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.


The "Bagging Rule" – Or Why We Shouldn't 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

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. 

Sounds familiar: 

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."


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?

Saturday, August 5, 2017

Saturday Evening Post

Kevin Folta has a great way with words discussing the fake news in NYT regarding glyphosate in Ben and Jerry's ice cream:

"There was a time that newspapers published verifiable information, checked facts, and didn’t simply post the intellectually bankrupt messages of activist groups. The New York Times now double dips to a new low, confirming their war on food, war on farmers, war on science, and war on reason. In the days of fake news this takes the cake — al a mode."

Read more....

The Farmer Hayek blog never lets you forget how important theory is....and how useful. A nice point from a recent post:

"It may be tautologous to say that “people prefer their own self interest” where “their own self interest” is whatever they subjectively desire, but it is certainly useful. Focusing on the subjectivity of costs and benefits dramatically increases economists’ ability to understand human behavior. Defining self interest narrowly, such that only objective costs and benefits are considered relevant is actually a step backward, even if it is more consistent with, say, the methods of physicists."

Thursday, July 27, 2017

What is the most effective way to mitigate climate change?

Jayson Lusk discusses this article:

The climate mitigation gap: education and government recommendations miss the most effective individual actions
Seth Wynes1,2,3 and Kimberly A Nicholas1
Published 12 July 2017 • © 2017 IOP Publishing Ltd
Environmental Research Letters, Volume 12, Number 7

One of the top things on the list (#2) was living car free. That reminds me of a post I wrote a couple years back over at Economic Sense: Hybrid Corn vs Hybrid Cars. In that post I noted:

"According to research from PG Economics, in 2009 alone, greenhouse gas reductions associated with biotechnology were equivalent to removing 7.8 million cars from the road."

It would be interesting if we could get data to put this in terms of individual consumer choices. To what extent would changing from an organic GMO free diet to a conventional diet containing GMOs impact our carbon foot print? I'm not sure this is really a practical question, most people probably consume a mix of foods (even Whole Foods shoppers) and on an individual level this may not make a big difference. But there definitely could be an aggregate effect. I have not reviewed the methods in this particular study, but as a conversation piece it brings up a very relevant concern - what would happen if consumer sentiments and the regulatory environment continued to disincentivize the production of genetically engineered foods? (we've seen this with finely textured beef for sure, and rBSt) While other studies might provide different estimates of the effect size of CO2 emissions related to biotech adoption, at least directionally our experience suggests that these technologies make it possible to produce the same or additional levels of output while reducing the toxicity of chemical applications, complementing crop rotation and no till practices that reduce fertilizer runoff and pollution, as well as require less energy moving very heavy equipment across fields (which in turn would reduce CO2 at some level).

In terms of practical policy applications, how much coercion/regulation/taxation/incentivization would be required to convince or force 8 million people to give up their cars? It seems a lot easier for me as a consumer to freely choose to consume a mountain dew with high fructose corn syrup derived from GMO corn than to make a huge change in my lifestyle like going car free. And it seems like a very easy choice for farmers to keep planting biotech.

***UPDATED (July 28, 2017): I just realized there has been an update to this study:

Environmental impacts of genetically modified (GM) crop use 1996–2015: Impacts on pesticide use and carbon emissions
Graham Brookes & Peter Barfoot
GM Crops & Food Vol. 8 , Iss. 2,2017

The updated number of car equivalent levels of CO2 reductions due to area planted to biotech crops is closer to 12 million (11.9).


GM crops: global socio-economic and environmental impacts 1996-2009. Brookes and Barfoot.

Wednesday, July 26, 2017

Technical Efficiency, Agricultural Yields, and Livestock Energy Conversion

Jayson Lusk points to the following 2013 Environmental Letters paper:

Redefining agricultural yields: from tonnes to people nourished per hectare
Emily S Cassidy, Paul C West, James S Gerber and Jonathan A Foley
Published 1 August 2013 2013
Environmental Research Letters, Volume 8, Number 3

He has a lot of interesting things to say about this work. He uses this analogy:

"there are two ways to view livestock.  One is that they are inefficient - using up a lot of energy to make food.  Another is that they are good at converting one form of energy that is highly storeable/transportable but untasty (field corn, soy, sorghum) to another form (eggs, meat, dairy) that we like to eat.  Rarely do these sorts of research papers include the the calories (or energy) used in food processing.  It is a mistake to compare the calories in steak to the calories in a wheat kernel.  The wheat kernel requires energy/processing to convert to flour and then more energy to get pasta or bread."

He also links to this report from the Council for Science and Technology that does a deep dive looking at this conversion in livestock production.

I also like the way 'efficiency' is stated in Heyne, Boettke, and Prychitco's The Economic Way of Thinking text.

"efficiency is essentially an evaluative term. It always has to do with the ratio fo the value of output to the value of input" in effect it depends on what people want done and how they value what they want done. "It follows that the efficiency of any process can change with changes in valuations."

