continue the march; no time for a unilateral truce! · phosphorus is exported, primarily to china,...
TRANSCRIPT
O
ORGANIZATION FOR COMPETITIVE MARKETS POST OFFICE BOX 6486 LINCOLN, NEBRASKA 68506 ø www.competitivemarkets.com
OCM News | OCTOBeR 2010
3 FORGETOIL,WORRY ABOUTPHOSPHORUS by C. Robert Taylor
6 THECOMSTOCKREPORT REvIvALOFHOnOR- PARTII by David Kruse
Disclaimer Theopinionsof theauthorspresented inour newsletter are their own and are notintendedtoimplytheorganizationsposition.OCMhasmembershipwithdiverseview-points on all issues. OCM is committed tooneandonlyoneprincipal;competition.
INSIDE...What’s
Continue the March; no time for a unilateral truce!
by Fred Stokes, Executive Director
Over thepast30orsoyears, therehasdevelopedameekacquiescencetoagricul-tural market concentration and anticom-petitivepracticesandtheresultantharmtofamily farms and ranches, rural Americaandournationalfoodsecurity. Governmenthas seeminglybeen indif-ferent.TheU.S.DepartmentofAgricul-ture (USDA) has been captive to thoseitwas supposed to regulate and theU.S.Department of Justice (USDOJ) rubberstampedeverymergerthatcamedownthepike. Both departments share complicityinsetting inmotiona trendthat ifnotre-versed,willtakeAmericanagricultureoverthecliff. However, there is hope. A little overa year ago USDA and USDOJ signaledchangewiththefollowingannouncement: “WASHINGTON, August 5, 2009 - Agriculture Secretary Tom Vilsack
and Attorney General Eric Holder an-nounced today that the U.S. Department of Agriculture (USDA) and the Depart-ment of Justice will hold joint public workshops to explore competition issues affecting the agriculture industry in the 21st century and the appropriate role for antitrust and regulatory enforcement in that industry.”
At our 2009 OCM Conference in St.Louis, Phil Weiser, Deputy Assistant At-torney General for Antitrust, announcedaninitiativebyU.S.DepartmentofJusticetoaddresstheimpactofantitrustviolationsand anticompetitive practices in agricul-turalmarkets.AtthesamemeetingJ.Dud-ley Butler, newly appointed Administratorof the Grain Inspection and Packers andStockyards Administration (GIPSA), de-claredhiscommitmenttoenforcethelongneglected Packers and Stockyards Act of1921.Healsoannouncedthependingpub-licationofrulesthatwouldclarifyandmorefullypromulgatetheact,enhancingitsen-forceability. Earlier, Christine Varney, Assistant At-torney General for Antitrust came on thescenewithalltheearmarksofafemaleTed-dy Roosevelt. She summarily repudiated
PleaseseeSTOKESonpage2
Must the market reform effort now stand-down until after the November elections while the oppo-sition launches their all-out attack?
BOARD MEMBERS:
Randy Stevenson, President Wheatland, WY 307-331-1980 [email protected] Callicrate, Vice President St. Francis, KS 785-332-8218 [email protected] David Andrews, Secretary Washington, DCDan Hodges, Treasurer Julian, NE Eskridge, KSCap Dierks Ewing, NEJim Foster Montgomery City, MOJudy Heffernan Rocheport, MOKeith Mudd, Past President Monroe City, MOPaul Muegge Tonkawa, OKEricnelson Moville, IARichard Oswald Langdon, MissouriFred Stokes, Past President Porterville, MS
STAFF:
Fred Stokes, Executive Director Porterville, MS • 601-527-2459 [email protected]
Pat Craycraft, Office Manager Lincoln, NE • 402-817-4443 [email protected]
PROJECT ASSISTANTS
Jody Holland, Starkville, MSEric Lister, Brentwood, TN
OCMBOARDMEMBERS&STAFF
OCM - OCtOber 2010 2
STOKES(continuedfrompage1)
theabsurdmergerguidelinesoftheBushadministration (Section Two of the Sher-manAct),andpromptlyinitiatedinvestiga-tions into anticompetitive practices in thedairyandtransgenicseedindustries. At the Poultry Workshop in Alabama,when a contract producer testified that hewouldlikelyloosehiscontractasareprisalforhisparticipation,shegavehimhercardand told him to call her if that happened.The audience responded with laud ap-plause. At this writing, four of the five work-shops have been held with the last onescheduled for December. They have beeninformativeandpositive.Theoneon live-stockmarketsinFortCollinswasespeciallywellattendedandahighlysignificantevent.ItwaslargelyareferendumontheProposedGIPSARules.Abouttwothirdsormoreofthoseattendingsawtherulesasasignificantand positive first step, while the packers,integrators, their political minions and theorganizations they control, denounced therulesastheloomingruinationoftheindus-try. At the workshops, Secretary Vilsack,AttorneyGeneralHolderandAssistantAt-torney General Varney were convincing intheir empathy and resolved to address thelongstanding wrongs in agricultural mar-kets. They gave renewed hope to farmersandranchers,atleasttemporarily.
