The Fourteenth Banker Blog

August 11, 2010

Uncounted Human Cost of Food Speculation

Filed under: Running Commentary — thefourteenthbanker @ 7:27 AM

As the market prepares another nose dive today, the world just becoming aware of the potential for Crisis II, we should not forget the costs of Crisis I. Crisis I was preceded by unprecedented asset speculation across all classes of assets including agricultural commodities. In the United States, that meant paying and extra dollar for a gallon of milk, a loaf of bread. In the third world, that meant poverty and starvation. While traders on Wall Street drank their daily success at the swanky New York watering holes, and followed up with dinner at 5 star restaurants, those impoverished by the resultant cost of food grieved their dead. This is no exaggeration.  Please read or watch the interview captured in this link.



  1. Do realize that criminal speculative trading is the mere precursor to the real problems of adequate food supply. The base problems are three fold. First , land degradation from mechanization itself…. the impossible problem of soil compaction.
    Second, many areas of grain production ( enough to create massive problems with their lessened production) do not have a sufficiently regular water supply so that production relies on ground water extraction. The first problem among other things exacerbates the second problem. Most of the land in heavy grain producing areas simply will not support the massive grain production needed in the near future. Problems one and two mean less and less land available for grain production of any kind. Soil compaction limits the depth roots can penetrate for water and over time slows down water flows to acquifers. It also leads to surface flooding as we witness today in Iowa, Minnesota and Wisconsin. Soil compaction , once established is very difficult to cure other than use of far, far lighter equipment. Ohh, problem three. Artificial fertilzers, herbicides and pesticides allow present mass agriculture. These products will get ever more difficult to use.

    I live literally among these problems. I try to continuously oberve these problems close up. I have direct access to croplands . All I have to do is walk a half mile from my house beyond my own and others woodlots to observe soil compaction. Literally shallow swamps emerge on top of hills in rainy periods in places where runoff is impeded. ( This water evaporates rather than being absorbed.) Only cessation of heavy equipment usage will remove this problem once remediated by breaking up the hard pan layer about 3-4 feet down. That is if it can be permanently broken up once created by usage of heavy equipment. My cousin has tractors in use requiring twelve tires to no real avail. The problem is the curvature of the pneumatic tire. The problem might be mitigated by using flat very wide steel wheels akin to those in use in the very early years of the big tractors 90 years ago. That however would greatly increase the use of fuels.

    No matter what. Over time cereal producer land will degrade unless far lighter technology is used. That said, the marginal water cereal producer areas will continue to expand. Less land for cereals will be the result. These lands would be quite usable for cattle in traditional methodologies. However, the cattle will still require some types of non grass supplemental feed. Here too, numbers produced will be less with less land over time being suitable for cattle.

    In time the US will only be able to provide for itself with some small exports. There will be a “peak foodstuff” potential at some not too far off time for practical purposes. Capital investment and supplemental costs will tend to increase per unit of production. Soil compaction may only get worse thus , more and more, imperiling crop production from the plants difficulties in accessing water. The problem is the same as a tomato plant raised in pot versus a tomato plant in the garden with deep root access. How much more must you water the tomato raised in the pot on your deck? If prices do not sustain the added marginal costs production will go down unless subsidized by the state. Will the state subsidize exports under current circumstances unless prices producer a massive trade surplus?

    Comment by Jerry J — August 11, 2010 @ 3:34 PM | Reply

    • Here is a today example. My area had a cumulative rain deficit two months ago of fifty inches. Since then we have received double the normal range of rain .. a total of twenty inches. The rain deficit is now forty inches. Well, what good d id it do. The rain was rather spread out over the last sixty days . But, the farmer notices tight off the runoff in the ditches. Wheat was recently harvested. Some fields are already prepped for the next crop. What do we see but pools of standing water that old timers know would have soaked right in before ultra heavy equipment. The real deficit of moisture was probably alleviated by less than half the norm of the forties or fifties. In a bleak year for rain with high heat our cereal crops would wither just as they have in Russia.

      Comment by Jerry J — August 11, 2010 @ 4:52 PM | Reply

    • And let’s not forget that it takes, I think I remember, 14 lbs of corn to fatten one pound of beef. And they have to give the cows antibiotics, due to them not having the natural ability to digest corn.
      The large farms may be family owned and operated, but they are still operated like factories, with little regard for the land itself, as Jerry points out. I wonder how much of this goes back to our nation’s history of just moving on after we’d trashed one area?
      Re: starving in other countries, I read recently that one of the consequences of NAFTA was to kill any profitability for third world farmers, small operators, because our subsidized agricultural system makes it cheaper for their countries to buy from us that to buy from and support their own farmers. I know that drove many Mexican farmers off their land. Who can compete with Cargill?
      We really have been so shortsighted on so many fronts, it’s heartbreaking.

