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Friday, August 3, 2012

More Hat In Hand

Well, we're saddling up for another bailout.  This time it's going to be the farmers and ranchers.  The drought is kickin' their butts.  No rain means no corn or soy or hay.

Like the solicitors that knock on your door offering pest control or security alarm services, their talking heads are out with hat in hand looking for some of your cash.

We need to slam the door in their face.

Now, I'm probably going to get a bunch of grief for that attitude.  "Without farmers and ranchers, you'd be going hungry.  Shut your pie hole and toss 'em a couple of bucks."

I don't think so.

Unless you were in favor of the bank bailouts, you've got no moral ground on which to stand if you support the upcoming farmer/rancher bailout.  Just because they're a sympathetic group - as opposed to the evil bankers - doesn't justify giving them funds from the public trough.

While it's true you can't live without food, you also can't have our modern society without banks.  And a modern society is what we've got.

I say, let the weak companies die, regardless of the industry.  We'd all be better off if we did.

What this farm bailout does:  It keeps food prices artificially low.  By doing so, you as an individual don't have to make any choices.  Your food is available, and it costs the same everytime you go to the store.  Win!

Let's say we didn't have the bailout.  Corn and soy products would go through the roof.  Beef, chicken and pork - same thing.  What would you do?

You'd say to yourself, "Self, this sucks.  I like my corn.  I like my chicken and beef and pork.  What can I do for myself to keep me in my favorite foods?  I can turn that patch of lawn over in the corner into my own corn field.  I could get me some chickens.  Hey!  That would give me eggs and eventually roasters.  Way cool.

Self, this could happen with other things I like.  They could have a potato famine in Idaho and Washington.  I LOVE my spuds, so maybe I'll plant some of those as well.  I remember this post on doing potatoes in old tires - they don't need a lot of space.  Need to look that up.   California could get hit - again - with a drought, and the idiotic politicians could  - again - halt water shipments to the farms.  Maybe I'll grow some tomatoes and squash, and onions and maybe some garlic.  Gotta have my garlic."

Pretty soon, you're self sufficient.  Or at least less dependent.  TPTB just can't have that.  If urban and suburban people don't need to be tethered to the food supply teat, big Agribusiness gets nervous.  When they get nervous, politicians start cutting checks.

Just like they did with the banks.

A bailout is a bailout, regardless of the industry. 

Big banks.  Big auto.  Big "green".  Big agribusiness.

When risk is socialized - as it is when bailouts occur - risk increases.  When the consequences of your practices or business model are subsidized or protected from risk, you take more risk.  Duh. 

You make loans with no credit checks.  You plant crops that are solely dependent on rainfall.  You make cars no one wants to buy.  You make solar panels which are sub-standard and more expensive than the competition.

Failure cleanses the system of rot, and stabilizes an industry.  The survivors gobble up the failed business and more efficiently use those assets.  It really is that easy.

Yep, there is pain.  People lose jobs and companies, investors lose investments, and lenders take a hit.  And then it's over, and we move on.

The problem is, on the surface, bailouts appear to work.  GM and Chrysler are still in business.  BofA, Wells Fargo, JPMorgan Chase and all of the "too big to fail" banks are still kicking.

Who benefits from these bailouts?  Not you, unless you're a political insider, a union member, or a large bank shareholder.  Add "farmer/rancher" to the list.

You, on the other hand, get to fund the bailout.  You've got none of the benefit, yet you get to pay the bill.  You threw the party, but only got to watch the video afterwards, and you send the bill to your kids.

Soon enough, we'll get to add cities, counties and whole states to the list.  I'm going to get to fund the bailout of Stockton, Vallejo, San Bernardino and the other teetering California cities, even though I've only driven through most of them.  I've not gotten to use their parks, their public safety services, their libraries or their sports arenas.

But pay, I will.  You're going to get to help fund their bailouts as well.  Look 'em up on the map and say to yourself, "I got to help out those undisciplined, gimme-mo-money strangers."

Well, maybe not "got" to.  "Was forced to" is more accurate.

Bailouts destroy discipline, markets and competitiveness.  All bailouts.

Copyright 2012 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


Anonymous said...

Almost half of the corn raised in the U.S. is turned into ethanol. This was never a good idea it was simply more pandering to environmentalists and buying voters in farming communities. But with the poor corn production now would be an excellent time to end the corn to ethanol program. It wouldn't harm the farmers since they can sell all their corn at record prices. It would hurt the ethanol business but since it exists only because of subsidies perhaps the pain in necessary. It makes no sense to turn food into fuel.

Anonymous said...

With the big bank bailout it was defined as a "too big to fail".
If we let this go its course we will see smaller ranchers, farmers who could not afford insurance go belly up and ultimately their property will be purchased by large agribusiness. Thus, the small and weak are weeded out and the agribusiness gets larger. Ultimate end game? Just like the banks, large agribusiness owns all and the farmers and ranchers are just (serfs) employees....
Resistance is futile...

RJIII said...

A lot of drought stressed corn contains aflatoxin which is poisonous to livestock but not gas tanks. I understand food price increases but the ethanol industry should have more grain, so why are fuel prices rising? BOHICA

Anonymous said...

aflatoxin is a byproduct of fungus. Fungus grows on grains when they are stored with too much moisture. This problem is not caused nor dependent on drought.

Chief Instructor said...

Anon 7:44 I've never understood the "logic" of turning food into fuel. If it was a free market, I'd say "Do whatever you want". But since it is a money loser without federal subsidies, it's just insanity.

Anon 8:00 - yep, point well taken. When I started in banking back in 1977, there were north of 15000 banks. Now there are 7000 or 8000.

But it also presents opportunity. I worked for a number of niche banks from 1989 to 2008. Because the Wells Fargos and BofAs were such behemouths, they couldn't offer the kind of service many businesses wanted.

With farming, you've got small, specialty growers. Maybe it means that dent corn is all grown by the mega-ag businesses, but specialty sweet corn is done by the small shops. They are going to have to adapt to stay in business and stay successful.

dakotas5/Anon 6:52 - I had heard that they were all worried about teh toxins, but it's kind of died down - at least what I've seen. The articles I scoped seem to say it was a possibility, but hadn't been found.

I dunno.