Thursday, October 16, 2014

Could it affect schools, too?...

 Over the next couple of decades, I think the much-needed infrastructure upgrades in the US will increasingly be financed by private-public partnerships (PPP). I've seen this in action on the Indiana Tollway (I-90), but more about that in a moment.

The theory is interesting. There are trillions of Euros, yen, and yuan with nowhere to invest, especially as the global economy slows. We have thousands of miles of road s and bridges to build and maintain. Americans will not raise taxes for anything. There is an unsubstantiated belief that private construction and operation of public capital improvements will be more efficient.

And we have incredibly efficient new toll-extracting technology.  This last point is the big one. I thought about it when we added E-Z Pass Transponders to our cars because of my work and family in the Chicago area.

I am ambivalent on say, Brazilians owning I-74 and the French building bridges in Kentucky.
Tall said U.S. states are becoming more comfortable with private investment, in part because there are more examples of successful projects and fewer alternatives to pay for mounting infrastructure needs.The U.S. has used mostly fuel taxes and public financing for such projects. And the federal gasoline tax hasn’t been raised since President Bill Clinton was in office. A divided Congress only managed a short-term measure in July to prevent the Highway Trust Fund from becoming insolvent.California passed the first legislation allowing public-private partnerships for transportation projects in 1989. Today, 33 states and Puerto Rico have such authority, according to the National Conference of State Legislatures.After years of debating the Ohio River bridges, Daniels and Beshear got on the phone late in 2011 and agreed to split the work, paying for each share separately.Kentucky’s portion includes a new six-lane downtown bridge for northbound Interstate 65 from Louisville and a reconfigured “Spaghetti Junction” where I-65 and two other interstates meet. Indiana is building a new bridge eight miles (13 kilometers) upstream connecting Louisville’s east end with southern Indiana while also expanding highways and building twin tunnels under historically protected property to connect to the new span.Indiana’s history of tapping private industry for transportation work includes the $3.8 billion, 75-year lease of the Indiana Toll Road that Daniels sought in 2006 to pay for roads and bridges. The toll road’s private operator sought bankruptcy protection last month when traffic didn’t match projections.The state’s piece of the Ohio River Bridges uses a different public-private financing model that could require taxpayers to cover any shortfall in tolls. The Indiana Finance Authority issued $677 million in tax-exempt, private-activity bonds in March 2013 on behalf of WVB East End Partners. The authority is also making $392 million in “milestone” payments during construction and annual “availability” payments for 35 years -- assuming the operator maintains the bridge -- using toll revenue on the new spans that the states are splitting. [More]

Note the mention of the I-90 bankruptcy. Here is one flaw that should be addressed, at least.
Even though earnings “increased every year between 2008 and 2013, they were lower than projected,” forcing the company to devote an ever-greater share of operating income to debt service, Redondo said.Open since 1956, the road spans 157 miles (252 kilometers) across northern Indiana, connecting Chicago to major East Coast traffic arteries, according to its website. It took more than 6,200 engineers and laborers 786 days to complete the project.ITR Concession Co. acquired the rights to operate the road in 2006 from the Indiana Finance Authority, according to a company statement.The Indiana company said it put together a reorganization plan that has the support of more than 87 percent of its senior secured debt-holders and unanimous acceptance from its equity owners.Under the proposal, the company would either be sold through a competitive process or restructured with $2.75 billion in new debt with almost all the equity going to the secured creditors, according to the disclosure statement describing the plan.Since it already has the necessary support from stakeholders, the company asked the court to approve the reorganization plan within 30 days. The sale process or restructuring could run until next August, after the company exits court protection.In either scenario the ITR Concession’s unsecured creditors owed about $8 million, its only other listed debt, will be paid in full.Traffic volume has plunged by about 42 percent on the Indiana highway since ITR took over operations eight years ago, according to data on the website of Macquarie Atlas, the unit that owns ITR.First-half revenue increased about 5.2 percent from last year, including a 7.2 percent jump in the quarter ended in June, according to a Macquarie Atlas statement. Traffic gained only a third of 1 percent over last year’s first-half figures, with a 3.2 percent drop in the first quarter due to bad weather.Toll rates for passenger cars paying cash increased 30 cents to $10 for a full 157-mile trip on July 1, according to an ITR statement. Rates for a typical semi-trailer truck rose $1 to $39.70.Travelers using an electronic toll-collection system pay only $4.65 for a full trip, the same rate since 1985. Electronic collection accounts for more than 70 percent of toll receipts, according to the Macquarie Atlas documents. [More]
This is the Pigovian outcome I find intriguing. As formerly free public infrastructure become toll-paying, how will users respond? With little or no growth in wages (see above), more and more could be priced out of these improvements and forced onto secondary routes. Another response could be greater concentration as commuting from the suburbs becomes more expensive that paying for costly urban housing and riding public transport. (Of course, there is no reason "public" transport would not shift to PPP operation as well.)

My point is I think this is already happening. Americans are driving less, taking fewer vacations, moving less, and becoming more immobile, so to speak. Adding tolls to more miles of roads certainly won't reverse this trend. I'm not sure this is all bad, either, but it is another consumption pattern that will confound our predictions for the future economic performance.

The "blend wall" could keep falling on corn growers, for example. Fewer cars will be needed. Less oil. Shipping costs - by truck anyway - will escalate. There are doubtless other consequences that will only become evident when they manifest to counteract these new economic frictions. 

Supposing this proves successful on the whole.  Could other public services be supplied by PPP's? Schools? Police? Regulators like meat inspection? It sounds far-fetched, but once we shift from a public-goods to user-pays mentality, I think all bets are off. It seems to shrink government, which right now is wildly popular. 

And how many transponders will we need?

Wednesday, October 15, 2014

Thoughts about Ebola...

1. Wash your hands. Often. Well.
2. Read this.
3. Remain calm. There is money to be made in this slo-mo panic. Don't let it be yours.

We return you to your regularly scheduled crises...

Tuesday, October 14, 2014

Removing the rungs...

Pretty soggy and I've got my video sent for this week, so I need to post. At least, I'm out of excuses. And this is a topic I been grappling with for many months with little success unraveling.

Basically put, does the free enterprise system which so many of us have defended for so long somehow broken down or been superseded? It's hard to look at the flood of numbers that indicate troubling trends and not ask the question anyway.

For example, the story on median income is simply appalling.

