I have not yet read the book, but was fascinated with a book report of sorts on "The Big Thirst", by Brett MacNeil of Scythe & Spade in a special August 18 newsletter. It brings home the overwhelming importance of water and water quality, and I am going to share some of his points regarding the wealth in water here for our readers.
97% of the earth's water is salt-water, 3% is fresh, and 2/3 of the fresh is frozen; hence, very little of the world's water is usable.
Bottled water in the U.S. is 3000X as expensive as tap water, is no cleaner than municipal water, and most is simply heavily filtered tap water yet the industry continues to grow. Our country spends $21BB on bottled water, and only $46BB on all other sources and uses of water including delivery and effluent systems.
60% of home usage is toilet flushes, more than showers, dish or clothes washing.
In a 2009 Gallup poll, interviewees were asked which were their top eight environmental worries. The #1 worry was polluted drinking water.
Today, citizens in Las Vegas pay $2.71 for 1000 gallons of water; by contrast, Imperial Valley agriculture pays $0.06 for 1000 gallons of water (also from Lake Mead), uses 5X as much water as Las Vegas, but produces 1/24th as much economic activity for each gallon of water as does Las Vegas. When politicians begin calculating value and numbers of votor, who will win that probable fight?
In most countries, 60-80% of all water is used in agriculture, and an estimated 50% of that is wasted; in the U.S., agriculture uses 67% of the country's water and much of that is also wasted.
It does not take a rocket scientist to realize we have a serious water problem on this earth, in this country, and in our agriculture future, especially when seeing demographic studies showing a 50% increase in world population within 50 years. As water supplies tighten, there will be more focus on who is using the most water, and who will pay the most for declining supply. While there may be countless ways to increase plant productivity per gallon of water, the most important thing we can do is CONSERVE.
Is There Any Connection... Jan 1, 2009 12:00 PM, By Danny Klinefelter
Corn and Soybean Digest, January 2009
Limiting government payments to "millionaire" farmers and "corporate" agriculture.
I got into the office this morning, turned on my computer, and the first message I read was about limiting government payments to “millionaire” farmers and “corporate” agriculture.
What is a millionaire farmer anyway? Is it based on net worth? The farmer who spent 30 years paying off 160 acres in central Illinois or Iowa is probably a millionaire.
Is it $1 million gross sales? In a normal period, the typical farmer would have a net before tax income of around 10% on sales. He probably worked over 40 hours a week and took all the risks associated with running a business, so I'm not sure I would consider him to be part of the undeserving rich.
If it's net income per person and we use the magic $250,000 before tax net income that is the general criteria being used to separate the rich from the middle class in income tax politics, then that would translate to roughly $2.5 million gross sales per person per family unit, which is not the same as per operation.
What about corporate farms? I assume the rhetoric is about outside investors or publicly traded companies. But the reality is that 98% of farm corporations are closely held family businesses that have elected a corporate legal structure for business or estate planning reasons. What is there that is inherently evil about a corporation?
WHEN IT COMES to saving the family farm, who is being targeted? I understand that a 1,600-acre corn and soybean operation run by a husband and wife with one hired man or a teenager who is still at home fits the definition. But what about a 5,000-acre farm operated by a father and his two grown sons, which supports three families? Is it a family farm or one of the bad guys?
I also hear a lot of talk about the virtues of a competitive market. Yet, the same people often promote policies that prevent markets from working. A truly competitive market is very efficient, but also very impersonal and can be very cruel. The function of a competitive market is to drive the economic return to the average producer to break even through supply and demand responses in both input and output markets. In equilibrium the top end — not necessarily the biggest — are profitable and growing, the average are hanging in there and the bottom end are losing money and are forced to exit the industry.
Being on the bottom isn't always a matter of being a poor operator; it can often be a matter of timing. Those who haven't built enough equity, are too highly leveraged or lack sufficient liquidity can be victims of getting caught in a cyclical downturn, particularly one as severe as we may soon be experiencing.
One thing to remember for those who favor “letting the chips fall where they may” — i.e., the competitive market philosophy — is that each time the bottom layer gets weeded out, the level up becomes the next vulnerable group.
What this means is that survival depends on continuous improvement at the pace needed to remain in the front half of the pack.
I welcome some well thought-out comments.
