Saturday, September 16, 2017

GMOs and Fractional Reserve Banking

I recall a few years back being part of a Facebook discussion group supposedly dedicated to 'food and farm freedom.' In general discussion was related to reducing taxes and government regulation in agricultural production. However, there was a lot of anti-tech anti-biotech anti-corporate sentiment. The idea was that big business (like biotech companies) were conspiring with big government to control the food supply. The solution was...wait for it...more government regulation. Never mind this was a libertarian focused group and never mind that existing biotech regulations make production and release of biotech varieties 20x costlier than conventional crops despite being substantially equivalent in terms of risk (of course in-plant pesticides might necessarily require additional testing from an environmental standpoint).  So here was a free market discussion group with discussants arguing against government regulation of raw milk but calling for more stringent regulations if not actually banning biotech crops and other modern technologies in the name of safety and food access.

Changing subjects, recently George Selgin wrote an interesting piece regarding fractional reserve banking. Anyone familiar with libertarian and especially some Austrian leaning thinkers might have an idea of how much some abhor fractional reserve banking. The piece is a rather long historical look at fractional reserve banking and common law traditions going back a few centuries. But toward the end he notes:

"by encouraging people who might otherwise be inclined to oppose heavy-handed government regulation of private industries to favor, on ethical grounds, the outright prohibition of many ordinary banking transactions, the myth that fractional reserve banking is inherently fraudulent strengthens the hand of officials and others who want to hamstring bankers for quite different, but equally unsound, reasons, not excluding a general dislike of free enterprise."

I could not have put it better concerning raw milk drinking libertarians opposed to biotechnology:

by encouraging people who might otherwise be inclined to oppose heavy-handed government regulation of private industries to favor, on ethical grounds, the outright prohibition of many ordinary modern agricultural practices the myth that modern agriculture is inherently harmful or unsustainable strengthens the hand of officials and others who want to hamstring producers and others in the ag industry for quite different, but equally unsound, reasons, not excluding a general dislike of free enterprise.


References:

The "Bagging Rule" – Or Why We Shouldn't Arrest (All) the Bankers

BY GEORGE SELGIN SEPTEMBER 6, 2017 https://www.alt-m.org/2017/09/06/the-bagging-rule-or-why-we-shouldnt-arrest-all-the-bankers/

Henry Miller and Gregory Conko. 'Bootleggers and Biotechs.' Regulation. Summer 2003

September 16, 2017 Market Commentary (Corn)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

Back in July I wrote:

"prices picked up through the July 4th holiday (following USDA acreage reports) with a 12 month and year to date high on July 11th at 4.17. Much of this was reaction to weather vs fundamentals in those reports.

However, interest and volume were not at the elevated levels we saw back during the June high of 4.09. Also, the RSI was near 70 on the 10th and 11th approaching levels giving a potential technical indication of being overbought. This of course may just be the kind of volatility we expect in a weather market while  there is probably somewhat firm fundamental support based on the late plantings, replants, and current crop conditions and lack of uniformity in the crop progress across the corn belt compounding the uncertainty about weather."

I'm not a technician but the market has been downhill since then. USDA has continued to release disappointing WASDE reports indicating strong yields despite the early spring fundamentals and crop conditions being less than stellar across key cornbelt states. Current good to excellent ratings for corn are at 61% vs. 74% a year ago. Additionally the crop is behind, with 75% denting vs 81% 2012-16 average and  21% mature vs 31% 2012-16 average.

The latest WASDE report  actually raised the national average corn yield slightly to 169.9 bushels per acre, and based on estimated planted and harvested acres and usage gives an ending stocks to use ratio of about 16.4%. While not a record yield this would be one of the best (2nd best) yields in the last 5 years. Current December futures puts price just above $3.54/bushel with some carry going  into March and May at 3.67/3.75/bu.

Many producers and analysts are having a hard time taking these numbers to the bank. But industry analysts on average are putting yields in the 165-167 bushel range. These alone are not entirely favorable for price conditions.


                           Year                          Stocks to Use                             Price                            Yield
2012 0.0740774159 6.89 123.1
2013 0.0915712799 4.46 158.1
2014 0.1259092232 3.7 171
2015 0.1271223653 3.61 168.4
2016 0.1873713109 3.45 174.6

My basic projections based on this data implies that to get any where near $4/bu, taking all other USDA estimates on usage and harvested acres, corn yields need to be in the 163-164 bu/acre range. More complicated estimates and some adjustments with the usage numbers may be a little friendlier.