Some important caveats: As I (and others) have said before, presidents probably get much too much credit when the economy is doing well and much too much blame when the economy is doing poorly.Mr. Obama in particular inherited an economy that was really just starting the death spiral set off by the financial crisis, as you can see in the chart above. And as Carmen Reinhart and Kenneth Rogoff have shown, economies struck by major financial crises generally take 10 years to fully recover.We’re currently in Year 5 after the crisis first hit.  Since median household income hit bottom in the first quarter of 2010, it has risen about $769.36, not nearly enough to cover the ground lost on the way down. [More]

But the story is not grim at all for some of us.

And this is the crux of the matter. THE big debate in economics is whether wildly unequal outcomes are now baked into the capitalistic cake, so to speak. Have we reached a point where the leveling mechanisms (economic mobility) are not up to the task of preventing an ever more concentrated wealth distribution?
But here’s where I become less optimistic than the president. Imagine that same prognosticator had added one more bit of clairvoyance: Despite all those positive trends, the real median weekly pay of full-time workers in mid-2014 would be slightly lower than it was in mid-2011. Or than it was in mid-2008, the year before Mr. Obama took office. Or in mid-2000.It’s certainly possible that we’re on the verge of a pay surge, much as we were in the mid-1990s, when the situation also seemed bleak. It’s also possible that the forces behind the great wage slowdown – from globalization to our often-sclerotic government to (at least for many workers) technological change – are still more powerful than the positive forces. In that case, the wage slowdown won’t end until the country makes much more progress in improving education, cutting medical waste and energy costs and creating a more responsive, nimble government.Either way, the great wage slowdown, or the end of it, will help set the tone for American life in the coming decade. It has already done so in the century’s first 15 years, causing widespread unhappiness with the country’s direction and leading voters to shift partisan directions multiple times. The political turmoil isn’t likely to end until the economic reality changes. [More]
One of our most central beliefs in the US has been the idea of any person could make it big. While that's still true, it is now so rare that we use the same handful of examples to defend it (Zuckerberg, et al.) instead of pointing to people in our neighborhood of circle of friends.
We have been enamored with the example of "the self-made man". I just don't see that option as any more relevant that lottery winners as paradigms of conduct. Mostly because, along with others, I now see circumstance as having become more defining than character.The dynamite and ginger Jack brought to the roofing trade was necessary to exploit this advantage. But listening to him describe the factors that produced Eastern’s early success, I realized I’d fallen prey to the same fallacy that had led Milton Gordon to attribute the achievements of Jewish garment workers solely to their industry and ambition, and not the conditions in which their ethic thrived. The self-made mythology has evolved in its 200 years: from an exuberant celebration of opportunity in the young republic to a stern admonition against excess in the antebellum years; from a naive story of pluck rewarded in the post-Civil War-era, to a brazen defense of money-getting in the Gilded Age; from a beacon to the great wave’s huddled masses, to a pep talk for the young women of the digital age. The one constant, however, has been the idea that character trumps circumstance. I’d caught myself buying into it.Jack knew better. Though an unapologetic believer in the power of hard work to lift men above their means, he allowed that even the hardest worker can’t impose his will on the world—he acknowledged that other men, and other forces, played a role in his rise. Over the years, I now saw, I had revised my father’s story in the retelling to emphasize his accomplishment, and his agency, just as William Temple Franklin had done with his grandfather Benjamin’s story. I’d counted myself a skeptic. It turned out I’d been a believer, and a mythmaker, all along. [More of a superb essay]
My father was a devoted reader of Horatio Alger in his youth. The wretched prose and simplistic plots shaped his view of how the world worked.  I just couldn't see it. After all this time, I think I have found our divergence point: the value of simple labor.

I think we have reached a level of technology that is relentlessly devaluing hard physical labor. Even in agriculture, the idea that hours in the field will translate to success is quietly recognized as incomplete, if not flawed. You need to pick your parents carefully, and memorize the plat book before dating.

Moreover, the example of a hired man going on to become a successful independent farmer pretty much ended with my generation, IMHO. As much as I have suspected our profession evolving into a hereditary agristocracy, I am now convinced.  And to my embarrassment, I am fueling the change by building a castle with ramparts and moat for our family.

Wednesday, October 08, 2014

Reluctant pessimism...

One unspoken reason for my posting pause was a fear I was becoming just another grumpy fault-finder. My theory was I would wait until the clouds cleared and I was able to ferret out good news and how it could apply to agriculture. I thought the myriad changes occurring in our farm and lives were distorting my views.

This could still be the case. But it could also be the reasons I am unsettled have some basis in reality. For example, while I am moderately secure in the outlook for Jan and I, and confident our sons will manage well, I am troubled by the future I see for our grandchildren.

Turns out I'm not alone. (And I am aware that this mindset will incline me to seek out confirming data.) But consider typical look forward from someone whose judgment I value.

The value of a meritocracy has always struck me as worth the strain to operate under. The competition will keep you strong or some such nonsense. But two things seem to have intruded on the theoretical workability of such a system.

First, we now can choose between the merits of 7B people instead of those in our local community. This meant that before there was room for the mediocre to achieve mediocre rewards simply because they were the best around at that level. Now we sort out the best from the globe, which means the fortieth-best is still the best ever somewhere. 

