Gene Logsdon and Friends

Gambling With Our Food

In Gene's Weekly Posts on July 25, 2012 at 5:26 am

From GENE LOGSDON

The drought that is affecting much of the Midwest is scary enough but what makes me even more nervous is the way speculators in the grain futures market are sending grain prices gyrating all over the place as they bet on what will happen next. Betting on the future supply of food is risky business. There’s too much chance for mischievous manipulation. It is risky enough to gamble with banknotes of one kind or another but they aren’t edible no matter how much good steak gravy you sop on them. Food, however, is everyone’s essential necessity and I wonder greatly about the wisdom of gambling with it especially when many of the gamblers can barely tell a stalk of corn from a hoe handle.

Like most everyone else, I’ve had orthodox economics drummed into my head. I know how economists argue that the speculators, by pooling the information upon which they place their bets, arrive at what is called “price discovery” that helps establish some kind of market  equilibrium overall, and helps farmers and processors and society in general adjust to the situation. The gamblers also benefit all of us, I’ve been taught, by “risk shifting” or hedging which provides producers and others with a way to shift the risk involved in ownership of a commodity to others (called, in plain language, “covering your ass”). This kind of speculation seems to work (I wonder) when markets are fairly normal and stable. When times are not normal (are they ever?) the stated beneficial effects of price discovery and hedging are mostly wishful thinking. It reminds me of the bishop who quotes the commandment, “Thou shalt not kill,” in the face of an advancing army and assumes that by doing so he has reduced the number of people about to be slaughtered. Merely saying that an economic theory (like price discovery) helps the market adjust to changes does not mean that it actually works out in a beneficial way in the real world. The grain futures market is just as easily corrupted by human greed as its first cousin, the derivatives market, and we all know about that.

Right now the highs in corn prices are over $8 a bushel, wheat over $9, soybeans over $17 and all three expected to keep on climbing. These are unprecedented, historic highs, as speculators react (and likely overreact) to coming shortages. The day traders sit at their computers and try to guess when to sell when the price is rising and when to buy when the price if falling. That is as far as their commitment goes. Computers can buy and sell with split second speed and often are programmed to buy and sell on their own when a certain price level is reached. All this means irresponsible volatility it seems to me.

When grain prices rise as precipitously as they are doing now, I doubt that anyone benefits in the long run, including the traders themselves, phooey on price discovery. It is not even certain that the current soaring prices really reflect the true supply and demand situation. It started raining a little again in the middle of July and things don’t look as bad as they did even ten days ago. Furthermore this year more acres have been put into corn than at time since the 1930s, and lots of that increase went on land too poor to grow profitable corn in any year. It was planted solely with the idea of taking advantage of the high prices. The risk is covered by subsidized crop insurance, another example of money being used to encourage bad farming. Higher prices mean little when crops are average anyway. Agri-Solutions, an Illinois based financial consulting firm quoted online at DTN/ Progressive Farmer, points out that where corn yields fall just to 100 bushels per acre, (not a bad crop on poorer land) a price of $8 to $8.50 this year will just allow a farmer to break even. Livestock producers are taking a big hit too. Not being able to afford to feed such high priced grain, they have to sell out or cut back. Less milk, meat, and eggs means higher retail prices. But retailers don’t really make more money because consumers simply buy less. Corn ethanol plants are closing right and left because they can’t afford to buy eight dollar corn. Actually they can’t afford corn at any price because society can’t afford an industry that uses our major food product for car fuel. If we had all that corn in storage that has been turned into ethanol the last two years, we would have a comfortable buffer against the drought.

When money becomes the deciding factor in food marketing, some very bad things can happen. I keep thinking about how during the famine in Ireland, the country’s grain was sold in the higher English commodity markets to pay rents to absentee landlords while the Irish people starved. Now that’s what I call real price discovery.
~~

  1. More reasons to “grow your own” if you can.

  2. You write, that “when money becomes the deciding factor in food marketing, some very bad things can happen.” I agree entirely. I would add to that this:That when money becomes the deciding factor in just about everything, some bad things can happen. Money will always be a deciding factor, of course. But we could all really improve the tenor of our lives by lessening the degree to which money factors into our lives and decisions. Money is not the end-all. Life is the end-all. The ease with which we confuse the two is life’s great rub.