But now things seem to have sloweddown. Fixing the broken marketplace ap-pears tohave takenabackseat topolitics.Thishas allowedopponents ofmarket re-form to steal themarch.TheFortCollinsworkshop caused them to panic and putthem on the run, but now their lobbyistsandcaptivesonCapitolHillareinafren-ziedfullcourtpress.Itishavinganef-fect! It is understandable that the midtermcongressionalelectionswouldbeadistrac-tion,buttherecurrentlyseemstobereluc-tance to do anything that might becomecontroversial. There was the appeasing expansion ofthe normal sixty-day comment period fortheGIPSArulestosixmonth.Themale-factorswerenotplacated,theyjustbecameenergized and this gave them additionaltimetocreatetheirmischief. Must the market reform effort nowstand-downuntilaftertheNovemberelec-tionswhiletheoppositionlaunchestheirall-outattack? Farmersandrancherswhoaresystemat-icallyandincreasinglyshortchangedbythebroken market system were heartened bythehistoricjointeffortofUSDAandUS-DOJ to do something about their plight.Theyaretrulyappreciativeandsupportive.Buttheyseethisastheirlastopportunitytoremain independent and viable. They askthatUSDAandUSDOJnot letup;con-tinuethemarch!FS
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OCM - OCtOber 20103
T Theworld’sagriculturedependsonamineralthatisdeclininginproductionandiscontrolledbyacartelofcompanies.Troubling,ain’tit?
Forget Oil, Worry About Phosphorus
“ThefollowwasauthoredbyC.RobertTaylor,AlfaEminentScholarandProfessorofAgriculturalEconomicsatAuburnUniversityandOCMSeniorEconomicFellowandpublishedintheDailyYonder.”
Modernfarmingmethodsdependincreasinglyonfossilfuelsandmajorplant nutrients: nitrogen, phospho-rus,andpotassium. Weknowthatpeakoil isfastap-proaching, if it has not already ar-rived.Thisisn’ttheonlyshortagethatshouldconcernus.Weareseeingthesame coming shortages in nitrogen,phosphorusandpotassium. Peak phosphorus is occurringalongwithpeakoil.Theearth’ssup-plyofthesecriticalresourcesisdwin-dlingrapidly. ANewYorkTimeswriterrecentlysaid[6]thatphosphorusavailabilityis“thegravestnaturalresourceshort-ageyou’veneverheardof.”Thefactis, corporate and political control ofessential plant nutrients may be thegravest long run competition issueyou’veneverheardof. And control of these resourcesmayalsobethegreateststrategic is-suefacingtheUnitedStatesthatyouneverheardof. The country has an ambitiousplan to replace imported oil withbiofuelsproducedfromplantmatter.But dwindling U.S. reserves of thenutrients needed to produce biofuelfeedstocksandpolitical instability incountrieswheremostphosphaterockreserves are held suggest that thisplanmaybereplacingenergydepen-dencewithphosphorusdependence. This is an issue for the world.ThepotentialseverityofphosphorusshortagehasledSwedishresearcherstoproclaimthat theglobaleconomycould flip from one that revolvesaround ownership of oil reserves toonebasedonwhoowns—andcon-trols—phosphorusreserves. Thechangecouldhappenwithintento20years. Where do we get our fertilizer? TheUnitedStatesisincreasingly
PleaseseeTAYLORonpage4MoroccoistheSaudiArabiaofphosphorus.
TheOilDrum[5]Modernagriculturedependsonphosphorus.Butphos-phorussupplieswillsoonbereceding.Forgetabouttheproblemsofpeakoil.Weshouldbeworryingmoreaboutpeakphosphorus.
OCM - OCtOber 2010 4
TAYLOR(continuedfrompage3)
dependent on other countries forcritical plant nutrients. Imports ac-countfor57%ofnitrogenand86%of potassium fertilizers used in theU.S. Atpresent,ourphosphorusfertil-izerneedsaremetfromdomesticallymined rock phosphate. About one-half of this country’s production ofphosphorus is exported, primarilytoChina,Australia,Canada,Brazil,andMexico. Morocco is the Saudi Arabia ofphosphorus. Nitrogen is made from naturalgas.SonitrogenimportscomefromTrinidad,Tobago,CanadaandRus-siabecausethesecountrieshavelownaturalgasprices.PotassiumcomesfromCanadaandRussia.