The second is the growing possibility of not enough work. This is what Leonhardt (above) talks around, and Ryan Avent addresses full on.
The world has more than enough labour. Between 1980 and 2010, according to the McKinsey Global Institute, global nonfarm employment rose by about 1.1 billion, of which about 900m was in developing countries. The integration of large emerging markets into the global economy added a large pool of relatively low-skilled labour which many workers in rich countries had to compete with. That meant firms were able to keep workers’ pay low. And low pay has had a surprising knock-on effect: when labour is cheap and plentiful, there seems little point in investing in labour-saving (and productivity-enhancing) technologies. By creating a labour glut, new technologies have trapped rich economies in a cycle of self-limiting productivity growth.Fear of the job-destroying effects of technology is as old as industrialisation. It is often branded as the lump-of-labour fallacy: the belief that there is only so much work to go round (the lump), so that if machines (or foreigners) do more of it, less is left for others. This is deemed a fallacy because as technology displaces workers from a particular occupation it enriches others, who spend their gains on goods and services that create new employment for the workers whose jobs have been automated away. A critical cog in the re-employment machine, though, is pay. To clear a glutted market, prices must fall, and that applies to labour as much as to wheat or cars.Where labour is cheap, firms use more of it. Carmakers in Europe and Japan, where it is expensive, use many more industrial robots than in emerging countries, though China is beginning to invest heavily in robots as its labour costs rise. In Britain a bout of high inflation caused real wages to tumble between 2007 and 2013. Some economists see this as an explanation for the unusual shape of the country’s recovery, with employment holding up well but productivity and GDP performing abysmally.Productivity growth has always meant cutting down on labour. In 1900 some 40% of Americans worked in agriculture, and just over 40% of the typical household budget was spent on food. Over the next century automation reduced agricultural employment in most rich countries to below 5%, and food costs dropped steeply. But in those days excess labour was relatively easily reallocated to new sectors, thanks in large part to investment in education. That is becoming more difficult. In America the share of the population with a university degree has been more or less flat since the 1990s. In other rich economies the proportion of young people going into tertiary education has gone up, but few have managed to boost it much beyond the American level.At the same time technological advances are encroaching on tasks that were previously considered too brainy to be automated, including some legal and accounting work. In those fields people at the top of their profession will in future attract many more clients and higher fees, but white-collar workers with lower qualifications will find themselves displaced and may in turn displace others with even lesser skills. [More good stuff]
I am coming to the reluctant conviction the system I have thoroughly believed in is not so much broken as superseded - no longer applicable. We simply never envisioned machines that are doing what they do today, let alone a population as large as we now support fairly easily if not evenly.

While I do not think agriculture will be exempt from this questionable advance of progress, there are intrinsic brakes that may slow the concentration in crop farming, at least. Land ownership, cultural patterns, relative isolation from faster evolving urban areas, and other factors could retard but not redirect this trend.

IF this is even close to correct, what should we do as a profession and individually? Those answers I think are contradictory - a tragedy of the common future, as it were. The things I think important for family survival will almost certainly diminish the outcomes for the community.

This has slowly been uncovered as the great weakness of free market systems - without constraint they tend to proceed to wildly unequal systems. Sort of like gravity forming planet, in my mind.
In this at least, Marx was correct. Preventing, or even slowing this, confounds us economically and especially politically.

Proposed solutions all seem an enormous reach from current entrenched positions. Historically, only political turmoil - even revolution has been able to effect such drastic changes. Which leaves us in an uncomfortable position. 

Even as we know our goals will worsen the problem, they make the most sense individually. It's becoming obvious there will only be a few winners in our future. This is the grim future I cannot see how to avoid. And it gets worse. As the competition gets more intense, even broad rules could be discarded. Judging from the accounts of the world of finance, this seems to be verified by fact. Social capital and human links will dwindle and the divide will grow.

This all seemed far too unlikely as it required broad participation from individuals and groups, and went against moral and religious teaching. But with technology empowering the need for fewer participants in the economy, and weaker belief systems, such an outcome is more imaginable.  Not in my lifetime as much as my children and grandchildren.

As I stated, these could just be words arising from my own personal funk. But I'm having great difficulty finding plausible alternative outcomes to argue for.

Tuesday, October 07, 2014

Russian re-collapse...

I'm not much on calling catastrophes, but I think the economic sanctions derided as too little and too feeble by the die-hard hawks in DC are seriously biting Putin's butt.
There has been little attention to this in the western media, but the Russian ruble has suffered a major decline in the last few months.  Earlier this year it was running around 25-30 to the US dollar.  Now the official rate is at 40, but the black market rate is at 50 and falling.  There is major capital and human flight going on that is attracting increasing comment in Russian sources.

In an instantaneous world, we have been reluctant to embrace long-haul foreign policy, such as the sanctions on Iran, even though patience seems to be a valid choice. I also think the mad rush to bomb is economic stupidity of the highest level and reveals the shallow thinking of deficit hawks in Congress. Not spending trillions on questionable conflicts is good for the economy.

I have not been thrilled with our ISIS response, but do support the slow vice of economic sanctions now taking a toll in Russia and Iran. It's not showy, but add in an oil price war and the oligarchs in Russia have some real headaches to deal with - all thanks to the breathtaking arrogance of their leader. 

There is a time for troops, but it is exceedingly rare IMHO. And should be.

Sunday, October 05, 2014

The Junkbox...

Is now my Twitter feed.  I'm using Twitter to post my links to stuff with brief comments - it's much faster than copy-pasting and I can do several a day.

The longer stuff will still be here.

Just follow @jwphipps.
Only 5000?...

I'm having enough trouble with texting and eating, but the concern over texting and driving deserves some illumination. To begin with we not at all sure there is a strong causal link, despite the obvious distraction.


The truth is driving fatalities continue to fall. Since we don't like facts that conflict with our casual observations we simply ignore the inconvenient ones. If the debate over climate change has done nothing else, it has enshrined the right to cherry-pick evidence as valid logic.

As various sources point out the link to traffic deaths is driving. The less you drive the fewer the deaths. Strong correlation, proven causal link.

Which leads us to how we perceive the risks of driving.  Here's one unique analysis.
This whole situation reminds me of a thought experiment Joseph Gusfield posed in his brilliant, if under-appreciated 1981 book on drinking driving and the culture of public problems (a book, not incidentally, I have chosen for my “great books” graduate seminar this fall). Gusfield asks his readers to imagine that some all-powerful god has come to America and offers to give us a new technology that will make our lives immeasurably better by allowing us to go wherever we want, whenever we want, faster than we have ever gone before. The only catch? The god demands that we as a society sacrifice 5000 of our citizens every year for the privilege of this great technological innovation. Do we take that bargain? Would you? With our reliance on the automobile, Gusfield says, we already have. In rejecting the conventional wisdom and moralistic outrage about texting and bringing new data to bear on the dangers of just being in traffic on the roads, I think Cohen is just trying to force us to grapple with this consequences of this collective decision more honestly and directly. [More]
Maybe our world has exceeded our ambition to deal with it rationally, and we leap for easy shortcuts and visual information to label as common sense. More and more, however, good sense in uncommon. Unless we want to revert to a much less complex lifestyle, our eyes and embedded time-saving intuitive conclusions are going to lead us further away.

Saturday, October 04, 2014

My spasmodic inflation report...

Any minute now. Just keep holding the snipe bag.
A Yellow Swan, maybe?...