Projected Yield: 169.9 167 163.5
Projected Stocks to Use: 16.40% 14.70% 12.65%
Projected Price: 3.36 3.62
4.04

Things to look forward to might be technical indicators for an upward trend in price, as well as fundamentals related to actual harvested acres and yields once more progress is made in key corn producing states and those on the outlying areas that have seen better crop and growing conditions.

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  


Saturday, August 19, 2017

Can Index Funds Hamper Price Discovery?

There are some concerned that too much money going into ETFs and not enough active investment will cause issues with price discovery.

https://www.wsj.com/articles/worlds-biggest-pension-fund-wants-to-stop-index-trackers-eating-the-economy-1502974668 

Sounds familiar: https://www.wsj.com/articles/welcome-to-the-meat-casino-the-cattle-futures-market-descends-into-chaos-1471475438 

There has

Gates Notes: Sustainable Beef for Developing Smallholder Agriculture


Gates Notes: 

"While there are legitimate questions about whether the world can meet its appetite for animal products without destroying the environment, it’s a fact that many poor people rely on cattle for both nutrition and income. I believe they should be able to raise cattle as efficiently as farmers in rich countries do….For them, meat and dairy are a great source of high-quality proteins that help children fully develop mentally and physically. Just 20 grams of animal protein a day can combat malnutrition, which is why our foundation’s nutrition strategy wants to get more meat, dairy, and eggs into the diets of children in Africa. Cattle are also a huge economic driver in some parts of Africa. In Ethiopia alone, cattle account for 45 percent of their agricultural GDP. In addition, livestock can actually contribute to ecosystems by stimulating pasture growth, enhancing biodiversity, and recycling energy and nutrients….As more people in poor countries move into the middle class, they will likely eat more beef and drink more milk. But we can mitigate the impact of that growth on the environment by increasing production from the cows they already have."

Noahpinion: Summing up my thoughts on macroeconomics


Comment from a6z: Macroeconomics

"It's more than commerce. It's the big themes. The rise and fall of civilizations. Freedom versus authority, the one and the many, the center and the periphery. Politics, broadly understood; therefore ethics, at least normatively described. Epistemology, too."




Wednesday, August 9, 2017

Agricultural Intensification and the Environment

This story puts blame on the meat industry for largest ever "dead zone" in the Gulf of Mexico.

The authors of the original study are advocating reduction or elimination of meat consumption.

Others tend to think focusing more on 'low-input' agriculture is the solution. However this study finds organic farming systems have a 37% higher eutrophication potential.  (HT: Breakthrough Blog)

Note also, in the study I cite here low input agriculture is inherently coupled with large scale grain and livestock production.

This paper (using simulation) finds a land sparing and GHG mitigating effect from intensification of livestock production in Brazil.

This paper finds "investment in yield improvements compares favorably with other commonly proposed mitigation strategies. Further yield improvements should therefore be prominent among efforts to reduce future GHG emissions."


References:

Comparative analysis of environmental impacts of agricultural production systems, agricultural input efficiency, and food choice
Michael Clark1,4 and David Tilman2,3
Published 16 June 2017 • © 2017 IOP Publishing Ltd
Environmental Research Letters, Volume 12, Number 6

To what extent does organic farming rely on nutrient inflows from conventional farming?
Benjamin Nowak1,2, Thomas Nesme1,2, Christophe David3 and Sylvain Pellerin1,2
Published 5 December 2013  2013 IOP Publishing Ltd
Environmental Research Letters, Volume 8, Number 4

Greenhouse gas mitigation by agricultural intensification Jennifer A. Burneya,Steven J. Davisc, and David B. Lobella.PNAS  June 29, 2010   vol. 107  no. 26  12052-12057

Britain to Ban New Gas and Diesel Autos by 2040

Well in GB they plan to ban the sale of new gasoline and diesel cars by 2040. I'd really like to see the cost benefit analysis on that especially as it relates to GHG emissions.

According to this story, about 2.7 million cars were registered in GB in 2016.

Recall, by some estimates GHG reductions associated with planted areas of biotech crops in the U.S. were equivalent to removal of almost 11 million cars!

Could they not just import more corn from the U.S. and call it even?