Scythe & Spade Blog

Culinary Creativity

At times, we become quite concerned about our cattle rancher partners and clients, continually under the gun regarding saturated fats, grain usage, water requirements, outputs, etc. And today, we must add the concern about costs of beef and what it is doing to demand.

But every cloud will have a silver lining, and our silver lining in the beef business is in large part what many restaurants are now doing with beef, and how that is translating into the grocery business as well.

Many restaurants and restaurant chains are changing cuts, changing names, changing style, all of which improves sales. Steakhouses are moving away from the dark wood motif, and are becoming chic with brighter décor, and a sleek look. Others are renaming common cuts of meat, like chuck roast becoming “flat iron” steak, or shoulder roasts becoming Denver steaks. Even flank steak has been exalted by many restaurants.

With people becoming more frugal and eating out less, and with beef prices at an all-time high, what can we expect but decline in revenue? What a pleasant surprise to see that steakhouse themed restaurants saw sales increase 3.5% in 2011 according to Technomic Inc., a research firm that charts the restaurant industry. Compared to all upscale restaurants (with waiters) which saw sales increase 1.8%, we have no complaints about steak themed restaurants which saw double the growth rate.

The culinary creativity of many steakhouses is being transferred to supermarkets which are renaming cuts of meat. Consumers who have eaten them in a restaurant now look for them in their supermarket. Have you seen a Delmonico steak, beef carpaccio, braised beef ravioli, or meatball fontina?

We can call this marketing gimmickry, but if it results in growing sales in spite of multiple pressures, who cares what we call it? Culinary creativity has helped a very big industry in America.

Healthy Eating

by Chas Bonner

We in the farming industry are blessed yet again. In the past few months, the popular press has been inundated with articles about the importance of healthy eating, and not just because of the exorbitant costs of being unhealthy. From almost any standpoint, human beings do much better eating healthy. To wit:

• The USDA recently released a study illustrating that healthy eating was cheaper than eating high calorie junk food, whereas many had argued in the past that one could get a full meal at a fast food restaurant, and for less than $3.00.
• If measured solely by calories, we get more in a fast food meal, but when measured by healthy calories, vitamins, minerals, poly-unsaturated fats, we get far more sustenance from simple fruits, vegetables, whole grains, meats and dairy products.
• When considering costs, most economists are now calculating full costs, and not just of the food, but the results of the food. We are well aware that the obesity rate in America is now over 30%, expected to rise to 42% by 2030. Obesity is now referred to as the “Next Great Epidemic” in America, and our obesity is largely caused by empty, but perhaps tasty calories.
• Because calories that come from junk food, donuts, candy bars, etc., are digested quickly (simple sugars can bypass the digestive system and go directly into the blood stream), hunger returns quickly, forcing yet more food ingestion and more obesity.
• Man has evolved over almost 4 Million years, and yet modern food processing has evolved over about 150 years. As a result, today we are eating foods that the human body has not yet evolved to eating and processing well.
• In many foods, up to 90% of the cost of the food does not show up at farm gate, but is all processing, packaging, marketing, shipping, and retailing cost. As a result, moving back to simpler foods is cheaper, healthier, and benefits farmers more directly.

We know there are exceptions to every rule, but our opinion is that current food trends will provide more benefit to the growers of that food rather than to the processors and marketers. There is simply too much evidence to support that thesis, and yes, we do feel blessed to be in this business.

Store Brands Help Farmers

by Chas Bonner

When commodity prices rise quickly as they did in the past few years (many now receding), a farmer might rightly worry that food consumption will decline, especially in the middle of a major recession.

A mitigating factor to those presumed food price increases is private label store brands which are normally sold far below national brand prices. 25 years ago when I was in the dried fruit business, our sales were primarily private label, and as a percentage of total food store sales, private label generally accounted for 15-16%. Today that number has risen to 28% of all food store sales in all product lines.