Could the remarkable yields from much of the southern and eastern Corn Belt be classified as a Black Swan event? I don't think anyone came close to predicting it until late in the summer, and I don't think any crop observer would have given even 1% odds of a national yield over 175.

For example, this is Darrel Good as late as August:

Our analysis of USDA yield forecasts for corn over 1990-2013 did not reveal any evidence of bias in August, September, October, or November.   There is compelling evidence that the accuracy of USDA corn yield forecasts has improved over time, particularly since 2011.  It is especially interesting to note that USDA corn yield forecast errors in 2012 were extremely small, with the August forecast exactly equal to the final estimate.  This performance was exceptional given the severe drought that occurred in the summer of 2012. What, if anything, do these results imply about the ongoing debate about the direction of USDA corn yield forecasts in remaining Crop Production reports during 2014?  While it is, of course, true that longer-term trends in accuracy will not necessarily dominate in any particular year, an unusually large August forecast error this year (5 percent or more) would definitely be counter to the trend towards increasingly accurate USDA corn forecasts over time. (More)

USDA August = 167.4, so 5% error = 8.4.
Anything over 175.8 would be a greater than 5% error.

I'd say the unpredictable part is confirmed.

The second characteristic - disproportionate consequences, suddenly looks more likely as well. We don't know when the freefall will end or how we will use up this ~15B bu. of corn. Business plans and retirement calculations for producers are in shreds. Fertilizer applications have stopped. Seed dealers are not popular.

The third characteristic - it seems obvious looking back - is already occurring.

And we can't stop talking about cash rents.

Oddly enough, on that note there could be a double whammy here. As high payers are trying negotiate lower, more word about what the going rate actually was is filtering out, I think. People who have been getting the same $180 while the next door field was paying $350 are finding out and are not amused. Again, unforeseen and disproportionate consequences.

How resilient each operation is depends on a variety of factors, but regardless nobody is going to be hauling much margin out of the field with the prices where we are now, let alone where they could go. What happens next spring if we are looking at corn in the $2.75 or lower range and beans around $8?

  • Will banks lend for a deeply red ink budget?
  • Will there be a rush to the exit from Boomers?
  • Will seed and fertilizer retailers blink?
  • We we surprise the market again with Black Swan acres?
  • Will Washington step in?
  • [Fill in your speculation here]
 I don't think we can rule out wild reactions if this isn't a spike down but a splat. Frankly, I'm not sure what our plan will be.

Wednesday, August 27, 2014

The Plan...

Yes - I will be back.  Actually the spontaneous vacation has worked wonders.  Look for some big news from US Farm Report when Tyne gets back.  It will impact my life significantly and help me get back to posting.

Meantime, I am Tweeting 3-4 times/day with links and remarks on what I'm reading.  Follow me: @jwphipps.


Sunday, July 27, 2014

The problem with "average returns"...

I have long disputed the axiom touted by our financial industry that long-haul equity investment would outperform other assets. Like too much advice it was a facile glossing-over of the actual impossibility of mortal individuals to experience long term average gains.

It turns out timing - spelled L-U-C-K - is a big factor as well. Those average returns are not the same for any particular investor lifetime.
One other scenario year is interesting just for the dramatic disconnect it shows. It involves those fortunate enough at the outset to have a pile of cash to invest. The period from 1975 to 2005 was a stunning three decades for the American stock market, returning 13.7 percent per year. A person who socked away $300,000 in the S&P 500 at the start of 1975 and reinvested all dividends walked away with $14.2 million in 2005.But the pattern of returns was distinctly unfavorable for someone who was a slow and steady saver throughout that period. Some of the years of the sharpest gains came early in that window, like the 38 percent return in 1975 and 24 percent in 1976. And then the last few years were weak, encompassing three straight years of sharp declines to start the 2000s.As a result, our person who invested $10,000 each year walked away with $1.59 million come retirement — nothing terrible, certainly; it was almost impossible to hold stocks during that 30 years without making money. But hardly $14 million.A final note. You can’t control any of this. We all happen to be born when we are born, and the future returns of the stock market are unknowable. As an investor, it is generally best to focus on the things you can control, like how much you save and whether you are putting money in investment vehicles with low fees that are tax efficient.But the luck of when you are born may have a bigger impact on how much you have for retirement than you might like. [More]

Again, I agree that average returns are a good source for basing decisions. Expecting average results is not rational, however. 

Now apply this principle to farmland. How do you think the returns on land bought in say, the last 5 years will match up to acres purchased in 2005, for example?

Uh, guys...

Lost in the rural umbrage over Chipotle cartoons and "responsible raising" was any consideration that this concept might have endurance. I think the Meat Establishment consistently assumed a little pushback would not just be tremendously satisfying, but snap Joe Public back to his burger-loving senses.

That could still be proven correct, but the chances of a significant change in consumer consumption at the fast food level are growing right now - not diminishing.
The numbers were startling: Shares of Chipotle Mexican Grill shot up 12 percent on Tuesday after the company reported a nearly 26 percent spurt in its quarterly profit. For the fast-food industry, this was fresh evidence that the world of Big Macs and Doritos Locos Tacos has room for a menu with healthier-than-average food and higher-than-average prices.But it came as no surprise to a new generation of smaller fast-food chains that are coming up fast behind Chipotle and its peers, and taking its “food with integrity” mantra even further.A handful of rapidly growing regional chains around the country — including Tender Greens,LYFE Kitchen, SweetGreen and Native Foods — offer enticements like grass-fed beef, organic produce, sustainable seafood and menus that change with the season. Most promise local ingredients; some are exclusively vegetarian or even vegan. A few impose calorie ceilings, and others adopt service touches like busboys and china plates.And despite the higher costs and prices, all are thriving and planning national expansions, some directed by alumni of fine dining or of fast-food giants like McDonald’s.Their success marks a milestone: After decades of public hand-wringing about the empty calories and environmental impact of fast food, the farm-to-table notions that have revolutionized higher-end American restaurants have finally found a lucrative spot in the takeout line. The result already has a nickname: farm to counter.“This is not a passing fad,” said B. Hudson Riehle, the research director for the National Restaurant Association, who added that locally grown food and sustainability were the top two customer priorities reported this year in the group’s annual poll of American chefs. “It’s only going to get stronger.” [More]

The numbers are still absurdly lopsided, but with traditional fast-food (jeez - who'd have thunk that would be a legitimate label?) struggling to generate sales growth, I think there is a real risk that market for proteins - and consequentially, grains - may move slowly overseas. Fast food's future could be dependent on a rising lower class - not a thriving middle class.

