price index.

Some analysts believe the picture is not likely to improve soon. "I think the coming years are going to be very challenging from a food inflation standpoint," said Lapp. He believes the Consumer Price Index could increase by 6 or 7 percent in 2008, compared with 4.8 percent last year. [More]

While an earlier study seems to shift the blame largely to oil prices, I think feed prices simply hadn't had a chance to work through the food chain. In fact, a period of herd liquidation could actually lower meat costs as livestock operators bail out. If oil prices plateau or slide and food inflation continues, which I think is possible, it becomes a tougher argument to make - and almost impossible to sell to a hog producer, for example.

Consumers have been slow to pick up on the increases, but the early warning sign of egg prices is now being followed by healthy increases in other foods. Between animal welfare-prompted production practices and high feed prices, egg producers as not expanding even as eggs become more popular in the kitchen.

And the problem is worldwide, and is exacerbated by the confluence of other trends as well.

But a thoughtful new paper from UK-based consultants Bidwells Agribusiness suggests something else is driving global food prices higher - namely an ever more pressing world-wide shortage of both fresh water and arable land.

In other words, the current food "cycle" could either be huge - with sky-high prices around for much longer than is often assumed. Or it may even be that natural limits on farm production, combined with a rapidly expanding world population, mean prices are now permanently - or "structurally" - higher. [More]

We're going to need another justification than "cheap food" to continue our subsidies with farm income for many growers at record levels. When disposable income stagnates with slow growth, our oft-repeated statistic about "less of their income" could shoot up significantly, revealing it is 90% about income and 10% about commodity prices.

Grain farmers are also going to have to contend with increasingly restive livestock producers.

I think payment limits and means-testing would be a strategic compromise to consider right now. Ya gotta know when to fold 'em.

I've got me...

Under my skin.



Cool anatomy guides.

[via Optical Poptitude]

The coming "tsunameat"...

I will be reading Steve Cornett even more closely now, since my brief discussions with livestock producers at various meetings. Steve captures well the larger picture for the livestock sector, and often shares some surprising insights that help crystallize vague intuitions of my own.

Consider his latest about agriculture and a small community:

None of them are farming, by the way. The fellow who owns that land moved in. So what those farm kids do now: real estate agent/builder; nursing home owner; old folks home administrator; city manager’s wife; retired army colonel; software designer in Dallas; veterinarian; retired ag teacher; minister.

That’s all I can think of right now, but the point is made. These folks are not, as my parent’s generation were, leaving because they were pushed by hard times. They left because A)We don’t need them farming because we got tractors bigger than our parent’s houses were; B) because they got good educations and don’t have to farm and; C) because in the modern world, daddy doesn’t have to send the smart kid to town and give the farm to the one that can’t make it outside. Now you send the runt to college to learn journalism and you keep the prudent one home to manage the family LLC. [More]

Industrial agriculture is shedding people because we don't need them, and no subsidy low-interest loan will overcome that fact. I will trying to outline what that could mean in an upcoming TP column.

But Steve goes on to address a growing concern I have for our livestock industry - an inability of consumers to do the math necessary to grasp how much meat we consume and how it is possible to produce it.

A few critics do, and while I am unsure of their power to effect consumption changes, I do think their voices will add to the problem about to explode in the form of meat prices.

A sea change in the consumption of a resource that Americans take for granted may be in store — something cheap, plentiful, widely enjoyed and a part of daily life. And it isn’t oil.

It’s meat.

The two commodities share a great deal: Like oil, meat is subsidized by the federal government. Like oil, meat is subject to accelerating demand as nations become wealthier, and this, in turn, sends prices higher. Finally — like oil — meat is something people are encouraged to consume less of, as the toll exacted by industrial production increases, and becomes increasingly visible. [More]

Briefly put, meat prices need to escalate drastically to overcome feed costs. To have this occur at the beginning of a downturn is ominous, but those who hang on may be able to gain some pricing power under the cover of rampant general inflation that strikes me as very likely. (Much more on this later this week).