Danny Klinefelter is a professor and Extension economist with Texas AgriLife Extension, Texas A&M University and director of The Executive Program for Agricultural Producers. He may be reached at 979-845-7171 or at email@example.com.
Leasing Considerations For A Volatile Year
Landowners and tenants will face a difficult challenge in determining a fair and reasonable leasing agreement for both parties for 2009, says Bruce Johnson, a University of Nebraska-Lincoln (UNL) agricultural economist.
When it comes to farm leases, Johnson says both the tenant and landowner need to realize that risk exposure going into 2009 is greater than ever before. With a cash lease, the tenant carries the bulk of the risk, and the landowner must realize this risk is growing.
“Tenants can't simply continue to bid up cash rents in light of the fact that there is serious risk exposure on both the purchased-input side and the commodity-price side,” says Johnson. He adds that the best advice may be to leave 2009 cash rent rates at 2008 rates, assuming those 2008 rates were set at reasonable and competitive levels for the local area.
When one loads current conditions into the UNL Farm Lease Calculator, the results would suggest little economic justification for raising 2009 lease rates much above the 2008 levels. The UNL Farm Lease Calculator and other leasing resources are available on the Department of Agricultural Economics Web site at: www.agecon.unl.edu.
During volatile market times, the crop-share lease actually is the most fair and equitable of the cropland leasing agreements, says Johnson. Both tenants and landowners have tended to move toward cash leasing and away from crop-share leasing – tenants because of the great management flexibility and landowners because of the fixed cash payment they can count on with little management responsibility on their party.
“However, as we try to ride out this global economic storm, it may be time for both parties to reconsider leasing on a crop-share basis,” he says. “Bear in mind, though, that traditional crop-share arrangements may not fit the type of crop-production agriculture we have today.”
For example, under the conventional 50-50 crop share arrangement for irrigated land, the landowner's relative dollar contribution to the contract is often greater than that of the tenants. However, by altering the proportional shares of one or more of the variable inputs instead of sharing in the same proportions as output, the balance can often be restored. Again, the UNL Farm Lease Calculator can help with this.
“Finally, it should go without saying that economic decisions today based on mutual trust, forthrightness and integrity are more important than ever,” he says. “All parties need to be striving for one common cause – a fair and equitable leasing arrangement with the long-run sustainability of the land and the agricultural community in mind.”
Good News On Flex Leases
All flexible cash leases for land rental contracts will now be considered cash leases by FSA for farm program payment determination during the 2009-2012 crop years, according to preliminary revised regulations announced recently by USDA. The revised regulations state that any rental contract with a guarantee plus a bonus will be considered a cash lease, regardless of how that bonus is set up or structured.
Previously, FSA considered any flexible cash lease that was based on actual farm yields, prices or revenues to be a share rent lease. That meant that eligible landlords had to receive a portion of all farm program payments. This requirement was restricting the use of flexible leases in many situations, even though current crop economics strongly favor the use of flexible leases for the 2009 crop year and beyond. Farm operators and landlords should continue to use caution with 2009 land rental contracts that involve flexible cash leases, until USDA releases the final regulations on flexible leases in a month or so.
Ten of Mike Brelsford’s 25 landowners expressed interest in a fl exible cash lease going into the 2008 cropping season. That was enough for Brelsford to make the leap into a business arrangement he had never tried before. In theory, a flexible lease is appealing, especially in times of extreme volatility. Landowners get more income in good years, and operators pay less rent in poor income years. And because risks are higher in farming today, a fl ex lease may be the best solution in many landlord-tenant agreements. But theory isn’t always enough to provoke real change. As discussions progressed, nine of those 10 landowners backed off, choosing to stay with cash leases at fi xed rates. Some feared they wouldn’t get enough in return for what they were giving up; others viewed the calculations as too cumbersome. “I’ll be able to provide a better assessment on how the one fl exible cash lease is working out when we’ve settled up after harvest,” says Brelsford, of Perry, Iowa.
Owners and operators can set up fl exible leases in several ways. Some flexible cash leases provide for the landowner to get a fi xed percentage of the crop. Others provide for a base cash rent with some sort of rent escalator or bonus. The rent would rise if yield or price tops a preset level. Some fl exible leases vary the rent with both yield and price.
Is a flex lease for you?
