The Agricultural Economy and the General Economy are Inversely Related

Thanks to an article written by Stu Ellis, University of Illinois, here is an answer to the puzzle of why the stock market is rallying on perceived economic recovery but the agricultural sector, including commodities and live cattle, is lagging or worse. The following are excerpts from his interview with Kansas State Economist Allen Featherstone:

Featherstone says the farm economy and the general economy do not always move together, since the linkage is an inverse one that has farm income low when the US GDP is higher. He points to the relationship between the US stock market and the Illinois corn price and says the correlation has been nearly neutral since 1960, "Therefore, while the general U.S. economy may be slow there appears to be little long term evidence that there will be major spillovers into the U.S. farm economy. In fact, based on history, it is more likely that the agricultural economy and the general economy are inversely related."


The Kansas State economist says the overall strength of the farm economy is as strong as it has been in nearly 20 years and . . . if farm income remains high, so will land values, but if incomes fall, there is a good chance for declines in land values, and he says USDA forecasts have a lot of uncertainty about future farm income.


Given Featherstone's warning about declining farm income and land prices, does he think farm income will drop? He says US agriculture has been reliant on trade, but the trade surplus agriculture enjoys will decline more than 50% this year due to reduced overseas demand. That will impact different commodities and will impact farmers who produce those commodities, "A reduction in agricultural exports may lead to a building of commodity surpluses (stocks) and a reduction in crop prices and ultimately net farm income." And he says the two prior "busts" in the land market were caused in part by a softer global demand for US farm products.

Featherstone inadvertently provides part of the answer to why the Baltic Dry Index, normally a leading forward indicator to a period of rising economic bliss, has actually lagged markedly behind the current stock market rally. Featherstone indicates there has been a more than 50% decline in overseas demand for our commodities 'this year', and all those commodities would have been transported on various types of ships to many foreign ports. If demand for basic commodities produced in the USA remains 50% and more below normal, that would necessarily have a continuing material impact on freight rates as measured by the Baltic Dry Index.


While Featherstone doesn't address where he sees demand for our commodities in the coming year, the tone of the interview is on the negative side for a rapid global recovery and increased demand for our commodities in the coming months.


Click the blog title link above for the full text of the8/26/09  article by Stu Ellis.

Small Feedlots Up for Sale - Beef Demand Down 9%

Reconciling the up beat stock market returns of the last several weeks with any sort of economic reality just gets harder and harder. The American consumer is supposed to be looking at things from a positive perspective now and voila' the economy of the USA will be booming within the year. Or not.

The Baltic Dry Index (BDI), a reflection of demand for ships carrying a wide variety of materials and finished product to all ports around the world, is barely tug tugging ahead from its unprecedented lows of 2009. The BDI generally is something of a leading indicator to either rallies or routs, but not so in this current dazzling stock market rally.

Basic agricultural commodities are somewhat mixed, but as a whole generally are not far off their average basket price in 2007 prior to the last huge run up in oil, as reflected in the chart of DBA, an agricultural commodities ETF that reflects a basket of sorts of primary ag related commodities.

For the rancher with hungry bovines to feed, that's good news. We don't wish to see commodities prices jump up along with this crazy market. But then there's that inflation question? Just how will the expected gross inflation from irresponsible government spending and massive debt impact the price of commodities?

Not having the smarts to answer that question myself, I'll avoid it here. There are ample analysts with educated opinions about the direction of basic commodities in a staggering inflationary economy. I'm actually most curious as to why commodities have managed to stay out of the current rally, given that their basic demand is driven by the consumer and of course ethanol producers, whose business in turn is driven by basic consumption.

As I mentioned, for the cattle rancher, it's good news that so far commodities have at least maintained their average back track to 2007 levels, we have those hungry bovines to feed after all. What is really interesting to observe is that COW futures are tracking the bottom of the market, at least to my eyes. In addition to, or instead of, owning actual cows, investors can buy what some call an E-COW. COW is the symbol for an ETF that tracks cattle futures. Wow, take a look at that chart.

COW is even lower than it was in March of 2009 when all markets in general took a nose dive. COW just keeps getting lower and lower, the winner of the how-low-can-you-go Limbo game, but COW looks like the only major Limbo player.

If the US economy is rebounding so nicely, why is COW still playing Limbo? Has the American consumer decided that foregoing some beef for dinner wasn't so hard, and now they've lost their taste for hamburger? After all, the consumer is bringing our economy back. Right? Are American consumers becoming more 'green' oriented? Some of them deciding to do their bit to help global warming by not eating beef from a farting beast?