Every outlook opinion for the hog industry I have seen lately read something like this: Alas, Babylon! And as the last of previously contracted cheaper corn and/or soymeal is consumed, the deeper into the red the meat industry slides.

Now throw in a looming regulatory problem to comply with pending food safety legislation. (More on this later as well). This looks like a perfect storm for meat producers and eaters.

And we will not emerge unchanged.

It's not the material...

It's the delivery. Just like stand-up, a good book cannot be guaranteed by a fabulous story.

With that opening salvo, consider this "microreview" of:


The Age Of Turbulence by Alan Greenspan

You know how dead-pan and flat Greenspan's testimony before Congress was? Many of us thought this was a deliberate and wise affectation to add sombre gravity to his words.

It wasn't. It's how the dude talks and writes.

AG has lived an incredible life of accomplishment in the society of dang near every Name in the papers. He dated Barbara Walters, fer Pete's sake! He has hung with presidents and world leaders, dealt in trillions of dollars, had the ear of the powerful and the press... and then writes one of the dullest books I have ever read.

Despite the leaden prose, you may be inclined as was I to follow it to the end just to see what other fantastic conversation or backstage story he will share on the next page. Perhaps the monotone was an effort to appear modest, but his has been a life that almost defies modesty.

At first I thought he was busily name dropping throughout the matter-of-fact description of his childhood and early musical career. But he is simply telling what happened. Like mentioning the dinner parties where he discussed economics with Ayn Rand.

After about the fortieth world leader or so, he could casually mention drinking tequila with
Lenny Bruce and you'd nod your head. (He didn't - as far as I know).

It could be impending events will change his current place in history, but there is little to dislike in the man. And along the way your get a much better feel for life at the pinnacle of power. But, boy, as an author he makes a pretty good economist.

I'm glad I read it. But it wasn't easy.

Many of you have asked for more...

Parenting tips. Let's start with the basics for beginners:

[Slightly too much more]

Will you be stimulated?...

If you haven't visited your tax guy or run your tax program, you may be surprised to find that $4 corn and $10 beans may have disqualified you for the rebate. So what's in the deal for you?

For those who pay income taxes, the 10% marginal rate would fall to zero for the first $6,000 in individual income or $12,000 in household income.

Rebates up to $600 per individual and $1,200 per family would gradually phase out for those earning above $75,000 and $150,000, respectively.

Eligible families also would receive a $300 rebate per child.

The package would let businesses deduct 50% of the cost of new equipment bought this year, saving firms $50 billion in "near-term" taxes, the White House said.

In addition, small businesses would be able to fully expense capital investments of up to $250,000. [More] [My emphasis]

Of course, every Senator running for reelection still want to get his/her fingerprints on the package, but the business breaks don't seem to be challenged. The targets are more toward the disadvantaged.

Other senators said they wanted to contribute their own provisions and Senate Majority Leader Harry Reid, a Nevada Democrat, said the House proposal's $150 billion price tag wouldn't be viewed as a ``magical figure.''

Reid, 68, said members of the Senate Finance Committee ``and other senators will work to improve the House package by adding funds for other initiatives that can boost the economy immediately, such as unemployment benefits, nutrition assistance, state relief and infrastructure investment.'' [More]

Of course, every dime of the stimulus money will be borrowed, and right at an inopportune time.

Yesterday, statistics released by the nonpartisan Congressional Budget Office projected that the federal deficit would grow to $250 billion in the current budget year. That would be a 53 percent increase from the $163 billion deficit in fiscal 2007.

If Congress approves the roughly $140 billion economic-stimulus plan now being discussed, the deficit for fiscal 2008, which began Oct. 1, could swell to almost $400 billion. The White House and Democratic and Republican lawmakers worked into last evening to agree on a package...

...Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government health care to interest on the national debt.

The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare.

"If we do something right now, like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice M. Rivlin, a former vice chairman of the Federal Reserve and now a senior researcher at the Brookings Institution, a center-left think tank.