What I am getting at is that maybe people prefer to have sustenance from beef vs rice and we have to give weight to that in a policy framework. Physical and technical facts alone can never fully determine efficiency. That's what makes economics so powerful. Its the study of people's choices and how they are made compatible. It is way more than just the study of the technical allocation of resources because it forces us to consider each individual's preferences based on the knowledge of their specific circumstances of time and place.

The NYT and OCA Scream for Organic Ice Cream

There recently was a piece in the NYT discussing the finding of trace amounts of glyphosate in Ben and Jerry's ice cream.

A nod was given to IARC's finding of glyphosate as 'probably carcinogenic'  despite the fact that data critical to the decision was withheld, and admissions that had the data been included, the classification would not have been upheld. 

From the NYT:

"a 75-pound child would have to consume 145,000 eight-ounce servings a day of Ben & Jerry’s Chocolate Fudge Brownie ice cream to hit the limit set by the Environmental Protection Agency, the government body charged with setting a ceiling on the amount of glyphosate allowed in food. An adult would have to eat 290,000 servings to hit the agency’s cutoff." 

So really this is a non-issue and does not merit a story worthy of any major news outlet. The real story seems to be how the Organic Consumer's Association is using this venue to pressure companies to pursue organic certification. It reveals just how powerful this lobby can be. I've speculated in the past that one reason that there was so much lobbying in favor of GMO labeling initiatives was because groups like the OCA view biotechnology (and associated reduced emissions, soil conservation, reduced pollution/runoff, and reductions in use of toxic herbicides and pesticides) as a competitor to organic production. In reality its more likely the case that they are banking on using theatre and fear to drive more sales vs. any real belief that modern technological advances offer real choices in sustainable food to compete with their 'brand.'

Wednesday, July 19, 2017

Food Costs, Satellite Data, and Diversity within Species

Russ Roberts talks with Tomar Haspel about food costs, animal welfare, and modern agriculure on EconTalk.

A couple great discussions regarding the future ag macro environment and satellite based crop data in finance.

More on the myth of monoculture - biodiversity within species in Nature.

"the health of an ecosystem may depend not only on the number of species present, but also on the diversity of their traits. …Equally important to keeping an ecosystem healthy and resilient are the species' different characteristics and the things they can do — measured in terms of specific traits such as body size or branch length."

See also:

Big Data + Genomics  Not Your Grandparent's Monoculture
Crop Diversity

Why AgEcon?

Another reason to study agricultural and applied economics:

"Foster says because we're entering an era of data-driven decision making, "the students who can position themselves to be strong from an analytical and problem-solving perspective are going to have an edge in the market."

See also:

Why Study Agricultural/Applied Economics
Value of Graduate Education

Thursday, July 13, 2017

Market Commentary July 13, 2017

On June 8 we saw a high of 4.09 in the dec17 corn contract with some heavy trading volume and open interest behind it. From there we saw a gradual decline until late June when 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.

***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. *****  

Sunday, July 2, 2017

Simulating Impacts of Food Taxes and Subsidies

 Just last week I posted about food subsidies. I asked:

"Could you make the argument that simply shifting money toward programs related to fruits and vegetables would have a large enough impact on price to influence consumption? How much money would that take and what would the effect size be?"

This video discusses a PLOS medicine study that finds positive health benefits related to subsidies for fruits and vegetables and the referenced study (from a 'headline' reading) indicates a 10% subsidy could have a meaningful impact on health:

The video makes no direct reference to a study. However based on this reading I think the following are the studies mentioned in the video, the first being the primary reference:

Reducing US cardiovascular disease burden and disparities through national and targeted dietary policies: A modelling study. PLOS Medicine. June 6, 2017

Taxes and Subsidies for Improving Diet and Population Health in Australia: A Cost-Effectiveness Modelling Study. PLOS Medicine. February 14, 2017

Both papers are simulations based on assumptions related to elasticities and projected health outcomes (vs. empirical findings). One thing advocated is to create a revenue neutral policy that taxes soda and subsidizes fruits and vegetables. I'm skeptical, but if I want to give any credit I could say cynically that in this way maybe a soda tax could be useful even if it fails to have any meaningful impact on consumption or health.

See also: 

Are Soda Taxes Effective?
Four Big Questions about Farm Subsidies

Saturday, July 1, 2017

Democracy in Chains...? Was that not the vision of the founders?

There has been a lot of buzz and controversy surrounding Nancy MacLean's book  "Democracy in Chains" in relation to how James Buchanan (a founder of the public choice school of economics) and others especially connected to George Mason University have been mischaracterized in the book (see these two pieces from the WaPo here and here).

I want to zero in on one aspect of the book, pointed out by economist Russ Roberts, that also confuses me:

Russ Roberts quotes Nancy MacLean:

NM: "American democratic system of majority rule." 

