Merger Fever

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If you follow ag news you must be aware of the high profile mergers and buyouts going on in agribusiness. After months of trying to sell itself or merge with another agribusiness company, Monsanto seems as if it is going to be snapped up by pharmaceutical giant, Bayer, so the German company can increase it’s ag presence. Bayer is already a major maker of pesticides and snapping up Monsanto would give it a significant presence in the GM seed market as well.

It is not a done deal by any means. It still has to be passed by antitrust regulators both here and in the EU. There seems to be considerable resistance to the merger in Germany and in the EU as a whole, and a lot of politicians over there have been making disapproving noises.

This isn’t the only big ag merger going on, either. Dupont and Dow Chemical are in the process of merging, with the details still a bit up in the air. Swiss company Syngenta, which Monsanto had attempted to cut a deal with earlier, is being snapped up by the China National Chemical corporation, which is owned by the Chinese government. All four of these companies are major players in the agricultural chemical industry. (ChemChina seems to be on a buying spree. Last year it bought Pirelli, the Italian tire maker)

Mergers, acquisitions, buyouts, etc. aren’t anything new, especially in the ag industry. It’s been going on for ages. And generally the results, at least for the farmers, aren’t pretty. Over the years we’ve seen virtually every small, independent co-op, feed processor, seed maker, machinery dealer and independent mechanic be bought up, forced out of business or merged into ever larger semi-monopolistic businesses. And while competition has dwindled, farmers have fewer choices of where to go to buy seed, fertilizer, feed, chemicals and equipment, prices have, of course, skyrocketed.

The problem with all of these mergers is that they don’t seem to benefit anyone except a handful of investors, lawyers and, of course, the upper management of the companies themselves. They certainly don’t benefit the consumers, that is the farmers and you, the people who buy the milk, cheese, eggs, meat, vegetables and fruit that the farmers produce.

We used to plant 30 to 40 different types of soybeans in the US. Today, 90% of all the soybeans planted in the US are a single variety, produced by Monsanto. The fact that Monsanto has a literal monopoly on soybean seed isn’t the only problem with the situation. It’s the fact that we could be facing a very serious biological crisis. If a new disease pops up that this one variety of bean is susceptible to, the entire US soybean crop could be jeopardized because of this lack of genetic diversity. These monopolies have resulted in such a lack of genetic diversity in our agricultural systems that many of them now lack the genetic diversity to be sustained if a disease strikes them.

What these companies try to do, want to do, is lock farmers into a specific “system” of agriculture. You buy a specific type of seed to plant. That plant comes along with a specific program of herbicide and pesticide control systems, also sold by the company. Farmers do it because it’s easy. Sort of one stop shopping. They get everything they need from one vendor. And generally these systems are profitable.

At least at first. What generally happens is the company starts to get greedy. After releasing the system at a relatively decent price, the company starts ratcheting the price up once farmers get hooked into it. Prices go up until farmers realize the system isn’t all that profitable any longer. But by that time, well, they have such a heavy investment in the system they can’t really get out of it any more. Besides, where else are they going to go because the company has driven all of it’s competition out of business.

Farmers who want an alternative have enormous trouble even trying to find one. These semi-monopolies claim there is still a lot of competition out there. And it’s true that there are some competitors. But not many, and even fewer who could provide large scale farmers with the quantity of seed they need at a price they can afford to pay.

Starving Amidst Plenty

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Not a day goes by when you don’t see a news item about more food aid being needed somewhere as enormous numbers of people go hungry or are even starving because of natural disasters, political disasters, poverty. If you follow the agricultural media as I do you will see articles about the mega ag companies like Monsanto talking about how they need to get ever bigger, absorb even more small companies, because they need to develop new seeds, new herbicides, to satisfy an ever expanding and increasingly hungry world population. Articles about food deserts in the inner cities in the US and other otherwise prosperous countries. Articles about how we need to cultivate more land, increase the yield of crops because people are starving all over the world.

But then along comes items like this story from AP at AgWeb: Why Is There So Much Food?

The US alone is producing 24 billion gallons of milk a year. We’re producing enough milk every year to fill a good sized lake or two. So much milk that it’s driven the farmgate price down so far farmers are going bankrupt. The US alone has 1.24 billion pounds of cheese in storage and 322 million pounds of butter. USDA has been buying up stored cheese and giving it away to try to keep prices from collapsing.

If milk were the only commodity we have massive surpluses of, it wouldn’t be so bad. But it isn’t. The US has 377 million pounds of strawberries and 313 million pounds of blueberries in storage. In total we have around 1.5 billion pounds of fruit in storage. We have 1.3 billion pounds of turkey and chicken in storage.