"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the CBO from 1975 to 1983. "We have just made too many promises under our entitlement programs, and we're going to have to change course." [More]

This massive and continued borrowing all but assures, I think, an even lower dollar, suggesting (but not guaranteeing) continuing upward pressure on commodities (along with most other prices). It also hints the Fed may not be able to leave interest rates low for long, so any (re)financing we need to do in ag probably ought to get done before we emerge from the current slowdown.

But the really important aspect of the stimulus package is the means test: no joy for those making over a certain amount. Until recently there has been stiff resistance to means-testing, but I think the stimulus package (along with its growing use in other countries) strengthens the administration argument for similar limits for farm payments and furthermore firmly establishes a trend of means-testing to solve funding issues for popular programs.

This is where the growth in asset and income inequality begins to manifest consequences, regardless how economists measure it or if they even agree it exists. Excluding the wealthy from government benefits, once done successfully will be the solution of first choice thereafter simply because of the tiny number of voters impacted negatively.

History is not just being made inside agriculture, but across our whole culture and the world economy.

Make some notes for future reference.

Live (more or less) from Wisconsin!...

More proof you don't have to be warm to be excited. As I mentioned below, I had the happy opportunity to speak to the WI Corn/Soy Conference in Wisconsin Dells. [Note to meeting planners: since shifting to a resort hotel with a water park larger than most IL lakes, attendance has tripled to 1200 or so.]

Go figure.

Anyhoo, I got to hear two superb presentations while I was there.

First, Darrin Newsome from DTN. For a guy from the loathsome competition, he was surprisingly lucid, but his most important opinion was probably lost when he mentioned two numbers: $6.10 corn price target, and (I swear) $20 beans. I don't think anybody heard anything he said after that.

You could see the eyes glazing over.

But along with those mind-boggling numbers, he uttered some sage (which means I agree with him) analysis: the futures market is no longer serving the function of laying off risk for farmers. In other words, hedging doesn't work anymore.

(To be fair, I have great respect for Darrin, but all during his speech he kept saying things like "I've been in this business a long time and..." OK, the only problem is the dude doesn't look old enough to order beer.)

Obviously, The Andersons agrees with him.

According the The Andersons' notice, the firm will continue to write HTAs on grain delivered through August. But, as confirmed by a FarmFutures.com poll over the last week, the fees charged on the contracts are much higher than the industry charged traditionally. The firm will charge three cents per bushel for corn, seven cents for soybeans and three cents for wheat.

In addition, the notice said the firm will purchase grain for delivery from September 2008 through August 2009 on a flat price or basis-fixed contract only, with no HTA's written. For September 2009 and beyond, only basis only contracts will be used, with not [sic] HTA or traditional flat price contracts done. [More][I think Bryce was a little excited when he wrote this one)

I have never used HTA's so that part didn't resonate with me. But I have given serious thought to selling 2009 fall beans (although now, of course, I will hold for $20).

Then Randy Gordon from the National Grain and Feed Association spoke and essentially underscored Darin's remarks. The elevator biz is under extreme financial duress right now and the last two days sure didn't calm them down.

In so doing, the NGFA warned the CFTC of major underlying concerns over the predictability of convergence between cash and futures prices during the futures delivery period, as well as problems with hedging and pricing efficiencies, that have dramatically increased the need for grain elevators, feed mills and grain processors to access increased capital to finance margin calls.

“The lack of convergence between cash and futures markets during the delivery period, in conjunction with rapidly rising commodity values, has created huge borrowing needs and financial risks and exposure for the grain-buying industry,” the NGFA said in a statement submitted to the CFTC. “As banks have begun to question hedging performance in futures positions, borrowing lines have been stretched to the limit or beyond….Cash basis levels (the difference between futures and cash market prices for a specific commodity) are widening to reflect much higher financing costs – to the extent financing is even available -- that now are being forced into the system.

