Posts tagged with farming
That is assigning numbers to price-points and time-points; contingencies form a “surface”.
I tend to forget that for farmers, the actual landscape—the actual (sur)face of the Earth is itself the risk landscape.
- Hillocks get more sun (could be good or bad depending on the cooling-degree days
, the chance of frost, and the abundance of rain)
- Dells and ravines get more water—which could be good if it’s dry,
or catastrophic in case of flood.
- Of course that depends on the crop type. Rice wants to be flooded. Even I know that.
- And just like derivatives, agriculture has its term contingencies. Water in autumn is too late to grow the baby saplings but, too, a flood might not be as bad for the granary as it was for spring's seedlings.
- Symbiosis between “funded” (planted) neighbours could result in a “value-added merger” if, for example, the bugs which are attracted to one plant fend off another plant’s predators.
- A monogenetic crop could all be wiped out by the same disease.
- Diversification, then, would seem to mirror finance as one wants to invest fully in the “cash crop” (let’s say a junk bond), but risks increase as eggs are concentrated in one basket.
- Or say you wish that lucrative bridge loan’s IRR were applied to your entire portfolio—perhaps this is like a plant with rare seeds, or a plant that only takes in exactly perfect parts of your land.
- If a farmer could get “negative correlated assets” (half the plants do better in dry; half do better in wet), that would reduce the “portfolio variation”.
- Is there anything in finance that, like alfalfa, regenerates the “soil” for the next year’s crop?
- We speak of “exposure” in finance—well, furrows in la terre literally change the exposure to the sun over the course of its chariot ride across the sky!
Is it possible, then, to apply the lessons of modern portfolio theory to crop selection?
- Spain produces 4 times as much olive oil as Italy.
- Price of a tonne of olive oil has halved over the aught’s.
Construction laborer Yi Jichun has never heard of Illinois or Iowa. But the migrant worker’s favorite comfort food comes straight out of the U.S. Midwest: soybean oil.
The world’s biggest consumers of edible oils, Chinese households have developed a taste for the stuff that would make a county fair fry cook proud. Be it a simple stir-fry, poached fish or deep-fried pork ribs, many Chinese diners love their grub covered in an oily sheen. Jugs of the golden liquid make popular gifts for Chinese New Year.
"Without the oil, it would taste too plain,” Yi said as he tucked into a lunch of sliced cucumbers and chicken drumsticks slathered with grease. “I wouldn’t want to finish it.”
Check out this portrayal of the computer from 1978.
- Same concerns about privacy.
- Same awe at its power (although the reel decks aren’t probably so familiar to most people anymore).
- And computers, although they run a lot of stuff, like air control and banks, don’t show up much in your & my day-to-day lives, at least not obviously.
Says I 34 years later to you, “on” tumblr, which you may view with your smartphone.
One night in the winter of 1907, at what we have always called “the home place” in Henry County, Kentucky, my father, then six years old, sat with his older brother and listened as their parents spoke of the uses they would have for the money from their 1906 tobacco crop. The crop was to be sold at auction in Louisville on the next day.
They would have been sitting in the light of a kerosene lamp, close to the stove, warming themselves before bedtime. They were not wealthy people…. [T]here would have been interest to pay, there would have been other debts. The depression of the 1890s would have left them burdened. Perhaps, after the income from the crop had paid their obligations, there would be some money that they could spend as they chose. At around two o’clock the next morning, my father was wakened by a horse’s shod hooves on the stones of the driveway. His father was leaving to catch the train to see the crop sold.
He came home that evening, as my father later would put it, “without a dime.” After the crop had paid its transportation to market and the commission on its sale, there was nothing left. Thus began my father’s lifelong advocacy, later my brother’s and my own, and now my daughter’s and my son’s, for small farmers and for land-conserving economies.
The economic hardship of my family and of many others, a century ago, was caused by a monopoly, the American Tobacco Company, which had eliminated all competitors and thus was able to reduce as it pleased the prices it paid to farmers. The American Tobacco Company was the work of James B. Duke of Durham, North Carolina, and New York City, who, disregarding any other consideration, followed a capitalist logic to absolute control of his industry and, incidentally, of the economic fate of thousands of families such as my own.
Because I have never separated myself from my home neighborhood, I cannot identify myself to myself apart from it. I am fairly literally flesh of its flesh. It is present in me, and to me, wherever I go. This undoubtedly accounts for my sense of shock when, on my first visit to Duke University, and by surprise, I came face-to-face with James B. Duke in his dignity, his glory perhaps, as the founder of that university. He stands imperially in bronze in front of a Methodist chapel aspiring to be a cathedral. He holds between two fingers of his left hand a bronze cigar. On one side of his pedestal is the legend: INDUSTRIALIST. On the other side is another single word: PHILANTHROPIST. The man thus commemorated seemed to me terrifyingly ignorant, even terrifyingly innocent, of the connection between his industry and his philanthropy. But I did know the connection. I felt it instantly and physically. The connection was my grandparents and thousands of others more or less like them. If you can appropriate for little or nothing the work and hope of enough such farmers, then you may dispense the grand charity of “philanthropy.”