  3. Good article. it’s not just grain prices that have gone up but hay is also going through the roof. It you can grow your own great but with the drought we are having this year in southern Missouri the only thing growing is weeds & even they are not plentiful. We have been feeding hay for nearly 6 weeks now & have not seen any rain. Glad you have had some Gene – could you send some this way please :)

  4. Great post, Gene. Here’s a little regional side show that regularly chaps my backside. Beginning last year, we began to see center-pivot irrigation systems sprouting like weeds across the countryside here in Georgia and in other parts of the Southeast. Wells were being drilled to the second aquifer, I was told at a cost of $100,000 per well. Irrigation installers in my neighborhood were booking as fast as they could, and still couldn’t keep up with demand. Before the drought hit, I viewed this phenomenon as farmers prudently reducing risk while hoping to boost yields, much of this on generally poor quality soil, especially when compared with the Midwest. But now, I see these expensive irrigation systems as giant roulette wheels, with lucky farmer/gamblers hitting it big as corn and bean prices go through the roof. It just doesn’t seem fair, or right, for that matter, when part of the gamble is with the precious commodity that belongs to us all – ground water.

  5. A somewhat misguided commentary on a system that works pretty well.

    The capitalist system and price discovery is a key feature is to allow the efficient rationing of scarce goods to the necessary price level to balance supply with demand. If a drought comes along (they always do), the price needs to rise to ration the demand. This is painful to some, but usually not catastropic to any. Yes, the marginal consumer goes away. In the case of corn, this is easy – the ethanol producer. They only get 3 gallons of ethanol from one bushel at best so $9/bushel. Well you do the math…

    High prices will bring more supply from other countries (likely will not be necessary) and next year. Also, there is a limit on how high the price can go. There are just any many speculators/investors/users going short (betting against higher prices) as going long. This is by definition.

    Also in corn, someone has to eventually stand for delivery. The pure paper pusher has trouble with this little feat.

    You cited a famine in Ireland a long time ago. This wasn’t a free market failure, but a political failure. The English seized the ‘food’ and just took it. This was not the free Irish farmer selling his wares in an open market.

    Another good example is the story of the early Soviet Union and a Marxist ‘market’. Famine and starvation were always present here. Massive resource misallocation, no incentive to produce, hoarding, seizure of supplies by government, etc. For those who would wish a free market away, I can only offer you this scenario.

    Gene laments frequently on bigness in agriculture. Perhaps for good reason. However, bigness is not necessarily a feature of capitalism. Capitalism works well in smallness too. Bigness is a function of government (it fosters its creation) and mechanization and cheap energy. Without all these factors in abundance agriculture ‘bigness’ could not occur.

    • Eddy, how would you explain deregulation of the banking industry as being good for us? By now, we have plenty of evidence to show that neither pure capitalism nor pure socialism work well. Why do we continue to pit them against each other as if they were the only two choices?

    • A somewhat misguided commentary on commentary.

      Consider this, your concluding paragraph: “However, bigness is not necessarily a feature of capitalism. Capitalism works well in smallness too. Bigness is a function of government (it fosters its creation) and mechanization and cheap energy. Without all these factors in abundance agriculture ‘bigness’ could not occur.”

      1. “Government,” “mechanization” and “cheap energy” are tools, mere tools. They are used by people to create things. People evolved to value “more.” The more the better. Thus people instinctively make more. To make more, people need tools. Which tools work best to make more? Government, mechanization, cheap energy.

      2. “Bigness,” eddy, is very much a feature of capitalism (late-capitalism) because of the more problem. Rid people of their need for more, rid the world of the ills of capitalism.

    • Speculators do not help any of us. They do not plant, weed or harvest anything, that is the job of the farmer. They do not even provide the capital for the farmer to do the above. All they do is make money off someone else’s work that then sets prices that do not reflect the real costs involved in producing what all of us need to live. We would lose nothing by prohibiting speculation in the means of sustaining life.