“Both the overall confidence in the (futures) market and the livelihood and business structure of the cash grain industry are at stake,” the NGFA warned. [More]

This stunning consequence of skyrocketing prices looks to me like a land mine on our road to prosperity. There is a very real possibility of losing many of the pricing tools we have enjoyed and come to depend upon due to the influx of enormous amounts of speculative money into our relatively small grain pits. Throw in the shift to electronic trading and volatility is the name of the game.

I think this situation, perversely enough, justifies not just the existence but market muscle of farmers' favorite punching bags: giant grain companies. When funds wade into the pits, producers need a go-between with enormously deep pockets and experience to whom I can shift my risk. While I like to give Cargill (my #1 customer) a hard time because of their occasional lumbering slowness in execution, I also take my hat off gratefully to their decision to step up to this challenge.

Dennis Inman, head of their grain origination unit AgHorizons gave me this response when I e-mailed him a "what-the-hey?" question about Cargill's plans for future delivery contracts:

...for now the very short version is that we continue to buy both flat price and HTA's (we call them NBE or No Basis Established) for 2008, 2009 and 2010.

We did in the last couple of days modestly raise our service fees. Each
of the local businesses establishes their service charges based on the
minimum requirements we send from Minneapolis....

Obviously a lot of uncharted water in the current environment but we're
still committed to our mission of helping farmers prosper and providing
a vehicle for forward contracting and other forms of risk management is
still core to that mission.

If our New Agriculture is going to be dealing with giants, it doesn't hurt to have some on our side (or at least for hire). Constantly bashing large grain companies like Cargill or Bunge or ADM could be shortsighted at best, and remarkably dangerous to our future at worst.

In fact our knee-jerk hatred of "Big Anything" (Oil, Operators, Labor, Enviros, etc.) is a little more than lazy way of separating the world into good and bad guys. The idea that big organizations could possibly be composed of decent people just like us trying to do their jobs as well and honorably as they can (even at the top) never seems to receive any credence at all.

The weird thing is, the more chances I have to talk to those folks the more accurate that view becomes for me.

Perhaps you are too productive...

Then don't get into this game.

I confess, it was Jan's specialization I lusted after...

Once again economists earn their public ridicule by establishing a new economic model for marriage.

So what drives modern marriage? We believe that the answer lies in a shift from the family as a forum for shared production, to shared consumption. In case the language of economic lacks romance, let’s be clearer: modern marriage is about love and companionship. Most things in life are simply better shared with another person: this ranges from the simple pleasures such as enjoying a movie or a hobby together, to shared social ties such as attending the same church, and finally, to the joint project of bringing up children. Returning to the language of economics, the key today is consumption complementarities — activities that are not only enjoyable, but are more enjoyable when shared with a spouse. We call this new model of sharing our lives “hedonic marriage”. [More]

Although, I must admit, Jan's hedonistic attractions are not easily overlooked...

Wisconsin Dells - say what?...

We have family and friends who have habitually (and of their own volition) frequented the Wisconsin Dells. But they have never, I suggest, been there on the (possibly) coldest night of then year.

Well, this speaker-for-hire is about to, I think. Tomorrow I address the WI Corn/Soy Conference in...well, somewhere 5.5 hours from Chrisman.

And oddly enough, I'm OK with it.

Wisconsin has become the crossroads (or collision location) for many trends in rural America.

1. Immigration - what do you think is keeping small dairies alive here? Talk to people in Appleton about Hispanic workers.
2. Ethanol - despite variable corn production, the state has built several ethanol plants that consitute a huge boon to corn growers and a definite challenge to their vaunted dairy industry.
3. Technology - what do robot milkers mean to the picturesque WI dairy farms?
4. Tourism - good Lord, this place is beautiful. No wonder most of Chicago decamps to Door County every summer.
5. Hunting - these people take their deer seriously. And often. As a non-gun owner, I feel like a visitor from another planet.
6. Community - the strong yeoman ethic pervades the speech and alliances of rural Wisconsin. I am torn between the respect for the individual and the group in these debates.
   