It's tough to say how much of Chipotle's strong sales are a result of its campaign, but many analysts give the practices lots of the credit.
McDonald's doesn't expect full-year international comp sales to be too different from its June performance, and July global comps are expected to be negative.That's in spite of the late-April makeover for the iconic Ronald McDonald clown, who traded in his pear-shaped yellow onesie for a hip vest-and-cargo-pant combo. For special occasions, he wears what the firm calls a whimsical red blazer and bow tie. His floppy red shoes remain.Shares of the Oak Brook, Ill.-based company slid 1.4% in the stock market today.By contrast, Chipotle wolfed down profit in spite of higher menu prices, reporting late Monday a 17.3% jump in Q2 same-store sales. Earnings topped views as revenue growth accelerated for a third straight quarter.The company's antibiotic-free proteins and fresh ingredients have made the chain a fan favorite in the fast-casual world.Making over menu items — instead of mascots — may be the ticket to success with consumers. [More]
The numbers are all the more impressive given the healthy (heh) price increases Chipotle announced earlier this year.

Dietarily, I don't really have a stake in this battle. I eat increasingly less beef, but have been doing so for years. But I travel enough to use fast-food for refueling simply because it's, Come to think of it, that may be the large majority of the attraction.

Nonetheless, I think treating this sales trend with the respect the numbers deserve might not serve us better that echo-chamber outrage-fests. 

Saturday, July 26, 2014

Out of the closet...

No - not that closet. I have nurtured an abiding fear somebody will find my Kindle and note the astonishing amount of, low quality fiction I read. We're talking space operas, hard-core SF, and even some Tolkein-ish fantasy. We're talking a couple hundred books here. (Some only $1.99 and still overpriced)

It was a relief to find a masterfully written article that helps me justify this juvenile escapism.

Second, some of the most celebrated practitioners of modern fantasy share with their pre-modern predecessors this belief that the fictional apparatus of fantasy is a relatively close approximation to the way things really are for human beings. J. R. R. Tolkien may not have believed in Sauron, but he surely believed that there are in human history people who sell themselves to the Enemy and find themselves as a result of that decision first empowered and then destroyed. And when, at the beginning of Lewis’s Perelandra (1944), the protagonist Ransom’s progress toward a friend’s house is impeded by invisible forces who fill him with fear, Lewis was describing the work of spirits whom he truly believed to exist, though under a slightly different description, just as he probably believed thatsome forms of scientistic rationalism are the product of demonic influence. In short, these writers sought to present their readers with an image of an enchanted world, of selves fully porous to supernatural forces. But because they did so in genres (fantasy, science fiction) known for the imaginative portrayal of the wholly nonexistent, readers confident in their buffered condition can be delighted by those stories without ever for a moment considering the possibility that the forces portrayed therein might correspond to something real. Indeed, the delight of the stories for such readers consists primarily in their perceived unreality. [Much more]
The mental escape routes are handling some heavy traffic these days. Fantasy/SF is a hot genre - and not only with nerds. But some suspect this wave is only a bubble.
Therein lies the rub. There's a reason fantasy wasn't mainstream before. It's a genre that appeals to people who play D&D and get their kicks reading about elves with names like Tanis Half-Elven and Galadriel. Unless publishers can keep finding the next big crossover, fantasy may once again return to its less mainstream, and considerably less profitable, roots. People can only take in so many teenage vampire romances and wizarding schools. It's possible that the next Harry Potter is just around the corner, of course, but it seems like no matter how many "Is Such-and-Such the Next Harry Potter?" articles I read, the books never quite gain enough momentum to go mainstream. Books like Lev Grossman's The Magicians gain wide critical acclaim, but then run into the immovable object that is the hardcore fantasy fan base.As much as I'm enjoying the bubble, I won't care too much if it bursts. Fantasy has simply gotten better over the past decade, and most of the best titles will never be adapted into an HBO series or a movie anyways. The really good stuff these days also tends to be really edgy. R. Scott Bakker's Prince of Nothingseries is so dark I'm not sure it would make an R-rating if it were translated to the silver screen. Many other contemporary fantasies are similarly adult, with lots of sex and lots of violence. Steven Erikson's Malazan books are also dark, but more problematic from a filmmaking standpoint, as the popular series spans several distinct time periods, countless perspectives, and a sprawling epic storyline. The various storylines are not obviously connected with one another even after several books. Robert Jordan's Wheel of Time series suffers from the same kind of shortcomings. What works in epic fantasy doesn't necessarily translate onto the big screen.Plus fantasy costs too much money to produce. Dragons, spells, and fantastical worlds are expensive, even in the age of digital animation that has made this all possible. It's one thing to adapt A Game of Thrones, which is as much medieval adventure as it is high fantasy. Martin's work has little overt magic, and few magical creatures. Compare this to the work of Jordan, Erikson, or Bakker and you begin to see how studios such as HBO might be leery of the investment. [More]
It could be the increasing intrusion of technology is affecting our feelings about religion and our dreams alike. The intensifying monotony of our choices for entertainment certainly encourages borrowing someone else's imagination, perhaps. 

But as I continue to note lately, I care less about whether others think my preferences are silly or misguided. At this point, life really is too short. Besides, when I did care I couldn't change their opinions, anyway.

Thursday, July 24, 2014

Bankers unclear on the concept...

Out in Kansas, home of the famous "Fighting 'Flation Hawks", bankers recently gathered to complain how the Federal Reserve was ruining their lives.
"Interest rates have been low longer than needed," said Jim Farrell, president of Farmers National Company and chair of the Omaha branch board of directors of the Kansas City Fed. "The low rate doesn't seem to be stimulating anything now.""Beware of unintended consequences," Farrell added. Discounted interest rates get factored into farmland values, which influence cash rents and that drives up the cost of production, Farrell noted.Another consequence: "Some have called it a 'retirement tax,' because retirees are paying the price, [by not being compensated for their savings]," said Farrell.In fact, George pointed out, "We've seen signs of 'reaching-for-yield' behavior in the leveraged loan market, subprime auto lending and corporate bonds."The lack of alternative investments has been a factor in keeping farmland values high, noted Doug Stark, president of Farm Credit Services of America, based in Omaha."Lower interest rates have also pushed some savers, who traditionally relied on safer assets, into riskier securities," said George. And there is growing concern these savers, especially those retired or nearing retirement, may not understand those risks, George noted. [More]

It's unsettling to me to hear remarks like these from people in charge of our financial system. My understanding of the system seems to be strongly at odds with their POV.