RR: That phrase confuses me. The American system is a constitutional republic with very little majority rule. "


Note, I have not read the book but it makes me the book assuming that in fact the American system is actually a democratic system of majority rule vs. a constitutional republic that greatly restricts majority rule? Is it arguing that the latter is just a fabrication of Koch funded propaganda? And all of those taking Koch money are antidemocratic shills conspiring to covertly establish a libertarian utopian America? Is Nancy (a historian) ignorant of American History, or is she blatantly distorting it....being intellectually dishonest? Or does she (and by she I really should all along say those that think like her)  have some rather complicated and nuanced view of our history and constitution that you've got to read the book to understand because simply reading our founding documents and standard history textbooks leave something out???

I'm not sure....but the notion of an American system as a constitutional republic certainly predates James Buchanan and the Koch brothers. If we are going to be critical of the historical misinterpretations  and mischaracterizations found in "Democracy in Chains" at least we can give some credit. Noone has yet accused the author of claiming that the Federalist Papers or the Constitution were tantamount to Koch funded studies. But I have not yet read the book.

Our founders were well aware (without Koch money by the way) that a democratic system of majority rule was dangerous and they proposed a constitutional solution to check the kinds of abuses and powers that came with majority rule:

As stated in Federalist #10:

"From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties."

In Federalist #10 they also warned us about the populist appeals and uprisings that may result from the above, but proposed a solution:

“A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project…we behold a republican remedy for the diseases most incident to republican government.”

The purpose of the constitution was to ensure that the government did very little without the consent of the governed, but consent was not tantamount to majority rule.  For the most part, this was achieved through legislation held in the strict bounds of enumerated powers, with expanded powers of government coming through the amendment process.  This strict adherence to constitutional principles was the foundation for a workable democratic constitutional republic, as stated by economist Thomas Sowell in  Judicial Activism Reconsidered,

“The federal Constitution is "the supreme law of the land," not because it is more moral than state constitutions or state or federal legislative enactments, but because it represents a larger and more enduring majority. Minorities receive their constitutional rights from that enduring majority to which transient majorities bow, not from whatever abstract moral rights are imagined to exist as a brooding omnipresence in the sky.”

Democracy, limited by strict adherence to constitutional principles meant that government would have few powers and resources to spend on corporate interests or other special interests that can distort our democratic processes through campaign finance, lobbying etc.

Thomas Jefferson (who by the way had no connections to the Koch brothers) had the idea:

“in questions of power then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the constitution” - Kentucky Resolutions, 1798

I think the title "Democracy in Chains" is a good title for a book, and perhaps a better description of the American System than "democractic system of majority rule." But I think reading the book will reveal something quite different in the mind of the author and others that think like her.

Wednesday, June 28, 2017

Wednesday Post: Subsidies and Food Prices


One big reason some foods cost so much more than others

“Hint: It’s (mostly) not subsidies. Although they’ve certainly played a role in shaping our food supply such that we have huge quantities of just a few crops — a recipe for low prices — the discrepancy that seems to be at issue is the one between commodity crops such as corn and soy, and the fruits and vegetables that everyone’s trying to get us to eat more of. There’s a factor there that plays a much larger role than subsidies, and it doesn’t get much airtime…Its machines.”

An older article from 2014 in WaPo:

Farm bill: Why don’t taxpayers subsidize the foods that are better for us?

“But we also need to move away from a system that requires taxpayers to spend billions underwriting a system detrimental to public health.”

That last statement needs some qualification. We've seen something similar before from the NYT (see Are Farm Subsidies Making us Fat).  Not sure the causal link between subsidies and public health is much to talk about.

Economist Jayson Lusk knocks it out the the park. He addresses the science behind these specious connections  (and links to a number of related research articles) and includes some of his work in the area:

"There are actual lots of people who know how much farm subsidies contribute to food consumption, and they're called agricultural economists (in fact, McMillian goes on to then cite two prominent food and agricultural economists on the issue: Parke Wilde and David Just)…..In the model I used for the forthcoming paper I wrote on the distributional impacts of crop insurance subsidies, I find that the complete removal of crop insurance subsidies to farmers would only increase the price of cereal and bakery products by 0.09% and increase the price of meat by 0.5%, and would also increase the price of fruits ad vegetables by 0.7%.  So, while these policies may be inefficient, regressive, and promote regulatory over-reach, their effects on food prices are tiny, and depending on which policy we're talking about, could push prices and consumption up or down."

Could you make the argument that simply shifting money toward programs related to fruits and vegetables would have a large enough impact on price to influence consumption? How much money would that take and what would the effect size be?

Tuesday, June 27, 2017

Tuesday Assorted Links: Food, Health, and Nutrition

Eggs can significantly increase growth in young children

Association Between Indulgent Descriptions and Vegetable Consumption: Twisted Carrots and Dynamite Beets

Recent News in Agribusiness: Whole Foods and Amazon

Its about the data.


"If you consider the use of data and data projects as the end goal, the recent acquisition of Whole Foods makes perfect sense; no one would dispute the fact that Amazon knows the online customer backwards and forwards, but when it comes to understanding the brick-and-mortar shopper, they lack insight. Amazon didn’t buy Whole Foods for the business - they bought it for the data."