7. Outsourcing - talk to people about manufacturing jobs leaving. My take is they cannot equate the service industry with the same moral value. This will be their undoing, I fear.

The agricultural world could do worse than watch the folks in Wisconsin solve these challenges. They are people with values and purpose and a deeply shared identity (Go Packers!). If they can't make the transition to the next phase of agriculture with kindness and equanimity, I suspect few others will.

We'll think of something...

A brilliant post on FuturePundit (citing the Oil Drum*) about oil, agriculture and the future encapsulates threads of imagination that I have entertained and read elsewhere better than I have seen to date. Even in my most charitable mood, I have sensed an apocalyptic anticipation in some adherents to the agrarian movement that causes them to embrace with scarcely contained glee the idea of modern agriculture being forced back to muscle power or something at least 1950's.

The image of the multi-product, labor-intensive farm is seductive and to our shame, has been the mask behind which we farmers have panhandled for subsidies. The problem is we sold it too well. Now combine that manufactured nostalgia with sudden rise in end-of-times fascination, and those who argue our fossil fuel binge is about over also seem to have a goal for how that development will make me run my farm.

There are several problems with the idea of energy shortages (peak-oil) causing a reversal to high-labor agriculture. Some of the main ones are clear:

But what I would argue is that if oil gets to $200/barrel, industrial agriculture is likely to do very well. I pointed out in Fermenting the Food Supply that corn-ethanol has been profitable even without subsidies at times in the last few years, and that whenever oil prices go up sharply, there is a huge spurt in the growth of the biofuel industry. This creates an arbitrage between food prices and fuel prices, and mean that the former must go up whenever the latter go up (since the biofuel industry can very easily use most of the global food supply without adding more than a modest fraction to the fuel supply).

Take away the government corn ethanol subsidies and that profitability picture probably wouldn't have changed much. Farmers would have planted less corn and less of the corn would have been bought for corn ethanol. The supply and demand would have intercepted at a lower price point at which corn ethanol would have achieved about the same level of profitability.

Stuart's argument has more merit if farms are net energy producers. If the Energy Return On Energy Invested (EROEI) is a ratio much higher than 1 for highly mechanized farms then farmers can produce more energy from what they grow than they use as inputs. In that case farmers can create the energy they need to run their operations and so the odds of survival for the large scale mechanized farms becomes very high. A lot of debate surrounds the question of EROEI of agriculture. I'm inclined to believe at this point that some types of grain agriculture have positive and rising EROEI. Here's an intuitive illustration of why that's probably true. North Dakota vegetable oil production is a few times greater than the amount of oil needed to operate all of North Dakota agricultural equipment.

The more accurate prediction, I believe, is the same answer that has been propelling our productivity for the last half-century or so: technology. While this could be my engineer bias, I can find no reason we will not adapt as oil becomes progressively more expensive. Fuel, despite the recent run-up continues to be a minor expense by itself, and the added costs bundled into our inputs will cause new values for manure to offset fertilizer, thus encouraging smaller, more distributed CAFOs, for one example.

The greater possibility could be the use of military power to protect or acquire supplies at the expense of weaker nations. This troubling vision arises both from the ready availability of the means of power (we've got the bombs, etc.), the cultural divide between "have-oils" and "have-nots", and simple historical precedent (altogether too recent). Societies do not slide back down the development ladder with a cheerful sigh - they are beaten down by power or catastrophe.

There is also something dismally low-spirited about the "reversalist" view. It suggests our ability to evolve our social and economic systems to meet energy constraints has been exhausted. It also posits that we have exhausted our ingenuity as a species and a culture. While it could be much was lost in the march of progress - social capital, stability, and lower stresses - much needed to be lost - racism, ignorance, and isolation.

We are already adjusting the course of our culture to include many of those allegedly lost values. We are improving our attitudes about food and its consumption, to name one prominent trend. And soon energy prices will bend our judgments on things like mass transit, entertaining at home, and how big houses should be. These adjustments will doubtless continue at every level as the market prompts changes in consumption and production.