The first reason shoppers switch to store brands is price, and price savings vary, but are often dramatic. For instance, Symphony IRI, a market research firm in the supermarket space claims that savings on health and beauty aids total about 64% for store brands, about 34% for fresh, perishable items, 32% for frozen foods, and 22% for general merchandise. Those savings are understandable given manufacturing, marketing, sales and distribution costs of health and beauty aids vs. general merchandise, but even lower savings are important to a family striving to reduce cost of living.

Over the years, store brands have usually suffered a reputational dig. However, even though the primary driver of private label is price, many chains have upgraded private brands, and some even have a premium private brand. Publix Supermarkets in the Southeast is usually the highest rated U.S. chain, and like most competitors, it has a price-focused store brand. But more importantly, Publix has a very high quality private brand that has built its reputation as a quality chain, and has built strong customer loyalty.

Most other U.S. chain stores have also begun producing high quality store brands, realizing it improves loyalty. The companies which suffer are the producers and marketers of national brands, and they are now trimming their margins.

Farmers are a real beneficiary of the private label boom, as it keeps food prices to the consumer lower despite escalating food commodity costs. But remember that every pendulum swings, and when commodity pricing declines substantially, we cannot expect consumer prices to drop at the same time or rate.

Farmland Pricing: Regional Differences

by Chas Bonner

Over the past year, we have read countless articles about “Irrational Exuberance” as it relates to farmland prices, and we have written blogs about it. However, as is usual, the devil is in the detail. One can see huge differences around the U.S., many regions being even more “irrational” and others surprisingly modest.

The most irrational region appears to be the Pacific West, which by definition is only California in the data provided by National Council of Real Estate Fiduciaries (NCREIF). In all U.S. regions, there are annual and permanent crops subdivisions, and the return is split between crop returns and appreciation of land. The base index for all regions and crop types is the first year NCREIF began charting, namely 1990, and all 1990 bases equal 100.

In the Pacific West (California), the index for first quarter, 2012 is 1246, or a total value roughly 12.5X 1990. That number is comprised of both appreciation of property plus return of crops each year. In the case of CA, the appreciation of the land is only 219, or about 219% higher than base year, but the crop returns have been 599.5. Those numbers are for ALL crops in CA, both annual and permanent plantings. When looking at permanent plantings only (fruit trees, vines, tree nuts), we note even bigger disparities. The total index for permanent plantings today is 1376, comprised of 194 for appreciation, and 749 for crop returns. Yes, we have all read about the monster returns of wine grapes, almonds, pistachios, walnuts, clementines, etc. Has it become irrational yet? We know plenty of professionals who are now sitting on the sidelines.

The biggest surprise for us has been the Pacific Northwest. For some reason, despite annual cash returns on a par with the rest of the nation, appreciation of land has lagged. With California as a reference (above), the relative numbers for the Northwest are 348 as a total index, with 105 being appreciation and 334 being crop income.

Problems do become opportunities, just as “one man’s trash is another man’s treasure.” At the same time, prudence dominates our thinking.

Natural Gas & Agriculture

by Monte Nevitt

Natural gas prices are the lowest they have been in a decade.

Gas production is booming, having increased over 10% in just 2 years’ time. As is true of any commodity, overproduction equals reduced prices. Hydraulic fracturing, or “fracking” is a new technology that has opened millions of acres of shale rock that holds a great deal of gas, and it can finally be accessed. The number of rigs to access that gas has also increased as has the amount of acreage.

Because natural gas is the primary source of ammonium nitrate, the basis of nitrogen fertilizer, the dramatic reduction in gas prices should augur well for fertilizer cost. At the same time, other elements in fertilizer, namely potassium, phosphorus, magnesium, calcium and sulfur are getting harder to find and mine, so it is a pure conjecture where fertilizer prices might go. Luckily, fertilizer production accounts for a mere 2% of US output of natural gas.