"this is almost certainly a win for Whole Foods customers as well…. But Amazon can also bring its data innovation, scientists, labs, and creativity to Whole Foods, which ultimately can mean the next generation of grocery stores even for shoppers that aren’t interested in grocery delivery services. Think Amazon-like optimization of stocking using real-time data or predictive analytics to streamline the experience for shoppers and suppliers alike (and all while potentially helping to eliminate food waste, a massive problem in the United States today)."

Its about platform strategy (which inherently is related to data)

 "Arguably, your platform strategy is more critical to success than the idea behind the platform itself. Building a platform, especially after a decade of buzzworthy attempts and a few huge successes (Amazon, eBay, Uber, Airbnb), is really, really hard. There are countless ways to flub this. A solid platform strategy will answer two key questions: How will you attract customers? And how will you make your technology the core of an ecosystem?"

Traditional Retailers Will Continue to Thrive


To some extent there may be significant overlap between customers:

“For a certain kind of urban professional, Amazon and Whole Foods are brands that define the consumption of staple goods: the weekly trip to pick up cheese, produce, maybe some pasture-raised organic beef; and the nice UPS man dropping off everything else, from toilet paper to truffle oil. On Friday, those folks learned that they are facing a future of truly one-stop shopping: Inc. plans to acquire Whole Foods Market Inc. for $13.7 billion.”

However, other retailers will maintain an appeal to a much broader customer base:

“the Dollar General customer is, in general, a very, very different kind of person than the folks who regularly shop at Whole Foods, or for that matter, at Amazon.”

Still why Whole Foods? Were they cheap? (their performance has not been that great this last year). Why not purchase a retailer that already has a more mature data strategy (like Kroger and the Kroger Plus Card etc.)? Perhaps as mentioned in the dataiku and BloombergView article, there is some idea that there is significant overlap between Amazon and WholeFood customers. As far as other retailers, they are not standing still. Points and loyalty programs as well as online offerings and ready to pick up grocery services are just some of the ways they are continually innovating to create value for customers.

Friday, June 23, 2017

Bursting the Big Data Bubble....with Theory

There was an article in the June 2017 printing of Significance titled Bursting the big data bubble. Unfortunately I don't have paid access but here is the teaser:

"In the financial world, big data is hailed as a potential game changer for predicting stock market performance. But without adequate safeguards, big data analyses may result in spurious correlations, misguided predictions and disappointing returns."

You might not have to know anything about big data to know that building models, developing strategies, or coding algorithms to successfully predict stock returns (at least well enough to consistently earn above average returns in a portfolio long term) is a steep uphill climb against a mountain of economic theory.

Not being a financial economist I'll speak broadly and provide references with more detail below. But, according to the theory of rational expectations and efficient market hypothesis, all unexploited profit opportunities are eliminated because prices reflect all publicly available information. Prices follow a random walk and for all practical purposes are not predictable. Even when prices diverge from fundamental values, according to the theory, the divergence can't be predicted.

One exception is inside information. A trader with insider information (i.e. publicly unavailable, read illegal) would have an edge and could act on it and make profitable trades. I do wonder, however, could a firm have an edge if they developed a proprietary algorithm that makes *better* use of public information? Is novel interpretation of public information the next best thing to insider information?

I'm not sure. Definitely this may have had a chance early on for some quant funds. However, I still think in the long run other firms could replicate the strategy, eliminating unexploited profit opportunities. The citizen data scientist with a good understanding of statistics and willingness to crack a book can learn to implement the same advanced algorithms using open source packages (via R and Python) as someone with 2 PhDs who may have been hired a few years back working for a quant fund coding the algorithms from scratch.  

I think this is echoed somewhat in a recent Chat with Traders podcast with Matthew Hoyle when he discussed the fact that strategies have a short shelf life-what is valuable is the ability and energy to look at new and interesting things and put it all together with a sense of business development and desire to explore.

Fong, W. M. (2017), Bursting the big data bubble. Significance, 14: 20–23. doi:10.1111/j.1740-9713.2017.01035.x

See also:

Masters in Business with Barry Ritholtz Guest: Andrew Lo of MIT

In Praise of the Citizen Data Scientist

Efficient Capital Markets: A Review of Theory and Empirical Work. Eugene F. Fama
The Journal of Finance. Vol. 25, No. 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the American Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp. 383-417

- a classic paper reviewing work related to efficient capital markets theory.

Hou, Kewei and Xue, Chen and Zhang, Lu, Replicating Anomalies (June 12, 2017). Charles A. Dice Center Working Paper No. 2017-10; Fisher College of Business Working Paper No. 2017-03-010. Available at SSRN: or

- the above reviews some of the market anomolies literature, finding many studies fall short in terms of methodology.


