ForCropVillageSeries

News comes this week that the Belgium beer brewer, InBev is considering making a move to acquire St. Louis beer maker, Anheuser-Busch. Rapid consolidation in the beer business has been going on world-wide for a long time with many of the local brews with hundreds of years of history in central and western Europe being rolled up into giants like InBev and SABMiller of London. The same has been taking place in Mexico and South America where local beers with brand value are giving way to acquisition as either next generation family members don't want to or can't manage the businesses or the economics of scale make consolidation compelling.

The USDA has just raised its expected food inflation numbers to 6% for 2008 on the heels of a 4.2% increase for 2007.

http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2008/05/0130.xml

My best guess is that they will be back to the well to up that again by the end of the summer. The projections show the greatest increase in food prepared at home with eggs, dairy and fats and oils categories leading the charge. Pork is estimated to increase only 1-2 percent this year.

Late last week China revealed that it was about to approve a plan to buy large tracts of land in South America and Africa. The purpose of the purchases is to assure that China is not left to the risks of the market place in the future when its own agricultural production is not able to keep up with its growing demand.

China is essentially self-sufficient in food at the present (something that it cherishes) but rising incomes are changing the mix of demand from lower quality vegetarian diets to meat and more refined and processed foods. China has about nine percent of the arable land and the current global food crisis is helping to fuel the long-held desire by China not to be at the mercy of foreigners. China is currently self-sufficient in corn but imports lots of soybeans. As its livestock production ramps up for future demand, it will need to produce substantially more feed stuffs than its own resources currently can support.

Time Management—Some Basics

The most efficient businesses have a philosophy that they can always improve on their efficiency and time management.  They communicate their priorities to all employees and train their managers to develop practical time management strategies.

One of the options available to both livestock and crop producers is the ability to sell their products, and thereby establish a price, well in advance of the delivery of the final product. While this is can be done directly with futures contracts, many if not most producers do it through their packer or grain elevator using what is commonly referred to as forward contracting.

Historically, crop contracts on the Chicago Board of Trade have allowed forward pricing a few years ahead of delivery. For instance, you can price corn in the low $5 a bushel range today out as far as 2010. Livestock contracts have always had a shorter pricing horizon usually a little less than one year to about a year in advance.

     There are more bubbles floating around the earth today than I have noticed in my entire career.  Bubbles begin with legitimate economic opportunity but end up crowding out legitmate functions and market signals, resulting in all sorts of distortions and misallocations of resources.  They start harmlessly enough where opportunity exists, for where opportunity exists, investment is attracted to capture a return.

     A bubble happens when capital overpopulates an opportunity and drives its trading value higher than its fundamental economic value.  Since all deviations from reality are at some point rationalized, we can watch at some distance, the natural cycle of a bubble from formation to bursting in a dozen or more on-going markets but some of them we are caught up in more directly.