Sunday, October 23, 2016

Do Traders Produce Anything of Value?

For those that believe that traders and speculators produce 'nothing of value' the CME group has a very good short video clip showing quite the contrary.


Elaine Kub puts it beautifully in her book Mastering the Grain Markets:

 "No other industry is so fundamentally tied to our human nature. It is creative in the truest sense of the word-by growing plants we create and sustain life. And no other industry ties the global population together so inescapably. All life on earth depends on agriculture, how well we distribute agriculture's products-how well we trade grain-determines how Earth's population gains access to its most fundamental needs."

See also: Mastering Metrics and Mastering the Grain Markets.

Wednesday, October 12, 2016

Science + Economics = Sound Policy

There has been a lot of controversy over the last year regarding IARC and their opinion of Glyohosate. Recently from Reuters, Exclusive: U.S. lawmakers to investigate funding of WHO cancer agency.  By Kate Kelland, Health and Science Correspondent:

"In a Sept. 26 letter to NIH director Francis Collins, Oversight Committee Chairman Jason Chaffetz describes IARC as having "a record of controversy, retractions, and inconsistencies" and asks why the NIH, which has a $33 billion annual budget, continues to fund it.
"IARC's standards and determinations for classifying substances as carcinogenic, and therefore cancer-causing, appear inconsistent with other scientific research, and have generated much controversy and alarm," Chaffetz wrote."

This is interesting. I think that critics are so tired of hearing that science is NOT on their side, they are desperate to (as Thomas Sowell has said) use the 'name and prestige of science to override other people's choices.' i.e they would like governments to ban or restrict glyphosate on the basis of their science.

And this is where economics comes into play. Economics is the study of people's choices and how they are made compatible, or the study of people's choices and the unintended consequences of those choices. So even if the IARC statements were based on rigorous science, the relevant question, at the margin, does not turn necessarily on whether glyphosate is carcinogenic, the question is how carcinogenic (or persistent in the environment or other environmental factors for that matter) is it in comparison to other chemistries or products that farmers would substitute in place of glyphosate and the consequences that follow.  Previous research has shown that the use of biotechnology has led to reductions in greenhouse gas emissions and that biotech trait adoption related to glyphosate (Roundup) has resulted in a substitution away from more toxic chemistries. So if even if we did take the IARC statements about glyphosate as gospel and acted on them, would it make sense from a health and environmental standpoint to discontinue its use and substitute with more toxic chemicals and farming practices that on a systems level be worse for our health and the environment?

In the case of glyphosate, it looks like both the science and economics are in favor of more...not less, or at least some optimal level. Economics can put science, good or bad, into a context relevant to the things we really care about. Unfortunately, many activists have an ax to grind that cuts counter to the principles they claim to be promoting. Economics can dull these sharp charades.

See also:

A Safer Food Future

More on how economic theory can help us determine which 'facts' are 'relevant'


Genetically Engineered Crops: Has Adoption Reduced Pesticide Use? Agricultural Outlook ERS/USDA Aug 2000

GM crops: global socio-economic and environmental impacts 1996- 2007. Brookes & Barfoot PG Economics report

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

Tuesday, October 4, 2016

Sam Clovis, Blake Hurst, John Cochrane-Economic Growth, Regulatory Uncertainty, and Agriculture

In an AgWeb blog post I wrote back in 2009 (More Regulation for Global Agriculture ) where I quoted:

"We may well see increasing public control by human decision-makers over almost every detail of food production, marketing, and distribution." 

 I concluded:

"Hopefully, we won't have to waste a decade mired in stagnation while we rediscover the basic principles of individualism, freedom, and liberty that made this country so exceptional"

Fast forward almost 7 years later Sam Clovis (an advisor to Donald Trump for Agriculture) discussed a number of policies on Agritalk. A lot of details were discussed, but the most important thing relates to a general attitude Sam has in favor of less regulation.  Clovis intends that Trump will take this head on:
“Mr. Trump on day one of his presidency will impose a moratorium on rule-writing,” he says. “Then, each department will have 30 days on the rules that have been written over the past five years so we can have a look at them.”

Also related to this,Blake Hurst offers a nice anecdotal story titled 'Missouri Farmer Discusses  The Unbelievable Reality of Regulation' recently on AgWeb about Charlie and John, who own a small fertilizer plant and are farmers respectively and the challenges they face from over-regulation.

"Our present regulatory state can’t be believed if you haven’t been in the crosshairs of government bureaucrats. It can’t be parodied or made fun of, because no matter what “myth” we farmers might make up, the reality is even worse, and more strange. It’s past time to reform this system and rein in a government that seemingly knows no limits."

This is not just about agriculture, but nationally, when you look at income stagnation and consumer confidence and overall national growth its the same story. Recently, and timely, on EconTalk, Russ Roberts talks with John Cochrane about regulation and economic growth:

John: "if you think about the important issues of economic policy, economic growth is it. It just begins and ends at economic growth…..just nothing matters as much as reestablishing or improving on the traditional growth's not just more stuff: it's better stuff--better health, better environment, ability to pay off the government's debts, ability to pay for our social programs--really just everything hinges on economic growth…..people talk about the stagnation in middle class incomes and so forth. That's a phenomenon of the slowdown of growth"

And what is causing this slowdown- they discuss several possible theories, but most plausible is, you guessed it...regulation:

"My view is that we have creeping regulation sanding the gears. What's hard about this is every little market is screwed up. There isn't one big 'Aha,' we just need a stimulus program and we're all done. But if every little market is screwed up then the economy as a whole slows down.....To your question, there are plenty of measures that say the American economy is losing its dynamism. I think one new bank has been chartered since the passage of the Dodd-Frank Act, and that was designed to help Amish people. No new health insurers; in fact, lots of health insurers are disappearing. We are heading towards industries--banking and health insurance are heading toward a very European model: 3 or 4 very regulated"

And how many major players are we looking at in the Ag sector when it comes to seed and chemicals? About three depending on the pending deals we see on the table now.

Additional Comments and Links:

Its not just regulations themselves that are causing stagnation, but the uncertain environment they create