The anomalies literature is infested with widespread p-hacking. We replicate this literature by compiling a large data library with 447 anomalies. With microcaps alleviated via NYSE breakpoints and value-weighted returns, 286 anomalies (64%) including 95 out of 102 liquidity variables (93%) are insignificant at the 5% level. Imposing the t-cutoff of three raises the number of insignificance to 380 (85%). Even for the 161 significant anomalies, their magnitudes are often much lower than originally reported. Among the 161, the q-factor model leaves 115 alphas insignificant (150 with t < 3). In all, capital markets are more efficient than previously recognized.

Friday, June 9, 2017

December 2017 Corn Market Technicals and Fundamentals (6/9/17)

This week there was some excitement in the new crop corn market. We saw a price breakout from the sideways pattern that we've been following since the beginning of the year reaching a 6 month high of $4.09 on Thursday (June 8) with heavy trading volume behind it. With a current RSI indicating this is not yet a top on the daily chart (although the 9 day RSI could indicate an overbought signal).  The MACD shows the beginnings of a bullish crossover starting just at the start of the month. With the wet spring, significant replantings, and possibilities of some dryer weather ahead (adding stress to later planted corn with shallow roots due to earlier wet weather as well as patchiness in stands related to replants, compacted sidewalls, and nitrogen loss) we could get some fundamental weather related support behind this, although there were no surprises in Friday's WASDE report. The latest crop progress reports indicate a stark contrast in conditions for good to excellent ratings when you compare the top corn producing states like Iowa, Indiana, and Illinois vs states like Kentucky.

Crop Conditions % Good to Excellent
IL 59
IN 46
IA 77
MI 77
KY 82

Additionally funds have been very short on corn and could be poised to start covering as we go. With just a few days into this trend, the ADX is still indicating weak trend. We'll see where we are sitting with the weekly and monthly charts in the coming weeks, as well as June acreage report and crop conditions as the season progresses.

***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, June 3, 2017

In Praise of Finance, Futures, and Trading

"Finance can be used to achieve some of the greatest challenges that are facing mankind, including things like dealing with cancer, Alzheimer's, energy, all sorts of societal challenges that require large amounts of financing" -Andrew Lo with Barry Ritholtz (Masters in Business podcast).

"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." -Elaine Kub, Mastering the Grain Markets

“Reining in speculators seems politically expedient.  But we live in complex times.  Throwing darts becomes perilous when policy makers begin to advocate (and worse yet, actually believe) that speculators should be removed  from ag / food markets.   Such a move would dismantle futures markets.  Imagine what the world might look like a without market liquidity, price discovery and risk mitigation; not to mention the inability to establish pricing plans, attract new capital investment and stimulate innovation across the food business.   The absence of those influences, facilitated by futures markets, would ultimately lead to less food production, availability and security – NOT the other way around.   Taking speculators out of the mix would be devastating.” Dr. Nevil Speer, No Speculators? No thanks!, Drovers Cattle Network Agsight, March 2011


Monday, May 22, 2017

Yra Harris on Futures Radio and China's Imprint on Commodities

Some insight from Yra Harris on Futures Radio with Anthony Crudele:

Somewhat paraphrasing:

"If I told you you would have massive carryovers of soybean stocks;  Brazil, Agentina, U.S. record crops, and soybean prices were still $9.30/$9.40/$9.50 you would tell me I'm out of my freaking mind. These are times we would be having $4.50-$4.80 beans. That is the dynamic that China has brought to global grain markets."


Wild Kratts- A children's lesson for food marketers

I by chance caught an episode (note: not something I normally watch) of the children's show Wild Kratt's and was really surprised at the dialogue. I caught the following line:

"As long as people think pangolin scales are healthy I'm selling"

 I wonder if Chipotle or the Food Babe have seen it?

Here is a link to the program. You get the message in the first couple of minutes:

Saturday, April 22, 2017

Science Vs. Podcast on Organic Food

Episode #5 of the Science vs. podcast addressed organic food. Very well done. And they actually talk with real organic farmers, some of which are a little disturbed by the myths surrounding organic, from the intro:

"It’s an epic three-way battle this week — organic vs conventional vs …science. Three out of every four American grocery stores sell organic products, but what are you really getting when you buy them? Better taste? Fewer toxic chemicals? A cleaner environment? Farmers Mark, Andy, and Brian Reeves, nutritional epidemiologist Dr. Kathryn Bradbury, Prof. Cynthia Curl, and Prof. Navin Ramankutty help us sort it all out."

One thing that is brought up is that the manure used in organic food production may not have came from 'organic' livestock operations. This is an important point Jayson Lusk mentioned previously:

"Indeed, if one wants large scale organic, it almost certainly implies (given the current population) the need for large scale non-organic.  All that life-supporting nitrogen has to come from somewhere.  Until we find a better way, right now it is coming from Haber and Bosch and is smuggled into organic agriculture via animal manure. "

Not to mention the positive exernalities (i.e. benefits) that biotech provides non-biotech producers in terms of pest protection- see here.