It looks like maybe 9% of them are perhaps doing just that. After all, we're told the economy is on the road back, folks should have been buying more beef in at least June and July when suddenly the economy of the country started looking rosy. Yet consumer demand for beef has dropped 9% in the last 9 months, per Cattle Max.

If you think this is the bottom for beef, maybe it's time to buy some momma cows for your pastures, or jump out there and buy an E-COW, or how about one of those small feedlots that are headed for bankruptcy and closure as discussed in the article below. After all, "the country has the lowest calf crop since 1999 and fewest cattle on feed since 1999".

“As a result of losing money, we have people in dire straits,” said Paul Hicks, a Fort Worth cattleman who works with feeders. “A lot of them are stuck with a lot of empty pens. A lot of feed yards are for sale —there's a world of feed yards available right now.” BARRY SHLACHTER, FORT WORTH STAR-TELEGRAM

Where is the government bail-out for those small feedlots? How about the Obamanomics gurus start issuing cash-back coupons for folks to buy a nice chuck roast? Oh yeah, they probably want to shrink the number of cattle feedlots cause of all that methane gas, have the common folk become vegetarian, and keep those really nice rib-eyes for those elite White House suppers.

Lightbulb! Maybe the White House would like to have a few hundred elite rib eyes from the herds of British White cattle? British White beef producers should work on that, the White House could literally consume all the beautiful grass fed British White beef produced. And it's fitting, the beef of old royalty on the dinner plate of new American royalty. I like that! Maybe that's a niche British White breeders should pursue.


As a side note, I am not fond of the seemingly nasty environment of feedlots. And my awesome cow, Bountiful, just closes her eyes in dismay at the mere thought of one of her babies ever stepping foot into their muddy pens. But, it is impossible to provide beef to the majority of American consumers without feedlots. Perhaps more people are choosing to buy beef direct from the family farm and that is contributing to the decline in demand for the industrial sort of beef.....but I imagine that is as much a pipe dream as believing the current stock market razzle dazzle of a strong economy just around the corner.

Chillingham Cattle - Black ears or Red? - Local 'tame' cows turned out to pasture with the wild Chillingham herd!

These excerpts are from a quite respectable 1792 pubication:

A General History of Quadrapeds,c. 1792, by Thomas Bewick & Ralph Beilby

Can't tell you how many times I've read the Chillingham owners had the black eared ones killed, the wholly black ones, and anything not perfectly white.....how sad...how backward even for those times. A lack of copper in your pasture's soil will cause your otherwise black-eared cattle to have red ears (the muzzle, or nose, will generally remain black in a copper deficiency). Did they slaughter the black-eared ones when by chance the soils were healthy every few years?  Apparently so.........

"The white wild cattle of Chillingham Park have a pile much resembling the Tees Water, but they have uniformly black muzzles, hoofs, and the tips of the horns... the horn denoting the kindred breed above all other circumstances, and on that account the wild cattle must be related to the native cattle of Wales, Scotland and Ireland, the height, colour and direction of the homs being similar. This declaration in Nature, the similarity of horn,..." Source: The Country Gentleman's Magazine,1876 



Above we find reference to the preference for the black-eared ones, as well as a clear indication of the Size of the cattle.  Those not at Chillingham were "much larger" weighing about "50 stone" which equates to about 700 lbs, easily 40% of the average weight of a domestic cow in the USA today. 

As a side note, there are many early references to the Chillingham cattle having black points. Those pocket-book politics I've referred to before came to a resounding head in modern times, as well as in the late 19th and early 20th century, to try to present the Chillingham herd as something distinct, purely preserved, and genetically linked back to the ancient urus/aurochs of Britain -- even in the 19th century many writers found this notion absurd.
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The reality is that the Chillingham herd itself has at least once been down to one female in calf who produced a bull sometime between 1776 and 1836, based on various writers descriptions of the existing stock.

"The stock at Chillingham was once reduced to a cow in calf. The produce fortunately proved a bull." (Jardine, 1836).

It is inconceivable that this bull was not crossed with locally desirable cattle. As well there are ample sources which tell us that English Longhorn, Welsh Black/White, and Highland were used to perpetuate the breed type.  It is truly absurd that in the present day the horned Chillingham cattle are perceived as being more closely kin to the ancient auroch that roamed the British Isles than any other bovine beast -- this notion has been greeted with educated skepticism from it's first pronouncement from the Lord of Chillingham in the early 19th century.