King Phosphorus Ofthesenaturalresources,phos-phorus is the most critical to theworld’s food security. Phosphorusis necessary for all living matter— plants, animals, humans, bac-teria,andallotherkindsofcritters.Humansgetphosphorusfromplantandanimalfoodproducts. From a practical standpoint,phosphorus is neither created nordestroyed, but it does change formand location. Phosphorus removedfrom fields in plant material musteventuallybereplacedtoavoidfoodandplantbiomassyielddecreases. Modern agriculture is verywastefulofphosphorus.Itisflusheddowntoiletsandlostfromfarmfieldsthrougherosionandrunoff. Factoryfarminghasconcentratedlivestock and poultry production,therebyconcentratingwasteproduc-tion in the same areas. Livestockandpoultrywastecontainsnitrogen,phosphorus and potassium and is avaluablefertilizer.
But this waste isn’t spreadaround.Itisheapedupinparticu-lar areas. There is enough poultrywasteproducedeachyearintheIl-linoisRivervalleyinnorthwestAr-kansastocovera115miletwolanehighway from Tulsa to Fayettevilletothedepthof18inches. Meanwhile, improper applica-tiontolandoroverapplicationcancauseenvironmentalproblems. Runoffoftenresultsinproblem-atic algae blooms—”pond scum”to rural folks--in tanks, lakes andrivers. Phosphorus from livestockwaste collects in sediments at thebottom of ponds, lakes and rivers,but recovery of this phosphorusfromeitherhumanoranimalsourc-esisexpensive. Who will control the supply of fertilizers? Morocco and China have 60%oftheworld’sestimatedphosphorusreserves.SouthAfrica, Jordanandthe U.S. have smaller deposits. Atpresent consumption rates, world
reserves will be depleted within acentury. TheU.S.supplywillbeexhaust-edin15to30years. Chinahas imposeda100-175%tarifftocurtailphosphorusexports,yet the U.S. continues exports toChina.Withoutchangesinfarmingsystemstoreduceoreliminatephos-phoruswaste,theUnitedStateswillbedependentonpoliticallyunstablecountriesforphosphorus.
Fertilizer cartels The world’s fertilizer industryhasalonghistoryofgovernmentorcorporatecartels.Thesecartelshaveagreements (either tacit or explicit)tofixpricesatartificiallyhighlevelsandtodividethemarket. Betweentheworldwars,90%ofphosphate rock exports were con-trolled by cartels. And cartels stilldominate fertilizer reserves andtrade. China’s export taxes effectivelytakethatcountryoutoftheworld
ForeignPolicy[7]Agriculturenowdependsonphosphorusasaplantnutrient,arelativelyrecentphenomenon.
OCM - OCtOber 20105
market, leaving phosphorus minedin the United States and Moroccoasthemajorsources.Tradeinphos-phorus is dominated by three cor-porations: Mosaic (Cargill), PotashCorporation of Saskatchewan, andOCP.CargillandPotashCorp.haveannual fertilizer sales of about $20billionannually,whileOCPhasan-nual sales of phosphorus of around$10billion. Potash Corporation of Saskatch-ewan was formed as a Crown Cor-poration by the Saskatchewan gov-ernment in1975butwasprivatizedin1989,becomingapubliclytradedcorporation. Potash Corp. also hassubstantial stock holdings in otherfertilizer companies. It owns 14%of ICP (Israel, Spain, UK), 28%of APC (Jordan), 32% of SQM(Chile), and22%onSinofert (Chi-na). Cargillownsorcontrolsover30%of the U.S. reserves of phosphate
rock,whilePotashCorp.has50%ofdomesticreserves. OCP is a Moroccan-sanctioned,privately tradedmonopoly thatcon-trols practically all of the reservesin Morocco and the Western Saha-ra. OCPdeals exclusively inphos-phorus, while Cargill and Potash
Corp.alsomanufacturenitrogenandminepotassium.