Both articles are well worth the time to read for any producer who is looking farther ahead than today's closing prices. And the comment threads are enlightening as well. But if nothing else consider the well-rounded summary below.

*Conclusion from Stuart Staniford's thorough analysis:

I've argued in this piece that industrial agriculture is likely to be stronger and more profitable when oil prices are high, not weaker. So the reversalist future of local food production on smaller farms with higher labor input will not come to pass as a result of peak oil. The industrial agricultural sector owns most of the land, and will be in an excellent position to increase their land holdings as remaining subsistence farmers fail or consolidate in the face of high food prices. Industrial farmers will have no reason to sell out to improverished urban dwellers. Thus the industrialization of the land is not a reversible process any time soon - it is a fallacy to think so. The reversalists are expressing wishful thinking and nostalgia for the past, not a reasoned analysis of how the future is likely to play out. And urbanites worried about their future should not be looking to buy or rent a smallholding as a solution to their problems - industrial farmers are extremely efficient, and there is no way to compete with them except by becoming one. [More]

Remember the competition...

For this lifelong Methodist, the following announcement cheered me for reasons I can't really identify yet.

The United Methodist Church and Evangelical Lutheran Church in America will ask its members to approve “full communion” between the two bodies starting this spring.

Church leaders agreed to take another step toward unity between the two major church denominations during their last round of dialogue in December.

Full communion essentially means “acknowledging one another’s ministries as valid,” and wanting to be involved in mutual decision-making, explained the Rev. W. Douglas Mills, an executive with the United Methodist Commission on Christian Unity and Interreligious Concerns, according to the United Methodist News Service.

Although full communion is a clear step towards full unity, Mills added, “We don’t know what full unity is or can look like.”

Members of both denominations have overwhelmingly responded positively to the close partnership between the two churches.

“What we got back was, by and large, very positive,” Mills said about responses to a 2005 statement distributed to members for feedback. [More]

Like the UMC, the ELCA is struggling with vexing questions of faith and practice which many seem to feel need to resolved right this minute by binding edict, but I would prefer to allow the evolution (yeah - I know it's a code word) of opinion and the power of the Holy Spirit to reveal solutions at the pace people can tolerate, if not enthusiastically embrace.

Besides, if we eventually unite I'll bet we'll have choirs better than the Baptists.

Ambulance [emission] chasers...

Note to anthropogenic climate change skeptics (ACCS): It's over, and you lost. The reason I'm sure? Here come the lawyers.

Lawyers are becoming some of the best-paid environmentalists.

Twenty of the 100 highest-grossing U.S. law firms have started practices advising companies on climate change, according to a Bloomberg survey of the firms' Web sites. The attorneys help clients finance clean-energy projects and lobby Congress, typically billing $500 to $700 an hour.

Firms including Akin Gump Strauss Hauer & Feld, Heller Ehrman and Sheppard Mullin Richter & Hampton joined the global warming cause as real-estate and structured-finance attorneys lost jobs to the worst U.S. housing slump in 27 years. The move into climate-change law is gaining traction as Congress considers a mandatory carbon market to curb greenhouse gas emissions. [More]

The focus of these well-dressed consultants is the Warner-Leibermann Bill.

The bill is designed to cap U.S. greenhouse gas emissions from the electric utility, transportation, and manufacturing industries at 2005 levels by 2012. These sectors -- which are responsible for close to 80% of U.S. greenhouse gas emissions -- would then need to reduce emissions 15% below 2005 levels by 2020 and by 70% by 2050.
Meeting these targets would effectively lower the total emissions cap each year by 96 million tons, a 1.8% annual reduction of the 2012 cap, according to a report from the law firm Van Ness Feldman.

This bill has been way too far under the radar for agriculture, IMHO. It may work out that advantages we might have finagled through the legislation will be foregone simply because we didn't do the arithmetic comparing emissions credits and DCPs.

If the cap-and-trade system becomes a viable market (a big if!) look for more excitement about wind and solar power systems, as they would reap million of dollars from selling emissions offsets.