      Comment by Sandi — August 11, 2010 @ 5:50 PM | Reply

  2. The really basic marginal added production problem in North American agriculture is soil compaction. I pick 1950 merely as a convienient date. In 1950, I did farm work using convertible power take off equipment. The Farmall M , which compared to today is a bantam weight. We had a PTO combine and bailer. I guess, I could do about 10 % of the work of the bigger equipment today. Probably less. One way to reduce soil compaction is to revert to equipment even lighter than the equipment 13 year old me used in 1950. The soil compaction problem though looks to be permanent although very livable with light equipment. People go back to the land more than tenfold or the basic problem is not curable. Today, the hard pan forms at around 3-4 feet deep. It must be broken up periodically by a huge chisel that looks like a spear. This devise is pulled be the most powerful tractors and breaks up the hard pan into saucer like plates. The plates re-fuse when next run over a few times. I am being charitable here. Many claim a single pass of heavy equipment all but nullifies the use of the chisel. Even the light equipment I use as an example would eventually re-fuse the plates. The critical point though is the tomato plant analogy. Thre reason you need to water the potted tomato plant more is evaporation. So, we wind up with loss of natural water use that strains the young grain in hot dry weather. Even in the fifties there was quite a bit of piped water from deep wells in places like Iowa and Nebraska. Certainly is in use here where I live and I live within easy walking distance of Lake Michigan waters.

    Everyone can get an education on this by searching ” agricultural soil compaction”. Here though, the base problem is marginal loss of production while population is increasing. Water though is drying up and adds to loss of marginal production. Even greater rainfall would be of lesser value due to evaporation loss. Besides, the whole world is drying up from messing with the acquifers. The US in particular.

    Food will permanently get more and more expensive over time.

    Comment by Jerry J — August 11, 2010 @ 6:25 PM | Reply

    • I completely agree that food will get more expensive over time. Honestly, it should. The junk we eat for food is killing us. Local agriculture with minimal pesticides, etc is more expensive but is also more sustainable. Healthy soil holds water better and produces more hearty crops does it not? So price increases should support the quality of the crops produced and thereby increase general health over long periods of time and help reduce health care expenditures, all else the same. Speculation in the markets does not help this problem. Investment in the markets might. What is required is some conscious decision making that we will dedicate more resources to one activity that benefits human kind and pull them from other activities that do not. Guns or butter?

      Comment by thefourteenthbanker — August 12, 2010 @ 7:31 AM | Reply

  3. Healthy soil is the issue few understand. Soil water retention really depends on the rainfall being absorbed and held in soil with binders rather than flooding surface layers above a compaction zone with far less moisture below the compaction zone. In the US midwest there are related issues , as well. When the prairie sods were turned under the soil was highly water retentive, without swampy conditions generally, where the plants could avail themselves of the moisture. The soil was well infused with humus. Walk out into a plowed field today a hundred miles west of where I live or in Iowa and Eastern Nebraska and grab a shovelful of soil. What you get has lost the bulk of the humus and is increasingly friable. That is, the soil has lost it’s binder’s that loosely hold moisture in the top layer that is worked and planted. Below that, the heavy equipment compacts the soil to form a root barrier. The soil below the compaction zone is said to be non arable.

    The guru’s do not want to admit this, but the reality is that the soil may only be made healthy by being fallow with proper cover over a long period. Even then, the compaction zone may be more permanent. Perhaps centuries. It is hard to get a straight answer.

    I live on what was once a very large orchard. Some of the equipment is in my little woods. About 30 years ago, a 20 acre Cherry orchard plot was cleared that remained fallow until about five years ago. The owner got tired of the taxes and had it plowed. Since then, it has produced bumper sweetcorn. This land never had heavy equipment on it until recently. There is another field a couple of miles away that is severely damaged by compaction growing corn. Some areas produce abundantly. Every relatively low spot in this high field is a miniature swamp with corn that never gets taller than a foot or two. The plants yellow from swamp conditions on high plateau land. The field looks like a roller coaster made up of corn plants from six inches tall to over eight feet tall . Consequently, this field was planted for silage. This field will be good for hay only in the future. It will be forceably made fallow for hay and grazing. Less and less land for foodstuffs other than dairy products. ( My area is superb dairying land with many very major operations nearby.)