Whenever a government assesses “the” value of a property for tax purposes; whenever you project figures in a pitch to investors; whenever an accountant writes a single number on a line that isn’t referring to Cash Itself — a distribution has collapsed.
I put "the value" in scare quotes because one number can’t express an asset’s worth. Even if dollar-value-to-me is a 1-D concept — a dubious proposition itself — there are still many other players who value the asset differently. And those valuations could change with new laws, market conditions, reading a book and getting a crazy idea, etc. It all depends. It’s a function; it’s multi-dimensional; it has a topology; different opinions = different metrics, and so on.
Anyone who has done accounting in the real world knows intuitively that Numbers Aren’t Facts. Numbers are opinions. Numbers are estimates. Numbers are vague, but less vague than the alternative.
Let me delve into the economics of one imaginary ambiguous valuation for the more scholarly readers.
Imagine a farmer who owns land in Montana and has worked it all his life — never considering selling the farm because he loves farming, is a farmer, sees himself as a farmer, and wouldn’t know what to do with himself if he didn’t farm. He wants to pass the farm on to his kids, but the property will be subject to taxes as it passes from hand to hand.
How much should the government tax his land asset? They have to estimate the worth of the property and then charge a fair, fixed percentage that they would charge to anyone else. But there is no single worth of the property. It’s worth different amounts to different people, for different reasons.
- In the hands of his kids, and in his hands, it has sentimental value.
- In a farmer’s hands, it has agricultural value as well as the utilitarian pleasure the farmer gets from working the land.
- In a real estate developer’s hands, if the developer does everything right and sells a good number of lots, the property will be worth a lot of dollar bills.
- In a rich fool’s hands, the property is worth as much as he thinks it’s worth.
- In a rich sentimentalist’s hands, the property is worth whatever s/he has to pay to acquire that beautiful thing.
- In a conservation fund’s hands, the property’s worth will fluctuate with the carbon price, donations (which in turn will fluctuate with certain segments of the economy), grant money, the fund’s ability to obtain other nearby properties, the priorities and opinions of the Board of Directors, and the migratory patterns of endangered species.
By the way, I could also add this family farm story to my list of noncommutative phenomena in business — because the price to develop farmland into a subdivision isn’t the same as to go the reverse direction. (Similarly for conservation or any different use of the land.)
The farmer may want to live in his own universe where he works the land, his kids work the land, their own little economy — but the tax man’s assessment will definitely look at what other people outside that universe are willing to pay for the property.
A Marshallian supply & demand graph from Econ 101 makes the point. This is a 1-D chart so it doesn’t capture the full variegation of the stories I sketched above. But it shows more detail than a single number “the” value of the property.
The farmer only has one of “good X” to sell, so supply is inelastic.
In Econ 101, the market clearing price is the price which makes all units ship. In this graph there are multiple prices which would make all units ship, so there is no single market price.
In the family farmer situation, the farmer doesn’t even want to put his place up for public auction. But the ambitions and tastes of some rich guy or group of rich guys can still sway how much tax the farmer pays handing the property over to his kids. The farmer can choose whom he sells it to (and refuse to sell to a developer for instance), but that preference has no effect on the tax rate.
The family farm story isn’t the only case where a unique asset has to be assigned “a” single value.
- Selling a restaurant — will the next owner sell alcohol there?
- Shares of Bear Stearns around February 2008.
- Any of the hot potatoes the Fed scooped up during the financial crisis. (google “mark to market” or “fair market value” for illiquid securities, it’s a controversial issue)
- Any asset I buy for use in my business. Obviously I wouldn’t buy $10M of factory equipment if I didn’t think they would be worth much more than $10M to me. But their value in a liquidation would have to be lower, especially if the buyers know the liquidator is under time pressure and can’t use the stuff any other way.
Everything is connected — fortunately or unfortunately.
Agriculture in the U.S. is shifting to areas like Iowa and Nebraska, where no one would live for the fun of it because it isn’t beautiful as in Montana!
Here in Montana, people do want to live for the fun of it, and so they are willing to pay much more for land than agriculture on the land would support.
The Bitterroot is becoming a horse valley. Horses are economic because, whereas prices for agricultural products depend on the value of the food itself and are not unlimited, many people are willing to spend anything for horses.
Allen Bjergo, in Collapse