If you're about to renegotiate with landowners and want to minimize cash outflow for rent in poor income years, consider a flexible cash lease asone option.
Fast Facts DTN – Jerry Gulke
Sep 17, 2008 10:12 AM
Although this was a holiday-shortened trading week, corn dropped 33 cents, beans fell $1.40 and wheat was down 50 cents. These decreases are overshadowed by wheat at new low closes for the year, soybeans near the January lows, and corn nearing the March lows and within 50 cents of the January lows. Soy oil, once thought to be in short supply worldwide, closed lower than at any time since January 1. Put another way, anyone who bought commodities from January 1 to March 30 has a margin call. They have been long and wrong.
Some took on marketing themselves, or hired some of the best commercial firms to help them manage risk, yet lost millions from hedging. It wouldn't be so bad if the hedge was an honest loss. But, like so many undercapitalized businesses, they didn't have the money tore-sell longs they were blown out of when margin requirements became too big to handle.
It never ceases to amaze me that after all the years we producers were admonished to manage our market risk using futures and options, there are still end users who do not do so. And they justify their lack of management ability by blaming the high cost of commodities.
Truth is, there was really no excuse for any end user to not have covered a year's worth of usage last December. Never mind about 2009 -- just doing it for 2008 would have relieved a lot of the cost/price squeeze whining and crying we heard on CNBC a few months ago.
Covering 2009 needs now is a moot point as the bull dance is likely over and time is on the end user's side. Anyone with a bullish stance, who thinks commodities (especially corn and beans) have to go higher, is likely going to dance alone.
In the last two months we have seen gross grain production income drop precipitously. I noticed back in April that John Deere stock topped out near $95. It has dropped continuously since then to Friday's close at $63. All while stock pundits advised owning anything that smacked of being on board the grain market bull run.
Smart money was getting out of ag-oriented stocks before our grains topped in June. Interesting isn't it? It tells me the equity market realized we had crude oil prices and ag commodity prices high enough to curb demand much sooner than most thought.
Another case in point is ADM, whose stock has lost 50 percent of its value since -- yup, you got it -- April! Even Monsanto, with a monopoly on product and price, lost 30 percent in same timeframe.
What I am getting at is that ag equities were being sold -- or certainly viewed as out of favor -- by those with real money to invest (not the wannabees on TV) long before we topped out corn and beans. Now, with our products worth $400 per acre less than analysts' best estimates, could it be that a lot of those machines that were ordered may go undelivered as producers find cash flow isn't what it looked to be just two months ago?
For weeks I have been suggesting those things that brought us to the bullish dance two years ago were all but gone. The weak U.S. dollar, the strong Brazilian real, the strong euro, money flowing from spec and index funds, weather, and a robust global economy -- all have turned around.
It has been my focus to continually look over my shoulder to wonder what could sneak up behind us and put an end, even temporarily, to our good fortune. Pick up any newspaper and you will read about poor economies in Europe, China suffering from lack of U.S. and world buying, India in question and all of Asia taking a pause. Not to mention, the irrational exuberance of some importers who decided to go it alone and grow their own. Egypt is renting land in Africa to grow wheat, and the arrogant Russians wanting to control their export markets to squeeze more out of a dry economic buying public.
High prices were a great fertilizer and the world responded. Now the marketplace has responded by exiting these risky items and heading for safer havens. Trading at the CME dropped over 30 percent in July, mainly due to less financial trading. But a falling tide lowers all ships and interest in commodities has suddenly turned from a "wise investment" to something to shy away from while the dust settles.
I have written before about the witch hunt launched by some senators, led by Sen. Dorgan of North Dakota, to ban speculators from trading commodities. Pull up any commodity and see if it looks like what has been done is good for ag, let alone commodities in general. Granted things could turn around with a bullish Supply and Demand report next Friday from USDA. But I wouldn't -- and have not -- bet the farm on it.
Attention from the Dorgan fiasco has been diverted to the presidential dilemma. McCain has said he wouldn't sign any farm bill. Obama may not know much about ag or like ethanol. Will we have any type of farm program at all under either administration? The fact is, we are so far away from any safety net that it doesn't matter much. We spilled more being long corn in the field or on the CBOT as end users than we'd ever get in direct payments. Disasters and drought are part of farming. And if prices get back to where the safety net is of value, the disaster in agriculture will make the sub-prime mortgage mess look like child's play.