    My point is that more and more US agriculture land will cease being used for other than grazing .

    It sure is butter over guns and long term policy that limits natural destruction. But , we are stuck with ammonia based fertilizers unless we ship cow effluent or limit our agriculture to natural fertilizers like human effluent. As it is, I live with Eau de Holstein au Fermente from time to time. The smell carries for miles.

    Comment by Jerry J — August 12, 2010 @ 12:53 PM | Reply

  4. Come on Down East in North Carolina, Jerry J. If you think Holsteins are oderous, you should whiff the “hog lagoons” in Eastern NC. I love pork but I rarely by it and not at all if it says, “Smithfield” anywhere on the package. I’m lucky in that I live in an area where there is a lot of interest in and application of natural farming, local foods, etc. One guy who grew up on a traditional cattle ranch in Wyoming came here in the 70s and started a herd of Angus but has now switched to purely grass fed – an Australian breed whose name escapes me – and he sells all he can raise on 600 acres. He’s converted his farm equipment to bio-diesel (there are two co-ops in the area). So, it is being done, more and more. Also have a neighbor who got organic certified a few years ago and truck farms veggies and melons – does alright for himself, too.

    Comment by Sandi — August 12, 2010 @ 5:18 PM | Reply

  5. Oh, I do not mind Holstein’s in the least. I know about Porker’s too! Both very up close.

    The essential problem though relating to the poor of the world will be the price they pay for enough food for family survival. Over time , this means that the poor nations produce their own foods as they once did within the parameters of their populations and land conditions. By and large their agricultural land conditions stink as in the case of China. What better example than the experiences in Sahel nations. Not sufficient and not enough given their populations.

    Modern agriculture, particularly in the US, is now so capital intensive over the long run that alternate methods are not available within the time frames of existing agricultural investment amortizations and conversions to mass local methods. The physical and social infrastructure for the smaller farmer is gone. The large producers would be bankrupted and the financiers of big ag would incur massive losses at the same time that new local methodolgies would need to be financed. That does not bode well for anything but maybe a state organized transition.

    We can convert systems but the world will lose our exports. Other nations would have equally massive problems. Over time they will have trouble feeding themselves. No state will be able to subsidize another state’s poor.

    In 1910, my grandpa bought a half section with a derelict set of buildings and scrounged equipment. The milk went to the cheese factory in the winter on a sledge. The sledge was still in emergency use in 1940. Such methods in US agriculture today could not possibly feed even the US let alone have a surplus . Interestingly, my grandma had a specialty wool business involving a herd of about 75 sheep. She sold her own custom processed wool to church quilt clubs around the country. Her wool business netted as much as grandpa’s relatively large herd dairying all through the thirties and forties. The end result will be food too expensive for mass numbers of people to buy. This is a massive problem today as 14th has pointed out.

    There is a piece in today’s Wall Street Journal about illegal’s being 4% of the population and their children making up 8 % of school attendees. That is political dynamite and people over time will not consent to such subsidies. Things will get meaner than hell. Food will be an even meaner political issue.

    Comment by Jerry J — August 12, 2010 @ 6:27 PM | Reply

    • Does anyone remember Zero Population Growth? That died on the vine, somewhere in the ’80s, I think. No doubt because the money men didn’t want to discourage the production of future consumers……