If you look at grains, the situation is similar. The 2016 corn harvest is just getting started here in the US, and it looks like it’s going to be a near record breaking crop. And we still have millions of bushels of corn in storage from last year’s near record breaking crop. The price of corn has plummeted to $3.30 or so a bushel, and will probably drop considerably as the new crop floods storage facilities. The story with soybeans is similar. Same with wheat. Eggs, which suffered massive price increases that saw the local stores selling eggs at $1.75 a dozen, have fallen to $0.49 cents in our local grocery store.

Right now we are looking at the lowest prices for ag commodities that we’ve seen in many years. Retail consumer prices are flat or falling. One source I read the other day claimed retail food prices have dropped by 8% in the last six months. The UN claims food prices are at the lowest level they’ve been at (adjusted for inflation) in a very long time indeed. We have a glut of food on the market, so much we don’t have enough storage space for it.

And we still have people going hungry, even starving. Even in the most affluent countries in the world we have large parts of the population who are hungry, who don’t know where their next meal is coming from.

It isn’t agriculture that’s at fault here. It isn’t farming. It’s politics. Petty nationalistic disputes, power struggles in congresses and parliaments. It’s prejudice and discrimination. It’s greed and selfishness.

Disconnection from Reality in Agriculture

I often find myself irritated by what appears to be a serious problem with how some ag news outlets and their various pundits report on the dairy industry. Ever since milk prices plummeted a couple of years ago, I’ve been reading an endless string of opinion pieces by the so called experts, the pundits, even actual news reports, that indicate that milk production is dropping, or is going to drop, the number of milking cows is going to shrink, and there is going to be a significant improvement in farmgate(1) prices.

Even as I was reading some of those items I was scratching my head because the actual data I was seeing was telling me exactly the opposite of what the pundits at the ag web sites were claiming. While there was some shrinking numbers in some parts of the world, like New Zealand, what I was seeing in the rest of the world was a significant increase in production almost world wide.

The experts were claiming that production in the US was shrinking as well. They were claiming that production was flat or even shrinking as farmers culled herds and halted expansion plans.

The problem was that at the same time I was seeing new permits for mega farms being applied for, news stories about expansion plans, and other indications that exactly the opposite was happening.

The new USDA report that came out yesterday supported what I’d been seeing in the news, and indicated that the pundits don’t read the news reports in their own magazines or websites.

August milk production was up almost 2% in the US. Texas’ production was up 11%. The report said that 16,000 milking cows were added in July alone, and 45,o00 were added over the past year. And just ten minutes ago I was reading about yet another application here in Wisconsin for a dairy CAFO(2) to expand to 5,000 head.

The problem with a lot of these experts seems to be that they look at a specifically local condition and extrapolate from that and apply it world wide, while ignoring what’s really going on.

Some of the claims that production in the US was in decline was due to California. Production there has been declining significantly for the last ten years for a variety of factors. But they’ve been ignoring the fact that almost everywhere else in the US production has been going up. Wisconsin, North Dakota, Arizona, Minnesota… almost every state with any kind of significant dairy farm presence has been increasing production, often dramatically, as with Texas.

It’s been the same thing with the EU. They focus on a single country that’s seen a decline in production, and from that claim production is going down through the entire EU. When it isn’t.

It’s been a similar story when it comes to demand for milk products. They seem to focus on a small part of the world that is experiencing an increase in demand for milk products, and apply that world wide.

Even worse, they’ve gotten in the habit of looking at Global Dairy, a milk marketing system in New Zealand, as an indicator of world wide demand. But they tend to ignore the fact that GD is not an independent market. It is a wholly owned subsidiary of Fonterra, the New Zealand milk processing giant, and that it has a history of deliberately manipulating supplies flowing through the market in order to manipulate prices. Neither the amount of product flowing through GD, nor the prices of the products sold, is an accurate picture of supply and demand.

 

 

  1. Farmgate price is not the commodity futures price, but the actual price that the farmer gets for her/his product. There is often a significant difference between the commodities prices and the farmgate price. For example, a couple of months ago when the corn price on the Chicago market was running about 3.49, the actual price farmers in this area were getting for their corn was 2.78.
  2. CAFO is the term used by government for a mega farm. Concentrated Animal Feeding Operation. It applies not just to dairy farms but to any animal operation that has more than a certain number of cattle, pigs, etc. Generally around 500 – 700 animals.

U.S. Bites Into Cheese Mountain With Stockpile Purchase (1) | Agweb.com

Milk glut has pushed dairy prices to lowest levels since 2009.