    • eddy, there is another issue that Gene touches on but you fail to take into account. It is a little hard to quantify but I see it at work more and more every year in my neighborhood. Pure and simple it is greed. I’m not really sure greed is so bad in every case but when you have no ethics at all and you are looking for, what do you say? Angles? I’m talking about greed as in that shown by a con artist. Looking for that loophole in the law. The insider trading or the actually concentrated desire to manipulate the market.
      We are seeing it in farmers running up the land rents and getting huge amounts of low interest capital which is protected by multiple Limited Liability Corporations so that if they go bankrupt they still walk away with their house, their supply of short pants, and their expensive pickup truck still in their possession.
      You can’t really legislate against it, I don’t really know what to do about it but I think perhaps that is the attitude that really helped make the Irish Potatoe famine so devastating. That is what we saw at work with the housing crisis. That is what turns people into socialists-I suppose.
      Sure it will all even out, there will be booms and busts, you can bet the government will also disrupt the natural system by rescuing those deemed, “too big to fail,” and those of us who are prolls and don ‘t matter so much will fade away.
      That is just how if all works. Not really good or bad, just reality. However, I don’t have to be happy about it…

  6. RE: Drought and Corn
    So it seems grain is being recognized , finally, for how precious it really is.
    I can’t help but wonder what Hopi Corn Farmers think of this situation. They have selected for corn that can be planted deep, 12-18″ instead of 1-2″ ( the 12-18″ depth is where the soil moisture remains adequate, and they are experts in the art of conserving soil moisture.) They traditionally raised enough corn to feed themselves and a flock of turkeys to supplement the mesquite beans, acorns wild greens, venison and other wild foods. They prepare such corn foods with a caustic such as wood ash or the more common practice of lime which evidently makes many more nutrients available, (Think Hominy), compared to plain cornmeal. I think it ironic that recently scientists were looking into incorporating Hopi Corn genes into “modern” cultivars. I’ve grown such Hopi types of corn a couple of times and it truly is amazing what it can do, given decent growing conditions. One ear of such corn I guesstimated at about 18″ in length, which is, I now understand, quite exceptional. What was even more amazing is that the many layers of husks meant that earworms died from starvation or desiccation (at least it appeared so to my eyes) before they were able to reach the succulent kernels. NO Monsanto required.

    RE: Grain Reserve
    The idea of setting aside grain for the lean years reminds me of Joseph in the Old Testament. It’s strange how we’ve forgotten such lessons in our rush to make money from something so precious as a major food item. I’m sure Hopi farmers commonly set aside grain for the hard times as well. There is much we can learn from them.

    RE:Corn for food or Ethanol
    For myself I really don’t like supporting the ethanol industry other than home produced, inasmuch as so much corn is not grown sustainably anyway. If it’s true about the large dead zone in the Gulf of Mexico is actually from nutrients leached from corn and soybean fields upstream in the Mississippi River, it would seem our government is supporting the corn ethanol industry while injuring the seafood industry. I dare say the greenhouse gas emissions from the dead zone, coupled with the fossil fuel consumption inherent in modern corn production, probably offset any greenhouse gas reductions or other air pollution savings attributable to ethanol production.

    RE: Irish Potato famine:
    I’m just reading the book 1493, by Charles Mann wherein the Irish potato famine is discussed at length. Interestingly, he mentions that Andean farmers are not or were not usually bothered by the fungus that decimated the Irish potato crop. He mentions that the fungus was probably introduced by importation of guano (seabird manure) into the British Isles that contained fungal spores. The author mentions that Britain mounted the biggest aid program in its history to address the famine, but it was insufficient. I won’t go into detail on the rest of his discussion, you can all read that book for yourself. So it remains unclear what role a free market “Capitalistic Economy” played in the potato famine. I just know that it was the main reason some of my ancestry hails from Ireland.It could also explain why I’ve never met a potato from my garden I didn’t like, unless it was spoiled..

    RE: Applicable Lessons
    It seems to me that the biggest lesson to be learned is: the importance of saving your seed for when times are good and to stockpile a reserve, whether it be hay , grain or canned produce for times when the natural world throws curve balls at the poor farmer. In the meantime do everything possible to return organic material to the soil and to practice rotational grazing to encourage natural production of long term organic matter (humus) in the soil.