This looks like very forward thinking by the boys in green at John Deere.

A gift to you from the Federal Reserve system...

We all talk about the Fed and lowering interest rates, but I realized I wasn't exactly sure how the prime rate mechanism worked.

What it means: The initials stand for the Wall Street Journal, which surveys large banks and publishes the consensus prime rate. The Journal surveys the 30 largest banks, and when three-quarters of them (23) change, the Journal changes its rate, effective on the day the Journal publishes the new rate. It's the most widely quoted measure of the prime rate, which is the rate at which banks will lend money to their most-favored customers. The prime rate will move up or down in lock step with changes by the Federal Reserve Board.

How it's used: The prime rate is an important index used by banks to set rates on many consumer loan products, such as credit cards or auto loans. If you see that the prime rate has gone up, your variable credit card rate will soon follow. [More]

I think the message today is clear: for Pete's sake, make sure all your short (operating) and intermediate (machinery) loans are variable rate.

The unknown local market...

If you could sidestep the gooey sentiment too often attached to farmers markets, you might be able to do some serious research on the possibility of this retailing effort. Unfortunately, about all we have to go on are scattered reports more interested in the human interest angle, food quality claims, or animal welfare concerns.

Still running across stories like this suggests to me the local-to-market effort is growing up and addressing some stark realities like, well, winter.

A coalition of religious groups stepped in and paid an electric bill for his farm near Blanchardville in southwestern Wisconsin. Now he's paying them back and earning a profit as he sells his wares at indoor markets that have become popular in Wisconsin, Illinois and Iowa in winter months. "It's a real good feeling," Ruegsegger said. The markets in church halls, which began in December 2003, are being coordinated by the Churches' Center for Land and People, a coalition headquartered at Trinity Episcopal Church in Janesville. It is composed mostly of religious denominations and orders in the three states.

The indoor markets provide farmers with a place to sell until outdoor markets reopen in the spring, said Tony Ends, the coalition's executive director. The farmers are asked to donate 10 percent of their market proceeds to the Harvest of Hope emergency fund to help farm families get through financial difficulties. Ruegsegger — who raises grass-fed beef, free-range eggs and chicken, goats, turkey and lamb — said the Harvest of Hope helped his farm stay in operation by paying his electric bill. Then sales at the winter markets "helped us survive through winter the first couple of years." [More]

While I unreservedly support the humanitarian aspect of such efforts, it nonetheless is hard to derive a pattern for expansion from these stories. Too many consumers are used to non-seasonal food, available 24/7. Perhaps these ventures will remain a niche - even luxury - category of food retailing.

This is not how proponents of the local food movement sell it, but it is obvious the best intentions in the world can't overcome the vast numbers of food consumers who need to be fed every day. Still, I often get pretty optimistic about how far agrarian agriculture can go in the US. Maybe it's because I live with a gardener, and have developed the same seasonal appetites as local food advocates (strawberries in May/June - not Dec, etc.)

The increased availability of local food in any area is a direct function of the demand from local consumers. Most of us are not accustomed to asking about food origins, but it’s easy enough to do. First: in grocery stores when the cashier asks if you found everything you were looking for, you could say, “Not really, I was looking for local produce.”

The smaller the store, the more open a grocer may be to your request. Restaurants may be even more flexible about food purchasing, and your exchanges with the wait staff or owner can easily include questions about which entrees or wines are from local sources. Restaurateurs do understand that local food is the freshest available, and they’re powerful participants in the growing demand for local foods. You can do a little homework in advance about what’s likely to be available in your region. [Much more]

The local food concept seems self-evident. It is not always economically valid however. The efficiencies of large farms with natural advantages to grow adapted crops is enormous. The major objection I have to buying local is it violates common sense by making the address of the grower the center of the transaction. What if an equally picturesque grower from two counties away is successful and offers much better stuff? Do you still by from the guy next door?

Still, as we have learned from our garden tomatoes, often local is the only way to eat well.