Source: U.S. Bites Into Cheese Mountain With Stockpile Purchase (1) | Agweb.com

The buy by USDA will do little to improve farmgate milk prices, and in the long run might actually do more harm than good by temporarily improving wholesale prices and thus encourage even more overproduction.

It has not been a good time to be a dairy farmer almost anywhere in the world over the last year or two. A variety of factors, including wide spread drought one year and China stockpiling milk products led to a dramatic upturn in the farmgate price for milk. And for a time dairy farmers were doing pretty darn good.

Unfortunately, it seems that everyone, including a lot of people who should have known better, seemed to think that this situation was going to continue into the future, that dairy prices would remain high, and that there were massive profits to be made if they expanded production. As a result dairy operations began expanding all over the world. The EU lifted its production restrictions, farmers added cows, processors began building new production facilities. Fonterra, the world’s largest dairy co-op based in New Zealand, was investing heavily in the Chinese dairy industry because it saw massive profits were just waiting.

Well, it couldn’t last. And it didn’t.

China wasn’t buying up milk products because it really needed them. China was buying because it was first of all, getting a really, really good price. It wasn’t using the products it was buying, it was stockpiling them against future price increases. Chinese consumption of imported milk products was also being driven by a series of serious food contamination scares, including the deliberate adulteration of milk by criminals with chemicals that made the milk appear to have higher protein levels in order to get higher prices. The adulteration resulted in hundreds, even thousands of people becoming sick and some even dying. Ventures into marketing milk products in Southeast Asia were failing badly. The Chinese themselves were investing heavily in domestic milk production. China hates being dependent on imported foods for obvious reasons, and has been trying to do something about it. Western style mega-farms were starting to pop up, supported by the government. China was also cleaning house internally, launching extremely strict monitoring of food production to prevent things like the milk adulteration horror. They actually executed people for that crime.

So while China’s imports of milk products was shrinking drastically, world wide demand was flat, production continued to expand.

And milk prices plunged.

My father often said that a lot of farmers were their own worst enemy. Unfortunately he was largely correct.

He was also enormously skeptical of government price support efforts, and he was largely correct there as well. While these government programs like this cheese buy are well intentioned, in the long run they only serve to make the problem worse by temporarily propping up market prices and encouraging over production. Once the program ends, the market ends up being worse than it was before.

 

Was That Steak Raised In The USA? Soon, It’ll Be Hard To Know : The Salt : NPR

Source: Was That Steak Raised In The USA? Soon, It’ll Be Hard To Know : The Salt : NPR

If you don’t know what the COOL (Country Of Origin Labeling) was, I don’t blame you. Most of the consumers I’ve talked to didn’t even know the laws existed.

COOL required meat packers to label their products by country of origin. The consumer had to be able to tell if that meat came from the US, Canada, Argentina, Mexico, China or wherever.

This doesn’t sound difficult to do, until you realize that the product in that package could be from two, three or even more places. It’s common practice these days for meat packers to make ground beef from lean meat from one country, mix in fat from another. Or meat from two or more different countries can be included in that stewing beef or chicken pieces package.

It doesn’t sound very controversial, either. Who would possibly object to knowing where their food comes from? I certainly didn’t object to it. I liked the idea. And so do most consumers. We’ve all heard the horror stories about dead pigs floating down rivers in China or the horrific melamine milk contamination that took place a few years ago.

The people who didn’t like it were countries outside the US like Canada and Mexico. They claimed that if they had to label their meat as coming from their country, people in the US might prefer to buy US products instead. And the World Trade Organization that polices such things agreed. So Canada and Mexico were poised to launch a massive increase on tariffs on a variety of US products that would have cost billions of dollars.

So Congress, with some justification, caved in and passed a repeal of COOL on Dec. 18

I have rather strong feelings about this. I rather liked the COOL regulations.

First, consumers seem, to me at least, to have the basic right to know where the products they purchase were made. They also have the right to know what’s in them.

Second, wanting to hide where your product comes from makes me a wee bit suspicious. What exactly is wrong with your product that you feel that if people knew it’s origin they wouldn’t buy it? What are you trying to cover up?

The thing I find most disturbing, though, is that increasingly these treaties are giving outside interests extraordinary power over our internal affairs. In this case, the WTO, Mexico and Canada were able to force a significant change to US law. The Trans Pacific Partnership, which politicians on both sides of the political spectrum have been pushing for hard, makes things even more concerning, giving individual corporations the power to do what Mexico and Canada did here. A corporation could, in theory, sue a country under the TPP, forcing that country to change it’s law.

This seems to be giving an enormous amount of power to not a government which (theoretically at least) is supposed to guard and protect the interests of it’s citizens as a whole, to an entity that cares for nothing but profit, even at the expense of the welfare of the people.