For example, there are easy ways to tell when interest rates need to rise: inflation comes to mind. When people want to buy stuff and services more than they do save money, prices will begin to rise. This demand-pull doesn't seem to be what we've seen for years.  In fact, inflation remains historically low.
The Labor Department’s latest consumer price index report suggests concerns about inflation pressures may again be premature. U.S. consumer inflation firmed last month but largely decelerated outside a jump in gasoline prices, and food costs in particular slowed after surging in recent months.Indeed, the Fed’s preferred measure of inflation—the Commerce Department’s personal consumption expenditures index–has been undershooting the central bank’s 2% target for two years. Any reading that finally approaches 2% – and even one that surpasses it slightly – is likely to be welcomed rather than feared by Fed Chairwoman Janet Yellen and many of her colleagues. [More]
Let's see what this looks like:

Another sign rates are too low would be bond yields. If US debt wasn't paying enough interest the price of bonds would drop to raise the effective yield. But signs of investor reluctance just aren't there.

And while the bankers complained that savers were being "forced" into riskier investments to get some yield, this is another indication we have plenty of money looking for work. Just like we now seem to have more than enough corn, the price has plummeted. For many, it is hard to think of money as a commodity, but the same supply/demand principles apply. 

Here's a curious indicator about the abundance of savings.
A report released Thursday by bank consulting firm Moebs Services Inc. calculated the average balance for U.S. checking accounts at $4,436 at the end of last year — more than double the average of $2,100 over the 25 years of the annual survey.During good economic times, when unemployment and inflation are low, the average balance in consumer checking accounts is about $1,400, the survey noted."When times get difficult, the consumer sits things out and checking balances get larger, normally upward to $3,000 or a bit beyond," the study said. "Generally there is higher unemployment, lower inflation and falling prices." [More]
The idea of more money than can be used by borrowers simply eludes many people. The belief that money has intrinsic value is deeply ingrained in our minds. Perhaps this is necessary, because if we ever did try to come to grips with the fact that it's jut a piece of paper or a number on a screen we'd panic. And buy gold.

But this, I believe, is the big reason why interest rates are low - there are oodles of money being saved, much less being spent. And as for needing money for investing in new business ideas, that's not happening either.

The surplus of savings has gone on long enough to trigger a sense of entitlement in savers - they deserve a decent return! It turns out if nobody wants to use your money, you don't. Money earns a return, it isn't a built-in guarantee.

Finally, these bankers seem to have forgotten they control their interest rates. The Fed can't prevent them from raining what they pay savers. Of course, they would have to charge more to borrowers in return, who would likely go to a) borrow less or b) find another cheaper lender. The Fed doesn't tell banks what to charge. 

Exacerbating the problem is how banks have voluntarily linked loan rates to the prime rate (which links to the Fed funds rate) so as to "automate" and shift blame for rate changes. This is a real help when going up, but less fun for them when rates are falling. Again, this was their choice, not the Fed.

This is simply low demand. While $3 corn may help that situation for some ag banks, right now more saving is going on than spending.  The worst (for them) news is this is unlikely to change very fast. Economic growth is largely being garnered by the saving class, not the spending (borrowing) class.

Banks have the same problem I have: too much product for current demand. Carping about the Fed won't help, and raising interest rates could actually make the problem worse.  Until loan demand and inflation show some life, they need to figure out some other way to make a buck.

Wednesday, July 23, 2014

I'm not dead...

"Anonymous" below asks if I've giving up blogging. Which reminded me:

So, the answer is, I don't think so. But I've gotta get my time balanced.

Here is what I can tell you right now.

  • There will be some changes coming at USFR which will help. (Other than Tyne having her baby)
  • I am posting links and comments on Twitter almost daily. Follow me there if you like.
  • I miss blogging but also found out I missed farming and woodworking.
The time off really helped, so now that corn is headed to $4.00 $3.50 $3.00, there may be some stuff to write about. 

I think I'm about ready to get going.  Thanks for asking.

Sunday, June 22, 2014

The truly "golden" years...

Jan and I have been unbelievably - and undeservedly - lucky in life. One thing we can take credit for, however, we had our children at a great time in our lives.  As such we enjoyed our "golden" years at a time and in a way many cohorts behind will never know.

The old admonition, "Life begins when the kids leave home and the dog dies" has a bit of truth behind it. Our children were born when I was 26 and 29 respectively.  Which means they left for college when we were in our mid to late forties - no age at all.

Better than that, they never came back, and more importantly achieved financial independence promptly after school. I have written how I was caught unaware by Aaron's return after nearly 15 years away, but that is another story. My point today is how - happy though we are right now - we marvel at the incredible years when we were still young enough to do anything we could afford, we could afford more than we had anticipated, and we were not yet caring for an older generation, or friends coping with health issues.

This life plan doesn't appear to be that common any more.

Look, we loved being parents, but we were stunned by how much fun it was to have grown children. I suppose we missed the crazy times of being 20/30-somethings without spouses or children, but postponing them to 45 ain't the worst outcome in the world either.

Most crucially, we are learning that much of what is glittering beyond 65 is fool's gold. In addition to the scenario laid out above, longer-lived parents often surprise our retirement plans, so that postponed pleasure is being eroded from both sides. 

Again, other than deciding two children were enough (which oddly we often regret) and having them early in our way-too-early marriage (I was 22, fer Pete's sake!), simple good fortune granted us a decade or more of hilarious freedom of action. I know, I know, it could all have been stolen by a health problem or similar life catastrophe, but at least we were in position to take advantage of the absence of calamity.

Our sons will be shifted slightly further down the life-track as they married and propagated at somewhat later ages, but I also know young people who may never see a grandchild, let alone her wedding. The timing just doesn't work.

I wonder if these life examples will move the trend of later marriages and families back to younger ages, or whether it will become astonishing to go on a camping trip with your grandparents when you are 12. 

Re-reading this, it could be interpreted as not merely self-congratulatory, but anti-retirement planning. That certainly wasn't my point. I'm just thinking that birth control has delivered some unexpected cultural results that may take us generations to sort out.

Wednesday, June 18, 2014

Odd charts...