There are other influences that will drive up the cost of fertilizer: 1.) Many of the dead plumes in river estuaries are blamed on nitrogen fertilizers; 2.) nitrous oxides in the air are far more deleterious than carbon dioxide, and most research indicates over 70% of nitrous oxides are the result of decomposition of nitrogen fertilizer; 3.) a problem recently discovered is that nitrates and nitrites that are finding their way into water tables, and that will prove a very expensive fix.

As one Newton’s Laws says, “For every action, there is an equal and opposite reaction.”

Family Farm Dynamics

by Patina Thompson

Last year, Department of Labor (DOL) Secretary Hilda Solis proposed rules that would restrict family farm operations by prohibiting paid, non-family employees under the age of 18 from performing everyday tasks around the farm. Such restrictions strike at the core of farming and ranching communities and culture. It begs me to wonder how youth can get excited about agriculture if the work opportunities are stripped away, preventing them from experiencing it altogether?

The rules proposed by Secretary Solis restrict family farm operations by prohibiting children under the age of 18 from:

• being near animals of a certain age without adult supervision;
• participating in common livestock practices such as vaccinating and hoof trimming;
• handling most animals older than six months, which would severely limit participation in 4-H and FFA activities and restrict their youth farm-safety classes;
• operating farm machinery over 20 PTO horsepower;
• completing tasks at elevations over six-feet high; and
• working at stockyards and grain and feed facilities.

The language of the proposed rule is so specific it would even ban youth from operating a battery-powered screwdriver or a pressurized garden hose!

In response, Senators John Thune (R-S.D), Jerry Moran (R-Kan.) and Pat Roberts (R-Kan.) introduced the Preserving America’s Family Farm Act (S.2221). This legislation would prohibit Secretary Solis from finalizing or implementing reforms to federal regulations governing child labor on farms. The American Farm Federation, on behalf of more than 70 groups, has also formally asked the DOL to withdraw the regulation.

Future Farmers of America (FFA) and 4-H programs foster and develop skills for future leaders in agriculture and are vital in teaching youth about caring for livestock, community involvement and leadership skills. These youth, whether working on a relative’s farm or not, learn life lessons and work ethics that are invaluable for our communities and our country. Without support of the Preserving America’s Family Farm Act, it doesn’t appear that the family farm dynamic will continue as it has in the past, which will severely affect our future.

For more information, visit; http://www.govtrack.us/congress/bills/112/s2221

Weed Control

by Patina Thompson

 

With the high demand for alfalfa and nearly non-existent supply, a weed control program incorporating grazing animals in early spring can benefit both the two-legged and four-legged parties involved. This organic version to weed management can be used to minimize the spread of certain weeds and to control large infestations. It’s a great option for cleaning up weeds on field borders or corners on overwintering bermuda and alfalfa crops.

 

Livestock grazing can be an effective alternative to herbicide use and can be utilized when weeds are located in areas where other control methods are impractical. The ability to fence problem areas and apply grazing pressure at early stages of weed growth is often the key to weed control. The length of grazing, stocking rates and field rotation are also important.

 

Cattle, sheep and goats are the most common animals used for grazing pasture weeds, with each having their pros and cons. It’s important to not only identify and target your problem weed, but match it to the correct grazer since some plants are less palatable to certain livestock.

 

Cattle prefer grasses and tend to avoid forbs and shrubs. Their larger hooves not only compact a larger surface area of soil, which may be wet due to recent irrigations, they can also cause more damage to young, tender, emerging shoots.

 

Goats can control a large number of spiny and prickly weed species generally untouched by sheep and cattle. Goats have also been used successfully on brush control.

 

Grazing by sheep is probably the most popular method of biological weed control. Sheep prefer broadleaf plants (forbs) and weeds over grasses and shrubs. Being physically smaller, they can be transported easily and overall offer the most efficient choice for weed control due to their ability to adapt easily to a variety of weed species, including poisonous plants.

 

Although grazing in itself does not necessarily kill the plants, it will prevent seed production and may lead to a depletion of root reserves and plant vigor, leaving more soil and space reserves for agricultural plants. As with most management decisions, the costs and benefits of each must be addressed and analyzed. In this case, the farmer can get a head start on the blooming weeds that compete with his agricultural crop, and the livestock owner can get some inexpensive feed, a benefit to all!