Three company control Having only three transnationalcompanies—Cargill,PotashCorp.,and OCP — control reserves andtradeforacriticalinputtofoodpro-ductionisalarming.Butthepoliticalandeconomiccontroloftheseprod-uctsisevenmoretroubling. CargillandPotashCorp.formanexport cartel, PhosChem. It’s inter-estingthatPhosChemwasorganizedunder the 1918 Webb-PomereneAct thatwas intended tohelp smallAmerican businesses engage in col-lectiveexportsales.Itwasawayforsmallfirmstocountervailthepowerofforeigngovernments. But Cargill is the world’s larg-est privately held corporation, andPotash Corp is a Canadian compa-ny.Neither is “small”nor isPotash
“American.”Yet theycontinue tobegiven antitrust immunity under theantiquated W-P Act. (For more onthepotashcartel,seethisrecentNewYorkTimesarticle[8].)
Troubling, ain’t it?
But there is more. Canada sanc-tionedapotashexportcartel,Canpo-tex, whose members are none otherthanPotashCorp.andCargill,joinedbyAgrium.Agriumisthe6thlargestfertilizercompanyintheworldand,by the way, has small phosphorusholdingsintheU.S. The world’s potash reserves areprimarily inCanadaand the formerSovietUnion.Inthelastfewweeks,aRussianbillionairehasbeenwork-ingonadealtomergethetwoRus-sianpotash companies,Uralaki andSilvinit,andtheBelarusiancompany,Belaruskali.Alloftheseminepotash.Thereasongivenformergingthesecompanies is “so theywon’thave tocompete with each other,” which“willbeworthbillions.” Inthelastfewweeks,BHP,Ltd,the world’s largest miner, made ahostile bid of $38.5 billion for Pot-ashCorp.TheRussiandealandthehostile takeover of Potash Corp., iftheyhappen,willfurtherconsolidatemining and market power for basicnaturalresources. Bottomline:Worldtradeinpot-ash fertilizer may be dominated bytwo entities, Canpotex, a Canadiancartel,andtheconglomerationintheformer USSR. World phosphorustrade is already dominated by Pho-sChem,aU.S.sanctionedcartel,andOCP, a Moroccan sanctioned mo-nopoly.
Troubling, ain’t it!
Commercialagriculture,asprac-ticedforthepast50years,isnotsus-tainablebecauseitdependssoheavilyondiminishingsuppliesoffossilfueland mined fertilizer. Furthermore,controlofcriticalinputstofoodpro-ductionbyafewgiant transnationalbusinesses and politically unstable
PleaseseeTAYLORonpage7
ForeignPolicy[7]Asphosphorushascomeunderthecontrolofahandfuloffirms,itspricehasincreased.
DavidKruseispresidentofCommStockInvestments,Inc.,authorandproducerofTheCommStockReport,anagcommentaryandmarketanalysisavailabledailybyradioandbysubscriptiononDTN/FarmDaytaandtheInternet.CommStockInvestmentsisaregisteredCTA,aswellasanintroducingbrokerage.Mr.KruseisalsopresidentofAgriVantageCropInsuranceandBrazilIowaFarms,aninvestorownedfarmingoperationinBahia,Brazil.(FuturesTradinginvolvesrisk.Pastperformanceisnotindicativeoffutureperformance.)ForinformationonsubscribingtothedailyCommStockReport,contact:CommStockInvestments,Inc.,207MainSt.,Royal,IA,712-933-9400,www.commstock.com.E-mailto:[email protected]
David KrusePresident, ComStock InvestmentsCopyright2010@CommStockInvestments,Inc.,DavidKruse
R REVIVALOFHONOR-PARTII
Therestofthestory.....
WhenCOOLwasbeingdebated,pack-
ers hated it. They made millions of dollars
selling foreign product to U.S. consumers
whobelieveditwasU.S.meatandtheyenvi-
sionedtheopportunitytomake$billions,ex-
pandingonthepractice,aprofitschemepo-
tentiallyunderminedbyCOOL.Aspartof
theiroppositiontoCOOL,packerslaunched
amisinformationcampaigndesignedtoscare
producers,makingCOOLlooksouglythat
eveninitialsupporterswouldrecoilinshock.
Theysentoutwarningsofdireconsequences
ofCOOLinproducer’schecks.Ultimately,
itprovedtobeunwarrantedintimidation.
Theyarepracticingasimilarstrategy to
pushbackagainstnewUSDAGIPSArules.
ThehearingheldinColoradoandcomment
period is supposed togather input thatwill
shape the final product. Some concern and
complaints are valid so rules need to be
adjusted to accommodate value based con-
tracts. I will believe that USDA will listen
andrespondcorrectlyuntiltheyhaven’t.The
threshold for packers to explain and docu-
menttheirpricingactivityshouldnotbethat
high for them to cross, nor should it nega-
tively impactproducer interests in themar-
ketplace.Packer threats relative toCOOL
weregrosslyexaggeratedandtheirresponse
tonewAPHISrulesshouldbenodifferent.