[As always, click to enlarge] 



More to fret about...

Agriculture seems to me to be overly concerned about what other people think of them. While much of this has to do with defending our special status with the government is many instances, this anxiety is also present in less-subsidized sectors.

Some of it may be attributable to our odd concern over being "over-regulated".  I use quotes because what many see as intrusive regulation looks to me like being required to clean up our messes so they don't burden others. Or better yet, regulations offer strong  protection from our litigious fellow citizens. Regardless, apparently if we are well thought of, this will ameliorate the problems, the thinking goes.

I'm not sure why we are so concerned. But since we are here is some sobering news:

We are not a prestigious occupation.


I'm not sure why the survey is so old (2009) - maybe you have to buy the fresh stuff. Whatever.

It's even worse when you look at our NORC score.

Maybe I'm just getting old and grumpy, but I don't think I was ever worried about whether people were "dissing" my occupation. In fact, I can enumerate some positive aspects of being ranked lower.

  • You are non-threatening.  My brother is a DOCTOR.  People who are DOCTORS seem to slip the fact into every conversation or attach MD to the scout trip chaperone list. Not all of them, but enough to notice a trend. This gets old. When people find out I'm a farmer, defenses fall instead of raise. They are pretty sure I'm not going to try to overwhelm them with my fabulous intellect or credentials. (Suckers!)
  • It's easy to astonish them with simple competence. Let's face it, the bar is pretty low for expectations in conversation or knowledge.
  • In a way, we are exotic. Nobody really knows how we live, yet may think they do. Partly that's because we spend inordinate effort trying to mislead them, but mostly it's due to a really unusual way of life.
  • You have new stories. Life in rural America is a mystery and an endless source of fascination. 
  • You have a unique perspective on everything from health care to child-rearing.
  • You have strong ties to a long past. You know how people say "X% of the jobs Y years from now don't even exist yet"? Our does and has. For 12,000 years or so. This is often envied more than you might think.
  • You job is "explainable". Despite embracing technology like a warm cheerleader on a cold night, farming still is basically the same job it was for, like, ever. 
It's not that I don't want people to think well of my work. But I don't expect them to respect me because of my occupation. That could be what we're seeing here in agriculture: a respect entitlement attitude.

Sunday, June 15, 2014

Twits on Twitter...

Yes, I've degraded myself to 140-character wisecracks and am tweeting.

Worse yet, I think I'm starting to enjoy it.

FWIW, I will tweet whenever I have a new post, so if you follow me you can follow Incoming as well.
The Chipotle affair...

I have been more than a little puzzled by the kerfuffle between the beef industry and Chipotle - for multiple reasons. But it's evident  - although virtually predictable - my opinion doesn't line up with the majority of farmers and ranchers. This became obvious when we talked about it on Agritalk Friday.

Chipotle has turned to Australia to source grass-fed beef. Considering the price of beef, especially the lean beef they need to cut our higher fat fed beef down to burrito level, this is hardly a surprise. But the beef industry took offense at their CEO comments.

In 2013, our company purchased about 45 million pounds of domestic Responsibly Raised beef; but the U.S. supply isn't growing quickly enough to match our demand. Even though our loyalty to American ranchers is strong, rather than meet the shortfall with conventionally raised beef from cattle treated with growth hormones and antibiotics, we decided to take this opportunity to start sourcing more truly grass-fed steak. So in addition to expanding our supply of beef raised without growth hormones or antibiotics, we are particularly excited to be able to serve more beef that comes from cattle raised entirely on grass. [More]
Of all the possible reasons, I think this quote hints at the most important one: the supply/price crisis in the US. Cull cows are setting records for both price and small numbers. So getting to 80/20 for ground beef is really tough with our beef output. Sure we have grass-fed beef but I can't even get any good numbers on the size of our grass-fed herd, let alone the percentage that are non-hormone and antibiotic free.
Nobody collects information on exactly how much of the grass-fed beef that Americans eat comes from abroad. Theo Weening, the global meat coordinator for Whole Foods, says his company buys very little. "We probably import maybe 3 percent. The rest is regional, local; that's what we really push for," he says.But you'll see plenty of Australian-origin beef in other supermarkets. Organic Valley, meanwhile, gets all of its grass-fed beef from Australia. There's also a lot of grass-fed beef coming in from Uruguay and Brazil.So why does the U.S., the world's biggest beef producer, have to go abroad to find enough of the grass-fed variety?Curt Lacy, an agricultural economist at the University of Georgia, says some of the reasons are pretty simple. Weather, for instance. In most of the U.S., it freezes. In Australia, it doesn't. So in Australia, as long as there's water, there's grass year-round.And then there's the issue of land. "If you're going to finish animals on grass, it takes more land," Lacy says. Grassland in Australia is relatively cheap and plentiful, and there's not much else you can do with a lot of it, apart from grazing animals.As a result, Australian grass-fed cattle operations are really big. In fact, they're the mainstream. Seventy percent of Australia's beef production comes from cattle that spent their lives grazing. And when beef operations are large-scale, everything becomes cheaper, from slaughtering to shipping.On Monday, the U.S. company Cargill announced a new deal with Australia's second-biggest beef producer — a company called Tey's. Cargill will now sell more Australian beef in the U.S., both grass-fed and grain-fed. [More]
I think Chipotle knows exactly what they are doing. And for the most part, the beef industry isn't thinking this through. Chipotle is arguably the brightest star in the food service galaxy right now, and seems to be handing both fast and casual dining competitors their heads, by inventing - along with Panera, etc. - a new category: fast casual.
Chipotle is adding 200 restaurants a year to boot. Even the NCBA rep on the show with me pointed out the lines out the door at the stores in the DC area. Oddly, he couldn't connect that with the dots that suggest Chipotle knows what they are doing.

Mostly Big Beef hasn't gotten over their big beef (I've been saving that line for, like, ever) with the slick Chipotle videos, notably the latest - "Farmed and Dangerous". Partly this is due to the clearly top-notch production values, and mostly I think it's simply a lack of any effective response. 