      As for illegals being 8% of schools, I assume this was public schools? If so, I submit this says less about the numbers of illegals and more about the new “white flight” to charter, private and religious schools, leaving the public schools to bear the burden of all the brown and black children, many of whom come from disadvantaged homes. NC has a very large Hispanic population, people who began coming as migrants to work tobacco and other crops, but who stayed, or led to the coming of others, to become the workforce of choice to the chicken and pork processing plants. When two of our plants closed down a couple of years ago, the town’s population was nearly cut in half overnight. Now, these people, both legal and illegal, rented apartments and houses, bought cars, groceries, etc. The Catholic Church was nearly dead and now it has a new, large sanctuary outside of town. That, too, has fallen back on harder times after the exodus, but it would never have been build without the Hispanic population influx. I watched families yank their kids out of the public schools and start alternative schools; the county built a new elementary school in an outlying community, where all the white children suddenly went, regardless of where they actually LIVED, leaving the city schools to deal with ESL students. North Carolina’s state constitution requires that all children be given an opportunity to have a public education. So, the state and the county school boards are between a rock and a hard place.
      Yesterday on NPR they did a story on the kosher meat packing plant that shut down after it was raided and found to employ only illegals. The man who bought it wants to resurrect it and has hired legal immigrants, paying them a starting wage $2/hr more than the illegals got. The question is, can these businesses make it without cheap (illegal) labor? We are told that if we want cheap chicken and such, the price we have to pay is people willing to do dangerous work for cheap, and that is usually the more desperate among us. The thinking goes that if citizens or even legal aliens held these jobs they would demand more money and the owners couldn’t make it. So I wonder, when a lot of the meat processors were using illegals and paying them as little as possible (minimum wage was probably the high side of their wages)but prices were still rising, where was the “savings” on wages and benefits going? It sure wasn’t being passed to us. Just like all the off-shoring of sneakers and such didn’t lower the $100+ price of Air Jordans, I don’t think the consumer always benefits from the cheaper labor pool. Call me cynical……………….

      Comment by Sandi — August 13, 2010 @ 1:58 PM | Reply

      • I took the article to mean all school populations. But , quoted numbers today are always subject to the old adage, figures do not lie but liars sure do figure.

        You address the main point though. White flight is as strong now as it ever was but for the observation that whites are now hunkering down to a form that might be dubbed White Resistance. This bodes poorly for any real possibilities of reassertions of commonwealth.

        Illegal employment practices are something I ran across repeatedly over the years pofessionally. A good deal of the revenues of the company I worked for derived from right to work states. Like all national union companies, we ” double breasted” to secure work in ” Right to Work” states or hybrid states where workers personally worked both union and scab to keep a paycheck coming in through our subcontractors. The “Independent Contractor” scam is very much the order of things in many areas of the US. Much of the time, this practice is associated with daily pay work. Payroll taxes and reporting are very much ignored. Consequently , Workers Comp insurances were scammed too. Our people had to make sure that WC and General Liability coverages were up to our requirements or we stood in their for the loss. This meant screening out bidders doing the scamming. Needless to say, many subcontractors worked this area both ways, with illegals in particular. They paid cash to illegals and simply charged the job. This left us open as the General Contractor to real problems and we were constantly on the lookout for illegal scams. The project accountants on site always tried to keep their eyes open. Probably half of the potential bidders in some specialties were barred from bidding our work and they were of strong opinions about their rights being denied as they put it. Their absolute right to break the law and proudly so.

        Certain business operations like landscapers are filled with totally illegal people and activities. Their trucks and equipment are usually held by a Green Card holder like a spouse. When they get caught, the equipment is transferred to other kin with a Green Card and everyone goes on the Lam back home for a short vacation. Shortly after they return and start all over again. These people need to make a living and will do ” what ever it takes” to earn that living. That includes shorting their own people. Many times, the arrangement is simply family groups where everything is pooled and one person holds the Green Card. The laws do not allow family pooling. Someone, must pay the self employment taxes of 15.3 % plus UC and the object is to entirely evade these taxes. UC here is a very big issue because taxed wages are now around as high as most illegals probably make in a year. Rates are up there too.

        All in all, the entire American system of relationships is collapsing in front of our eyes from the very incompatability noted in the article by Jacques Attali I linked a couple of days ago.

        Comment by Jerry J — August 13, 2010 @ 4:26 PM

      • Here is the real base of our civilization. The other similar groups from elsewhere in Europe probably double the subjects of Joe Bageant’s article. I know these people too and the Garrison Keilor bunch even better. Here is where the resistance is rapidly setting in.

        Joe is a terrrriffic writer and he knows his reiving kin. Ever, ever, ever hateful of authority. Try going to even a kinda rich Presbyterian College where yah had ta take religion too.

        Comment by Jerry J — August 13, 2010 @ 9:22 PM

  6. Joe sez:” You may not believe me, and if you don’t I cannot blame you for never having been exposed to such folks.”
    Well, I live in Randolph-get-yur-guns-County, NC and I can tell you, I see these folks on a regular basis. And it scares the crap out of me. Not because I fear being shot, although that’s a possibility, especially with MY bumper stickers, but the very idea that people believe this $hit scares me. Because they’re bat-shit crazy and crazy people do very dangerous stuff. In the name of God, of course.

    Comment by Sandi — August 16, 2010 @ 4:25 PM | Reply

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