Our cattle company sells on the cash
marketeachweek.Nothingiscontracted.All
salesarenegotiated.Ourfeedlotisnotoneof
thosewhogotlazy,addingtopackercaptive
supply.Ourfeedlotcontributestopricedis-
coveryeachweekinsteadofsuckingthelife
fromitascontractfeedlotsdo.Themanage-
mentofthetypeofcattlefed,feedstuffsused
andfeedlotenvironmentprovided,produces
averyconsistentproductso that thepacker
knows what he is getting. It’s a myth per-
petuatedbyintegratorsthatyouhavetohave
acontractarrangementtomakethathappen.
Mostofourcattlearesoldtoonepackerwho
bidswhatwebelieve is topdollar, knowing
whathewillget.Thereisanexchangeofin-
formationbetweenthefeedlotandthepacker
withoutacontractbetweenthemthatequals
anycontractoutthere.
Dothenewrulesputourfeedlotsystem
and market practices in jeopardy? There
is no contract and the reason why they bid
what theybidcanbedefinedandrecorded.
Yet, packers are insinuating otherwise. The
feedlotpricedasetacattle$1/hrdabovethe
marketandapackertoldusthattheyhadnot
paidit,soiftheydid,theywouldhavetojus-
tify it under the new rules. They ended up
buyingthecattlefortheaskingpriceandthe
marketkeptrightonclimbing,butthatdidn’t
stopthemfromtryingtousethethreatofthe
rulestoavoidpayingmoreforthecattle.
Is that the rules fault or the packers?
NCBAorAMIwouldtellyouit’sbadrules,
buttome,it’sthepackers.Therulesprohibit
“Undueorunreasonablepreferencesorad-
vantages; undue or unreasonable prejudice
ofdisadvantages.”That’s targetedat sweet-
heartdealswherecaptivesupplyiscontracted
topackerssotheycanbidlowerinthecash
market.ThelateIBPpresident,BobPeter-
OCM - OCtOber 2010 6
(With Permission to reproduce)
son, expressed surprise that feedlots would
contractcattletopackersonaformulabasis
asheadmittedusingthecaptivesupplytofill
plantneedstoavoidhavingtopayupforcash
cattleintheopenmarket.
Morecattlearesoldinthenorthinnego-
tiatedcashsales,60%inNEversusjust26%
inTXwherethevastmajorityofcattlearefed
undercontracts.FrionaIndustries,a275,000
headfeedlotinTexassays,“Thecashmarket
isaverypoormethodfordeterminingvalue.”
There has to be a cash price negotiated by
someone somewhere in order to provide a
basepriceforcontractsthatFrionathinksitis
gettingapremiumabove.Anypremiumthey
getbycommittingcattletothepackerhelps
thepackerdepressthebaseprice.
We sell 100% of our cattle in the cash
marketandIwouldputourresultsupagainst
themanyday.Aregionalshifthasoccurred
since2000totodaywheretheconcentration
of cattleon feedhasmovednorth from the
southtotheMidwest...fromwheretheycon-
tractcattletowheretheynegotiatethesales.
Captivesupplydepressescattlepricedis-
coveryinfavorofpackers.Inthehogindus-
try,94%ofhogswereownedorcontracted,
leaving just 6% on the open market. Meat
prices now determine the hogs values and
packerscanchoosewhatproduct tradethey
reportsothatonlytheinsidersknowthecon-
ditionofproductmovement.
That’sabigflawinthemandatorypric-
inglawthatIhavenotseentheNPPCtryto
fixbecause theywork for thepackers.Hog
contract production is different than poul-
trycontractsbutmarketaccessiscontrolled
by packers in both. Beef Magazine/NCBA
wouldhavethebeefindustrysufferthesame
fate, calling it efficiency, creativity or prog-
ress.DK
OCM - OCtOber 20107
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TAYLOR(continuedfrompage5)
governments is unacceptable. Mo-nopolyisbad. Thecountriesoftheworldmustbegin meaningful discussion aboutwhat kind of food production sys-temandfoodeconomyarebestforhumanity.Thosewithnarrowpoliti-cal interests or the selfish few cor-porateexecutivesandtheirpuppetsshould not prevail in developing anewfoodsystem.
Theworld’sagriculturedependsonamineralthatisdeclininginpro-ductionand is controlledbyacar-tel of companies. Troubling, ain’t it?RT
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