The beef industry has decided, for reasons I cannot fathom, to go with "you hurt my feelings". 
Some U.S. producers say they were not given adequate opportunity to fulfill the company’s rising orders. While U.S. beef supplies are very tight, they aren't tight to the point where there's not enough supply. The company's decision to source some of its beef from Australia likely has more to due with price. Plus, the firm continues to strive for use of beef raised with no antibiotics or hormones, which it calls, "responsibly raised."Chipotle has the right to source its beef (and other meat) needs from wherever it chooses. But to say there isn't enough "responsibly raised" beef in the U.S. is a slap in the face of cattlemen here in the States. Cattlemen (and the entire farm community) should choose to "eat responsibly" and opt to dine at restaurants other than Chipotle. [More, but gated from Profarmer]
Brian Grete (above) reports this pretty accurately. I've heard and seen the "slap" reference repeatedly. It strikes me (heh) as one of the worst metaphors cattle producers could use. First, imagine somebody slapping the quintessential 'Merican cowboy (Marlboro Man, or Clint Eastwood from Rawhide). These are the rough-tough personas invoked often by our cow-calf people, so talking about a face-slap is an inexplicable transition from grizzled survivor to playground victim. Maybe the victimhood thing has worked so well for my sector (the weather/Chinese/Big Oil/etc.!), they have decided to join the whine cellar crowd.

But unlike corn farmers who are whining to government for hidden subsidies, cattle producers are aiming, I guess, for the public. This could be a big mistake. Jane Q Consumer is already aware of painful beef prices. And she is responding just like economists predicted, for once.  Beef consumption continues to drop. While there is substitution going on, total meat consumption is a tide that carries all proteins along.

[Source] [Note: I couldn't find any charts beyond 2012, but trend has not changed]

I see no evidence that pity-based marketing has been working or will work for the beef industry - unless they are shifting to subsidy-based ag, which could be, given the new livestock support in the recently passed Eventual Farm Bill ™. (This is my designation, which I thought up all on my own because the timeline for the current farm bill seems to be stretching to infinity and beyond)

Complicating this response is when you are "slapped in the face", simply griping about it seems a little...umm, limp, to put it mildly.

It could also be our grass-fed producers were simply out-hustled by the Aussies. [I would include an excerpt, but they lock down their content] At any rate, without oodles of corn, we should hardly be surprised Australia would be very, very good at growing and marketing grass-fed beef.  And just as we laud our export efforts in Asia, etc. when US beef takes market share from domestic suppliers, why are are miffed when the free markets works freely (both ways)?

But the bigger picture may be what is troubling most US cattle people (if only subconsciously). What if Chipotle's upfront promotion of "responsibly raised" beef works? What if competitors are forced to match their move? [See also: gestation crates] What if slick videos posed next to feedlot pictures sway consumers to eat less conventional beef?

Right now the answer seems to be, "We'll just export our product." This is a legitimate countermove. The US could become the high-value dominant supplier and simply leave the ground beef sector to others. While it seems to be working, there are things to watch as well. 

Increasing dependence on exports means greater volatility, IMHO. From currency fluctuations to competition to foreign policy entanglements to outright conflicts, lots can go wrong with exports. Secondly, growing income inequality here at home means the growth in the domestic market will be in exactly the sector dominated by the "Chipotles" of the industry. The domestic/export trend could intensify rapidly.

To sum up, beef producers at ticked at Chipotle for saying things they don't like, but can't answer effectively. They are also miffed at losing a grass-fed customer. But if it hasn't dawned on them there is not much they can do about it, they risk looking like ineffectual complainers.

The American and perhaps global consumer is getting used to vendors catering to even illogical preferences. Amazon has taught them they can really have it their way. Tomorrow. All of agriculture needs to realize this will ripple through our value chain and arrive our our farm gate, whether we like it or not. Meanwhile, our government is busying eating its own and can't be bothered with a tiny, never-satisfied slice of constituents. We can wrap US beef in the flag all we want, but that got tiresome back when Japanese cars kicked our automotive butts into the 20th Century. Patriotic shopping happens when consumers prefer US products.

I don't think Chipotle "slapped any cowperson's face". I think they said, "No thank you, I like Brand X".  It's not about us, it's about our products. And if we weren't plowing rangeland to grow insured-for-nearly-free crops, maybe we could play in the Big Grass-fed Leagues.

For the time being I think I'd take a pass on tattling that "Chipotle slapped me!"

Wednesday, June 11, 2014

Looking back, I saw this coming...

Just like the 3.5" of rain on my soggy fields. The Cantor defeat which was utterly unpredicted (my headline notwithstanding) now shines some light on a little known anti-economist economics teacher who has some puzzling views.


Umm, okay. My knee jerk reaction is this guy could be a go-to legislator for a weird quote on a slow news day. While his relationship with the Tea Party was mostly that he was running against Cantor, there could be surprises all across the board. 

The upshot for me is the importance is the removal of Cantor, not the arrival of Brat.  It's hard to imagine the leadership battle being settled without an ugly fight, IMHO. 
In the immediate aftermath of Cantor’s defeat, camps inside the GOP were divided, with some Cantor allies urging him to stay on and help guide the party until November, while many of his critics privately warned that if he does not resign from his post they will promptly move against him.Associates of House Speaker John A. Boehner (R-Ohio) said they were telling him to quickly declare that he will stay in his position for another term and that he would like Cantor to stay on as majority leader through the end of the year, making the argument that unity and stability are critical for a House GOP in crisis.Others close to Boehner predicted that he may say little definitive in the days ahead about his own political future as he waits to hear from House Republicans about how they would like to proceed and whether conservatives, encouraged by professor David Brat’s upset in Virginia’s 7th Congressional District, decide to target him in an effort to elect an entirely new slate of House leaders. [More]
Meanwhile, back in Mississippi, I have to believe this is not good news for Sen. Thad Cochran, even though he is applying liberal (heh) amounts of money to his runoff. 

Two consensus beliefs from the punditocracy:
  1. Immigration reform is doornail dead.
  2. Hillary just got a boost.
Both I think seem plausible. But we pundits haven't been doing so well lately, have we?

I would add there is no good news for ag in the resurgence of the Tea Party. We relied on bipartisan support to get our subsidies and TP doesn't do bipartisan.  In fact, we have yet to get the actual, you know, dollars.

Indeed, it is not impossible this bill could languish in a fight over school lunches. The longer it stays in committee the more it will "evolve", I would think.  Meanwhile, Aaron attended a Farm Bill info session for his FB board and was told the FSA has locked down all information on rule-making, as well as tossed out even more distant final rules dates.  We may not be signing up for anything until next spring, for example.  Ok - this is hearsay, but juicy, ya gotta admit.

Back to the ditches...