After being under a safety net for so long, prior to the new plateau in prices, we may have gotten so used to some sort of downside protection that rigor mortis sets in when prices retreat, catching producers like deer in the headlights. The free market enthusiast would suggest that if we didn't have government revenue aid, we'd have gotten our act together long ago and the most efficient would survive as CEOs and the rest would be mere plant managers, driving the tractors for the CEOs. Perhaps that is what government now has in mind, as it can't possibly fathom another farm crisis. But something less than $4 corn might just bring it on. The last two months have been a business environment in which grain options were meant to be used. Don't practice unprotected marketing going into the report next Friday.
With world economies now in jeopardy due to higher prices for food, fiber and energy, the only thing left to support our prices is a bullish crop report next Friday. I will be reviewing the report, plus taking a look at the commodity outlook at the Silveus Ag Summit at the Grand Wayne Convention Center in Fort Wayne, Ind., September 12, along with Dr. Elwin Taylor (Iowa State professor) and Dr. Michael Swanson (VP and ag economist for Wells Fargo). For more information go to www.cropins.net/agsummit.asp. This summit is FREE if you pre-register on their website or call them at 1-800-531-9909. Mention that you heard about the summit reading my DTN article. I hope to see you there.
Ethanol: Just The Facts Ma'am Aug 1, 2008 12:00 PM
In the face of a continued barrage of questions about the economic and environmental feasibility of ethanol, here are some facts to set the record straight.
The Iowa Corn Growers Association, the National Corn Growers Association and USDA-ERS offer the following stats to counter falsehoods circulating in the popular press:
Corn represents less than a penny in most supermarket products. A gallon of milk contains about 13¢ worth of corn. Growing demand for animal protein in the developing world will continue to increase demand for corn. Fortunately, many livestock can be fed the ethanol byproduct DDGS.
Global weather patterns and increased demand for grain from developing countries have increased grain prices, in addition to demand for corn-based ethanol.
Corn represents only 19¢ of a pound of hamburger and 26¢ to a pork chop, according to Iowa Corn Growers Association calculations.
A dozen eggs contains 28¢ worth of corn.
One bushel of corn produces thirty-eight 12-oz. boxes of cereal.
Even a hypothetical 30% increase in corn prices would increase consumer food prices by only about 1.1%, according to a study by the Center for Agricultural and Rural Development at Iowa State University.
Higher corn prices increase animal feed and ingredient costs for farmers and food manufacturers, but pass through to retail prices at a rate of less than 10% of the corn price change, according to USDA data presented in its Amber Waves magazine.
“Given that foods using corn as an ingredient make up less than one-third of retail food spending, overall retail food prices would rise less than 1%/year above the normal rate of food price inflation when corn prices increase by 50%,” it says. (See www.ers.usda.gov/AmberWaves/February08/Features/CornPrices.htm.)
An 18-oz. box of corn flakes contains about 12.9 oz. of milled field corn, worth almost 5¢ (based on $3.40/bu. corn, the average 2007 price). A 49% increase in corn prices would be expected to raise the price of a box of corn flakes by about 1.6¢, or 0.5%, says USDA.
Ethanol is less expensive than MTBE, the fuel oxygenate that it replaces.
The efficiency of ethanol production continues to improve. For example, a bushel of corn now yields 2.8 gal. of ethanol, up from 2.5 gal. just one year ago.
Ethanol has created more than 147,000 jobs — many of them in rural communities — has boosted U.S. household income by $4.4 billion and reduced the U.S. trade deficit by $5.1 billion by eliminating the import of 143.3 million barrels of oil. This information comes from a January 2005 study by LECG.
Ethanol represents 5% of motor fuel, and if eliminated, gas prices would rise 10-12%, according to Kansas State Ag Economist Mike Woolverton.
If ethanol supplies rise 5%, gasoline prices would likely drop by more than 5%, Woolverton says.
If ethanol demand for an extra 1 billion bushels is eliminated, corn prices would fall to $3, Woolverton says.
Ingenuity has been a theme of the American story, and ethanol is another chapter,” says NCGA President Ron Litterer. “We should be proud that our farmers are seeking ways to reduce dependence on a finite energy source, help spur their local economies and help the taxpayer.”