    Are the Natives Surviving?
    In that regard, I wonder how remnant Midwestern native prairie is faring. Aren’t such plants as the native forbs and warm season grasses able to at least put on some growth and even make seed even in drought; or do they suffer as much as cool season forages and grain? I’ve not much to compare to in my experience, We only have one native warm season grass around here and it is short, not exceptionally palatable, at least compared to Kentucky Bluegrass and seems to grow in salty ground where nothing much else will grow. However the literature I’ve read , such as Wes Jackson’s Land Institute provides on the web, indicates the deep roots of the native warm season grasses can reach down to obtain water even in drought times. So looking on as someone who is not totally familiar with Midwest Conditions (I live in irrigated Central Washington State) it would seem a prudent course of action would be: to supplement a stockpile of hay and grain to keep the livestock going during drought times with at least enough fields of warm season grass to provide a bit of grazing during drought times which grazing is carefully rationed out with electric fencing.

    RE: Keeping hogs going with minimal corn
    I also wonder if small scale hog producers can make do with allowing hogs to forage in the woods (if they have access to any woods, that is) where the hogs can eat “natural” hog food. I’m told this is more nutritious and tasty pork than corn-fed pork anyway, which matches my experience. I kept some brood sows (600-700# size) and butcher hogs for home consumption going in good conditions with black walnuts from my trees and acorns I harvested from the local woods myself when I simply couldn’t obtain grain in much quantity. They also had free choice good alfalfa hay to munch on. The resulting pork was delicious. I seems to me the mast producing trees generally have deep roots so are likely to withstand periodic droughts. Of course woods ranging hogs may not fit the industrial agriculture model well.

    Toward the end of providing perennial forage, (and human food) on my one acre I’ve been planting wild hazelnuts, Thornless Honey locusts, mulberries and native berry producing shrubs such as Serviceberry. I also harvest acorns from the local White Oak (Quercus garryana), when I can get them. (Sometimes the yield from the Local White Oaks is simply amazing, considering our climate and water conditions.)

    The last hog I raised ate such wood’s derived ingredients with great relish. I used what corn I had to seed the manure pack under the steers as does Joel Salatin. She got most of the grain from the manure pack, and it helped aerate the manure pack so it composted somewhat aerobically and generated some heat during the winter cold, which both the hog and the steers really enjoyed. Two years later, I’m still enjoying the pork therefrom.

    I just finished reading the Book “At Nature’s Pace” by Gene Logsdon. It seems the material therein is very appropriate for what is discussed in this blog.

  7. I prefer the gamble I take every time I plant a garden or raise an animal to butcher…

  8. Dear Gene, you sure know how to stir things up! Will you be at Jandy’s Garlic Festival in a couple of weeks signing books?

  9. Several disconnected thoughts:

    Nothing brings low prices like high prices. The reverse is true too.

    Every farmer dreams of the day he not only out-produces his neighbor but also stands at his neighbor’s auctions with his hand in the air. We have lost our sense of community…probably because we have 24 row corn heads instead of corn husking parties. 30 row planters pulled by JD 9620 tractors. Millions of dollars worth of equipment, hundreds of acres between neighbors and nobody stays home. For Pete’s sake, farmers don’t even grow food! They go to Walmart.

    Simon Fairlie has some interesting insights into the Irish potato famine. While you are at it, read “Cottage Economy” by William Cobbett to get a sense of the hatred that British man had for the Irish and, for giggles, his apparent hatred of Methodists. He also lists a good description of burning hair off of hogs rather than scalding them.

    The trouble with regulation is they necessitate regulators. Those regulators then need oversight. Then all of them get a pension. It’s all downhill when you involve humans.

    Drought is a normal occurrence. Flooding is pretty normal too. In Magnificent Seven the old man of the village says, “You must excuse them. They are farmers here. They are afraid of everyone and everything. They are afraid of rain, and no rain. The summer may be too hot, or the winter too cold. If the sow has no pigs, the farmer is afraid he may starve. If she has too many pigs, he is afraid she may starve.”

  10. Mr. Thomas,
    Sunchokes are a good option for keeping hogs without corn. Pigs like to dig, sunchokes like to grow. In “Our farm of Four Acres…” Miss Coulton keeps pigs with skim milk, potatoes, carrots and peas. Just a couple of thought from a guy who ground the last of his corn last night…

  11. So many extremely thoughtful responses. I thank you all. I learned much from Charles Mann’s “1493” too, James Thomas. And to Head Start Stewart, I love William Cobbett’s books— have you tried his Rural Rides yet? Hard to find. And Simon Fairlie’s book about meat is terrific. It makes me feel extra good to find others who like the same books I do. Gene Logsdon

  12. We planted about a 1/4 acre of corn this year before I ever heard of the drought happening in the majority of the US. Where we live we have not experiencing a drought so our corn is doing well. We do not feed the majority of our corn to our pigs, we freeze in for the winter. We are a small farm with pigs, sheep and Irish Dexters. The pigs do very well in the woods as we do pastured pigs. Our food has become nationalized, which has made us vunerable. The food system needs to be more local.