From Bewick in 1792 we also learn:

I'm not sure how these wild Chillingham cattle were penned and the tames ones subsequently sorted off. Based on the following excerpt from Youatt's, The Complete Grazier, 1893, the Chillingham calves apparently couldn't even be weaned from their dams.

1776 Reference to the white cow in Lincolnshire, Surry, and Suffolk

"In some parts of Surry there is a white sort of cows that it is reported produce the richest milk and their fleh more readily receives salt than any of the other."


Quotes from Chapters 1& 2, The Complete Grazier, 1767
"The white breed of kine(cow) were some time ago very frequent in Lincolnshire from whence a gentleman brought them into Surry as a curiosity. They are of different make and much larger than the black cattle, give more milk at a meal, but grow dry the soonest of the three."

Hamilton (Cadzow) Park Cattle of the early 1800's - Immortalized by Sir Walter Scott -

"The ancient parish, quite or nearly identical with Hamilton parish, was variously called Cadyhou, Cadyou, and Cadzow; and it changed that name to Hamilton in 1445."

The Castle stands in the gorge of Avon Water, 1½ mile SSE of Hamilton; crowns a rock, nearly 200 feet high, on the left side of the stream; dates from the times of a semi-fabulous prince of the name Caw, prior to the era of the Scoto-Saxon monarchy; was a royal residence in the times of Alexander II. and Alexander III.; passed, in the time of Robert Bruce, to the family of Hamilton; appears to have been often repaired or rebuilt; consists now of little more than a keep, covered with ivy and embosomed with wood; and looks, amid the grandeur and romance of the gorge around it, like ` sentinel of fairy-land. '

The ancient forest surrounds the castle; contains, on the opposite side of the Avon, the summer-house of Chatelherault, built in 1730; is now called Hamilton Wood; comprises about 1500 acres; is browsed by a noble herd of fallow deer; and is the scene of Sir Walter Scott's famous ballad of Cadzow Castle. Of it Mr Rt. Hutchison writes, . . . surrounded by a stone wall 6 feet high and about 3 miles in extent, which was most probably the boundary in feudal times. . .

The wild cattle are pure white save for black muzzles, hoofs, and tips of the horns; show their wildness chiefly in their fear of man; have only one recognised leader among the bulls; and in Nov. 1880 numbered 16 bulls and 40 cows. Regarded commonly as survivors of our native wild cattle, they are held by Dr Jn. Alex. Smith, in his Notes on the Ancient Cattle of Scotland (1873), to be rather 'an ancient fancy breed of domesticated cattle preserved for their beauty in the parks of the nobility.'

Drawing of the Hamilton white cattle in 1835:



Sir Walter Scott spent the Christmas of 1801 at Hamilton Palace. Must read Link to Annals of the Andersonian Naturalist's Society commenting on the visit of Sir Walter Scot to the Hamilton herd in Scotland.





BALLAD of CADZOW (Hamilton) CASTLE Excerpt:

Through the huge oaks of Evandale,
Whose limbs a thousand years have worn,
What sullen roar comes down the gale,
And drowns the hunter's pealing horn.

Mightiest of all the beasts of chase
That roam in woody Caledonia,
Crashing the forest in his race,
The Mountain Bull comes thundering on..

Fierce on the hunter's quivered band,
He rolls his eyes of swarthy glow.
Spurns with black hoof and horn the land,
And tosses high his mane of snow.

And well the chieftain's lance has flown,
Struggling in blood the savage lies,
His roar is sunk in hollow groan.

Tis noon against the knotted oak,
The hunters rest the idle spear.
Curls through the trees the slender smoke
Where yeomen light the woodland.

Proudly the chieftain marked his clan,
On greenwood lay all careless thrown,
Yet missed his eye the boldest man,
That bore the name of Hamilton

"It is highly probable that Sir Walter Scott's ballad awakened the interest of the ducal family, and that a successful attempt to form or collect a herd was made, either from a few survivors of the former one that had been kept somewhere else, or from a distinct one. Under any circumstances a small herd of white cattle, numbering about a score, were browsing in Cadzow by 1809, and the cows being horned and the bulls humble (means POLLED) would seem to indicate a herd in process of formation from different sources. Later the whole herd became humble. For twenty-five years past, at least, they have been all horned."

Source