Sunday, March 26, 2017

Self driving cars in a rent seeking society

"If every car on the road carried that kind of capability, which can keep the car in its lane and a safe distance from other vehicles in simple settings like highways, fatal crashes would drop by 80 percent"

While the public is praising this wonderful technology I'm sure progressives are already thinking of mandates and regulations to make cars even more unaffordable (read regressive-progressive) and the special interests and rent seekers have open arms with a mouth watering embrace.

Saturday, March 25, 2017

What Happened at Cargill?

A couple years ago I wrote a piece about an EconTalk podcast with Cargill's former Greg Page:

Here is a quote from the interview:

"I think if our water is precious, if our topsoil is precious, if we really care about the hydrocarbon footprint that we have in terms of the amount of cultivation that we need to carry out, that we should think very carefully about eliminating or demonizing genetic engineering."

But this past week I ran across an unfortunate tweet via  @VanceCrowe that caught a lot of attention. This relates to a collaboration with the Non-GMO Project. Many people have pointed out that the Non-GMO project is involved in more than just verification of the sourcing of ingredients. There is an underlying agenda that is inherently anti-GMO and anti-agriculture across a number of dimensions.
How did this happen? There is surely a garden of forking paths we could go down if we give Cargill the benefit of the doubt or try to offer criticisms about how this should have been handled (assuming they were hell bent on making this deal to start with). Maybe I understand how there is definitely money to be made with a niche market carved out by snake oil fear based marketing by shady food companies that has helped drive demand for non-GMO products. But surely someone that knows the industry like Cargill knew that if they were going to sign a deal with the devil (surely they knew that is how it would be viewed industry wide) that they should have a well thought out PR strategy first to keep it as low key as possible and 2nd an immediate response at hand in case things got out of control. I'm not advocating they be sneaky and shady but definitely should have had a well calibrated communication strategy ready for this kind of deal. Right?

So assuming this is understood from the top down that means not every tweet that goes out is super-scrutinized because if it were I doubt anyone at Cargill would have thought tweeting about this was a good idea. So maybe some of the people in social media have the leeway to tweet about new deals and ventures and collaborations as if it is something to be proud of. Maybe not everyone in a large organization like this has the solid 360 degree view of the industry you would expect. But that is OK to have different talent with different backgrounds and ideas across a large organization. If this is what happened I think they need to look internally at onboarding and education about the industry as a whole.

But if this is not what happened, if leadership was full force in favor of making this deal in your face public via social media outlets in this way what were they thinking? Surely someone in the company knew better and warned against it but they went forward anyway?

Maybe its just easy for me to be a monday morning quarterback or back seat driver on this but this whole thing is surprising given the lessons learned already from companies like Yellow Tail and Chipotle.
With more thought what alarms me is perhaps the public ignorance and level of anti-science fear mongering has crossed a critical threshold and emboldened a great company like Cargill to take the calculated risk in this kind of partnership...even to the point of tweeting about it.

Friday, February 17, 2017

Harvard Public Health Alternative Facts Debunked, Organic Food, and Neonics

Apparently Harvard School of Public Health is not immune to alternative facts-when it comes to one associated researcher's influence on recommendations about organic food vs conventional: HT -Kevin Folta: 

Are there yield differences between organic and conventional crops?  Research in 2012 asks some important questions with findings realted to this: 

More recently from PNAS:

We get a synopses of this from the GLP:

"Recent meta-analyses of plot-scale studies suggest organic yield penalties of 20–25% on average, although possibly as low as 8%. Farmer surveys, on the other hand, report organic grain yield penalties of 27–34%."

Jayson Lusk recently pointed out that making large scale organic work (i.e. read if we want more access to organic food that means 'large scale') we need large scale conventional producers:

"Indeed, if one wants large scale organic, it almost certainly implies (given the current population) the need for large scale non-organic.  All that life-supporting nitrogen has to come from somewhere.  Until we find a better way, right now it is coming from Haber and Bosch and is smuggled into organic agriculture via animal manure. "

So organic thrives on positive externalities related to N use in conventional production. 

Let's not forget the positive externalities of biotech traits....which not only help conventional producers use fewer pesticides but also help organic producers get by without sytnthetics:

Positive Externalities of Biotech Bt Traits on Non-Biotech Crops and Non Target Insects 

On another note From the WSJ, Why the EU should revoke neonicotinoid pesticide ban.

Millenials and Science Literacy - When facts are not enough

A nice article at by David Ellos regarding the role of science and "facts" and opinions about GMOs:

   "Women who had backgrounds in plant science said the lack of evidence of harm meant that GM food was safe to eat. But the women in health sciences said it was a lack of evidence of safety that made them cautious about consuming GM food. These perceptions are based on two very different concepts of risk, despite both groups being highly educated in science.

"For women without science backgrounds, GM food presented 'unknown' risks, and hence was to be avoided. There was a range of other issues apart from the science that arose in our study, a major one being a general lack of trust of science," Dr Bray says."

"It's important for scientists to realise that science has economic, social, and cultural impacts, and if people are presented with 'just the facts', the discussion leaves out critical topics and values," Professor Ankeny says.