  13. Dave Smith – I was simply responding to the statement by votervalefood of,

    “…Our food has become nationalized, which has made us vunerable. The food system needs to be more local…”

    Maybe I shouldn’t have included the phase “relying entirely on local food” in my question, but I still don’t see how a local food system would necessarily make us less vulnerable to food shortages.

  14. A local food economy as we have today (2012) can in no way be compared to the local food economy as existed in 1912. Our 2012 local food economy is at present mostly non-existent. It will remain so because history refuses to be rebuilt. Because of this, we can not reasonably argue that a “new” local food economy will make us “less vulnerable.”

    However, if by some mad twist of fact we could recreate a 1912-style local food economy, where everyone everywhere was producing their own food, and had been producing their own food forever, than droughts, even prolonged droughts, would not necessarily make us vulnerable. The food economy would be such that that possibility would be part of the economy. The system would self-regulate, hold.

    Food vulnerabilities of 2012 are manifestly different than those of 1912. We absolutely need a local food economy. But we need to have realistic expectations. A contemporary local food economy can only be expected to lessen vulnerabilities of a contemporary kind. And as contemporary food vulnerabilities are larger than a drought, there is plenty of work to take up.

    • I agree. Plenty of work to take up. We are all in this together, this culture and community that recognizes the requirement of personal, thoughtful, dedicated investment of our selves toward the possibility and practicality of a local food economy. The system in place, the machine, won’t protect or support anyone like it is generally expected to. That burden will fall to those of us whose hands feel dirt and manure every day, and relish that sensation. Times are changing.

  15. We’ve centralized our food system too much in the US crops grown in too few places,too few varieties are being grown,too few different things are being grown for food,too few companies supply seeds its all adds to
    monoplies controling the food supply and shortages and high prices which is crazy to have happen in a country with as much fertile land as we have here in the USA.

  16. Read this in an article in Seed World magazine, which happened to be lying on the table in the breakroom at work. Stuff like this makes me crazy.

    “While demand for phosphate fertilizer is expected to rise 50-100 percent by 2050, some experts are predicting that production is likely to peak and irreversibly fall within this period, as mines age and in-ground reserves are depleted. Regardless of the date, one thing is sure: over time, demand is going to outstrip supply, and supply will eventually dry up. And when it does, the consequences for food production and food prices are frightening.

    No easy solution is on the horizon. Agriculture could try to source its future phosphorus from human and animal waste; however, this would require considerable time, infrastructure and expense, and even a restructuring of farming systems. Few highly productive agricultural systems dependent on mined phosphate would be prepared for what this implies. And many low-input, low-productivity systems are demonstrably ill equipped to implement such a ‘solution’ on a large scale or they would have done so long ago.”

    The article went on to say that the solution is for industry breeders to select toward plant varieties which require fewer soil nutrients for similar yields. I have no problem with breeding. I work for a wheat breeding company, and I do my own crossing and experimentation at home. But for the industry to say to farmers, “the inputs we’ve been selling you are going to run out due to unsustainable practices we lead you into, but don’t worry! Trust US, we’ll take care of it” is completely enraging, is it not?

    • Yes, John Depew, it is completely enraging. And when seed companies promise to develop seed that produces more with less soil nutrients, that is just mathematically if not botanically impossible, is it not? Gene

      • Yes. It seems obvious that plants producing the same amount of biomass or grain or what-have-you on fewer nutrients, while probably botanically possible, is definitely not going to meet the needs of actual nutrition that are going to face farmers trying to provide for an unsustainable human population. Does even the scientific community not realize that plants that grow with less healthy soil are not going to be able to transmit those micronutrients into the foods we eat and therefore into us as human beings? The more I think about it, the less I can understand why this is not self-apparent to everyone…?

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