Technology and Farming

By Lori Evans

People outside of the agricultural community typically have a narrow view of the everyday farmer. Growing up, when I told people my dad was a farmer, they would assume that meant he was not highly educated nor was he current on today’s technology, but they were wrong. My father has shown me how the average farmer is highly educated and has become extremely technologically advanced, harnessing today’s technology to ease some of the daily stress of farming. I have been repeatedly surprised by how much technology has become integrated into the farming community. No longer is the farmer reliant on having to just drive the tractor, but the tractor almost drives itself with GPS guidance systems. In a recent article in the Delta Farm Press, I read that John Deere has developed a baler-mounted hay moisture tester to inform the farmer whether the hay is too dry or too wet. In a recent edition of the Capital Ag Press, I read how farmers are now utilizing smart phones TO manage irrigation on their farms. They no longer have to drive from field to field, starting or stopping a pivot, changing the rate of flow or the speed of the pivot. He can do it all from the comfort of his tractor seat with his smartphone.

Here at Scythe and Spade Co., we are up on technology and down to Earth.

Food for Nukes

by Chas Bonner

What exciting news this week, and exciting for 2 main reasons. North Korea has expressed willingness to trade out their nuclear research and development for food to feed their famine-racked population. And since most of the food trade will be covered by the United States, our agriculture sector benefits.

North Korea has long been the nemesis of the entire world, even in the Communist world. Kim Il Sung, the first dictator after the Korean War ended in 1953 was an absolute despot. His son, Kim Jong Il learned only too well from his father, and was a nut case to boot. There were many worries about Kim Jong Il’s third son, Kim Jong Un, a mere 28 or 29 years old, and whether he would be better or worse than his father. We have seen the first evidence of a positive turn in the very first full month of his rule.

The whole world is not celebrating quite yet, as we know how capricious North Korea can be. Nonetheless it is a great first step. Perhaps we can count ourselves lucky that Kim Jong Un was schooled in Switzerland, that he loved Michael Jordan, and even plays a credible game of basketball, so he had influences other than cruelty.

Let’s hope Iran learns something from North Korea, even if it can be called extortion.

We all benefit.

Food Borne Illness: Part III

by Chas Bonner

By now you are asking yourselves “Have we not heard about this before?” Our answer is YES, and we are now repeating ourselves for the third time. We are reminded that “Repetition = Recall,” and we want all of our clients and friends to remember the import of this topic.

In a new study by the Agriculture Department at the University of Ohio, Robert Scharff has estimated that the cost of food borne illness in the U.S. is $78BB, but this is only the medical, mortality, lost time, and suffering cost. What is not included in that figure are some of the “softer” costs, but which are nonetheless there. Not the least of those is the cost to primary producers---YOU---especially if you are the producer of a tainted food. But even if you are in the same product line, you will also suffer.

In an earlier blog, we discussed the alfalfa sprouts e. coli outbreak in Germany that took months to trace to the primary producer. All other producers in that region, and any European producers of sprouts were also hurt. Likewise, the listeria outbreak on cantaloupe grown in Colorado absolutely killed the cantaloupe business all summer, as sales declined over 30%, not just in Colorado, but throughout all growing regions. Finally, there have been several East Coast supermarket chains that have decided not to have multiple suppliers, despite market pricing concerns. They now feel there is so much legal risk to selling food that they want only one supplier, and if any problems, that supplier is passed the “hot potato.”

While you cannot prevent market losses from commodity problems like the cantaloupe or sprout examples above, you can prevent outbreaks of disease coming off your own farm. We cannot overstate the danger of this, as there are simply too many examples of producers going out of business. With our population refusing to take any risks in their lives, and with the propensity to always blame others, farming is becoming riskier.

Exercise due diligence, and if needed, we can help.