Read more at:
 "It's important for scientists to realise that science has economic, social, and cultural impacts, and if people are presented with 'just the facts', the discussion leaves out critical topics and values," Professor Ankeny says."
"It's important for scientists to realise that science has economic, social, and cultural impacts, and if people are presented with 'just the facts', the discussion leaves out critical topics and values," Professor Ankeny says.

Read more at:

Again...obsession with just the 'facts' and the mantra about 'alternative facts' might not advance science and its role in policy the way we think it might. I fear largely what I keep repeating, the invocation of the prestige of science to override other people's choices.  You can't just jump from the science to policy.

Read more at:

Its interesting that millenials are often championed as agents of change when it comes to advancing progressive policies. However, they are not champions of science just because they support policies related to climate change as this article states:

“That’s right, millennials—not stodgy old guard Republicans—are responsible for fueling this particular crusade against science…As our eating habits have gotten more health-conscious, they have also become more and more divorced from any scientific fact.”

On a positive note, science triumphs with this blogger when it comes to food.

Saturday, February 11, 2017

Kevin Folta on the March for Science

A couple pieces in the HP by Kevin Folta recently:

Be effective with your rage:

"Willful ignorance has spawned a hot planet, expensive ballot initiatives for warning labels on safe food, calls to teach about a 6,000 year old planet in science class, and outbreaks of diseases long believed to be defeated. And that’s the tip of a melting iceberg....The best way I can support science and scientists it to create durable work and actively create the change I want to see.  I’m in this for the long game, not an expensive afternoon in DC. The cure to science ills is deliberate and visible investment of our non-existent time in public-impact pursuits.  I protest non-scientific perspectives daily, and have paid a professional and personal price for doing so, but we are making wonderful advances in the understanding of various publicly-controversial topics."

In a more recent piece he provides a nice succinct description of CRISPR technology and its applications:

“Gene editing uses precisely guided enzymes that digest DNA to install precise changes to genetic sequence, typically by removing a few little bits of information that disrupt the function of the gene. It is like cellular surgery, precise, effective and testable.These technologies have been used with astounding success in medicine and animal agriculture. Gene edited cells have brought infants into remission from leukemia and produced cattle that don’t grow horns, or don’t catch tuberculosis. The applications in these areas are endless.”

He also talks about how scientists can be effective right now by commenting on FDA's proposed regulations for gene editing technologies:

"Where are the protesters and science marchers? It’s stand up for science time!…this technology should not be hampered by the same strangling regulatory system that burdens new crop variety development with standard genetic engineering approaches. The ball is in your court. Stand up for science, study this issue and make your voice heard! "

See also: 
 Facts, Alternative Facts, Evidence, and Marching for Science
 CRISPR Technology

John Cochrane asks the right questions about climate change


“A plea to commenters. Don't fall in to the trap of arguing whether climate change is real or whether carbon (and methane) contribute to it. That's 5% of the debate…Science might tell us that the temperature will warm 2 degrees in a century, with a band of uncertainty. But the band of uncertainty of the economic, social and political consequences of 2 degrees is much bigger…Both sides have fallen in to the trap of arguing about climate change itself, as if it follows inexorably that our governments must respond to "yes" with the current system of controls and interventions. The range of economic and environmental effects from the "how" question are much, much larger than the range of the effects of the "is climate change real" question.”

This echoes what I have written previously:

If we are going to make progress here we have to accept that it does not make one a climate change denier to understand that our response to climate change also has to be based on facts and evidence held to the same level of rigor and scrutiny as the science supporting its existence.

 and mirrors the point Steve Horwitz made some time ago about the fallacy of jumping directly from the "science" to policy:

“It is perfectly possible to accept the science of global warming but reject the policies most often put forward to combat it.  One can think humans are causing the planet to warm but logically and humanely conclude that we should do nothing about it. In fact, those who think they can go directly from science to policy are, as it turns out, engaged in denial” 

See also:

The Progressive Way to Deny Climate Change
Facts, Alternative Facts, Evidence, and the March for Science
Doing Nothing: A science based policy prescription for climate change

Friday, January 27, 2017

Choices Magazine Theme on Herbicide Resistance

There was a really nice collection of articles recently featured in Choices:

From the theme overview:

"When resistant weeds are mobile, managing resistance can suffer from the classic “tragedy of the commons”—no one controls the resource—in this case, the effectiveness of herbicides—so no one manages it sustainably. For guidance on how to proceed, Ervin and Frisvold look to the research of Nobel laureate Elinor Ostrom and her colleagues on the management of common property resources (CPRs). "

This is the kind of work I was interested in in graduate school and this convergence of social science, economics, and genomics is very exciting. I veiwed the problem as an externality or commons problem that could be described by an Nash Equilibrium. In a later white paper I also discussed some of Elinor Ostrom's work in a similar context. If ever there was a middle ground for policy approaches to environmental challenges her work provides a nice foundation.

See also:

Game Theory, A Foundation for Agricultural Economics

Externalities, Coase, Ostrom & Demsetz

Sunday, January 22, 2017

Why corn is king when it comes to sustainably feeding a growing population

A few weeks ago there was a nice article in the Washington Post about a misguided vision emphasizing vegetables vs row crops as the focus for a sustainable food system:

We need to feed a growing planet. Vegetables aren't the answer.

I recently re-watched Food, Inc. One of the most egregious and misleading themes I get from that movie is that farm subsidies and our 'industrial' food system leads to a monoculture of mostly corn and soybeans that threatens both our health and environment. The WaPo article clearly explains why a shift away from row crops or commodity based cropping systems toward more vegetables is both non-pragmatic and more threatening to sustainably feeding the world.

There are a number of myths about commodity agriculture, monoculture, farm subsidies, and large scale agriculture, unfortunately many retailers and food products companies know how to exploit them.

See also:

 What's the big deal about farm subsidies? Four big questions about big ag, subsidies, food, and GMOs

Big Data + Genomics ≠ Your Grandparent's Monoculture

Monday, January 9, 2017

Whole Foods Facing Turf War With Mainstream Grocers

Via AgWeb:

"Whole Foods’ poor inventory and vendor management, high costs and failure to make the most of its unique appeal to millennial shoppers among the key issues…Larger mainstream grocers, including Kroger Co. and Wal-Mart Stores Inc., continue to advance on Whole Foods’ organic turf, weighing on sales. Kroger has a market value of about $29 billion and Wal-Mart is valued at about $214 billion. Whole Foods is trying to fight back by offering more discounts and starting a new chain aimed at younger shoppers. Organic products have become widely available at U.S. stores, often at lower prices than Whole Foods offers. Analysts have since questioned whether there’s capacity for more high-end organic grocers in the U.S."

MarketWatch did an interesting comparison of products and prices here.

I wonder what really motivates Whole Foods customers? this a true preference for taste and quality, or how much of this is actually driven by misperception and fear?

As the article says..."Larger mainstream grocers, including Kroger Co. and Wal-Mart Stores Inc., continue to advance on Whole Foods’ organic turf, weighing on sales." The kind of snake oil  marketing that firms like Dannon and Chipotle engage in has probably been a major driver of this fear and Kroger and Wal-Mart are exploiting the fact that now consumers are economizing on the fear and misconceptions that may have previously driven them to stores like Whole Foods.

Perhaps if Whole Foods can trim margins via better supply chain or inventory management (as suggested in the article) that will help with pricing more competitively. It seems like they may also need to capitalize on some other source of differentiation in products or services. I don't see food fads and fears going away anytime soon unfortunately.

See also:

Modern Sustainable Agriculture 


The Twisted Economics of Local Food

Saturday, January 7, 2017

Monsanto Expanding CRISPR Technology Rights


"Two other companies, DuPont Pioneer and Calyxt, are currently using CRISPR gene-editing techniques for agricultural applications, GenomeWeb reported. In addition, the Life Science Center at Bayer—the European pharma giant that recently made an offer to buy Monsanto—has licensed CRISPR for biomedical uses, but the company’s Crop Science division has not obtained a license for CRISPR/Cas9."

In a previous post (CRISPR Technology and Agriculture) I speculated that companies like Monsanto would leverage this technology heavily with less emphasis on traditional recombinant DNA based techniques (aka GMOs). The article above indicates some synergy between Monsanto and Bayer in this regard in terms of licensing and applications related to crop science. 


How Big Data and Genomics are Crushing the Myth of Monoculture

Wednesday, January 4, 2017

GIPSA , Lemons, and Cattle Markets

I was recently reading about how proposed GIPSA rules will impact cattle marketing in Beef magazine:

Here is one slice from the article:

"USDA’s decision to move forward with publishing final rulemaking on the 2010 Grain Inspection, Packers and Stockyards Act (GIPSA) could force packers to pay the same price for all cattle. That would narrow or remove any spread in prices offered by cattle feeders. So, every cow-calf producer would receive the same price for calves, regardless of value."

Other places in the article talk about alternative marketing arrangements (AMAs) and thinning cash markets as well. But one thing I always thought, was that AMAs were one way that the market worked to solve the lemons problem. Conventionally, people might support regulation in cases where there are in fact lemons, and they want government intervention to fix the so called market failure.

You can read about lemons markets here, but generally in the case of cattle marketing, if you are a buyer and not sure about the quality of cattle you are buying, you would at best assume average quality and pay an average price in order to avoid overpaying for bad cattle. Unfortunately producers with good cattle would not receive a price that reflected superior genetics or management that they have invested in.  AMAs help identify better cattle with specific traits of interest and allow producers to get more for their value and allow buyers to get the quality they want without overpaying.

This looks like a case where the market solved a major problem, and the new GIPSA rule may in effect create a lemons problem all over again. The article does a good job describing the ramifications to producers, buyers, and consumers.