A CBH cashflow solution?

Today's Country Hour mentioned one valuation of CBH as $7.93 billion. If I heard this figure correctly, and if this was to be evenly split amongst say 6000 shareholders, each would get an average of around $1.3 million worth of shares.
This figure cannot be an accurate estimate, though I think I remember that South Australian growers  received an average of $300,000 worth of shares when ABB was "de-mutualised" in July 1999. If my figures are right, and ABB was worth $300,000 in 1999, CBH could be worth $1.3 million for each grower now.
No matter what the long term dangers of outsider share-holders controlling grain handling, this sort of money could be very handy now. Presumably, cashed-up farmers who might think otherwise could buy the shares of others who need to money for survival.
Wonder what CBH thinks?

My car restoration syndicate

Some photos below of our car restoration project. It is an Armstrong Siddeley Whitley, 1951 18HP model.

I think the word to describe it is "vicarious" - other people in "my" syndicate are doing the hard yards, and I am wandering past from time to time, with my hands in my pockets. Perhaps the proper role of a consultant.

The start - July 2011 -

Now -

The "Dutch disease" - our resource curse

The "Dutch disease" - a term that goes a long way to explaining our current farming problems is getting airplay recently.
In the Netherlands in the 1970s, the north sea oil fields created a resource boom, that drove up wages and increased the value of their currency. Although great for the country as a whole, the side-effects of high wages and inflated currency devastated other industries such as (for them) manufacturing.
The W.A. mining boom is causing similar harm to farming. As well as raising wages and inflating the currency, it is sucking finance away from farming.
This is not the whole of the current farm problem, but on top of everything else, it is all devastating. (I believe our lack of productivity growth is our major issue).
Whether the community thinks it is worthwhile to help industries affected to allow an adjustment period, remains to be seen. For example do we need to manufacture cars in Australia?

"Notwithstanding" - DNA testing of soil

"Notwithstanding" my scepticism about hi-tech machines to study soil biology such as presented on the Landline program, an offer by Professor Andy Whiteley seems to good to refuse.
He has been appointed for four years to the University of W.A., amongst other things, to compile a soil DNA database for W.A. His project is funded by the State government, and is high-powered recognition of the potential value to the community.
Apparently the DNA testing is so easy, it can be offered as a free service to involve people like school-kids to submit samples - so-called "citizen science".
Well, this certainly could include us.
I have contacted Andy, explaining that not only can we provide soil samples, but also can back them up with facts relevant to the farm. The farm facts (our database) that can go alongside, should make the results a lot more meaningful. He will be able to do number-crunching for his purposes, but hopefully we will also be able to do our own interpretation of the data.

Landline soil secrets likely to stay secret

Landline yesterday featured the newly sponsored GRDC soil biology project. They have exactly the right idea. We have seen enough in paddocks to agree that soil biology could lift water use efficiency from current levels of 50 to 60 per cent.
But they have Buckley's chance of doing much more than spending the $20 million over the next five years, and making their case for their third slice of the cake.
What have we learned from the first of these five-year soil biology projects?
And is rhizoctonia a major limitation to crop performance?
The Chicago man, Jack Gilbert, who was "full of praise for the GRDC approach", has already analysed 15,000 soil samples from around the world. We (W.A. farmers) have probably checked 150,000 soil samples over the last 30 years (5,000 samples a year?). What has this done for W.A. soils? Just look at the imbalance that has arisen between phosphorus and lime. So what chance to you give Chicago?
Maybe Pauline Mele's 30 billion bits of data from her Illumina sequencer will be more accurate?
I could go on, but you get the idea.
I wouldn't bother with this, if I couldn't suggest a better way.
But first, check it out for yourself -
http://www.abc.net.au/landline/content/2012/s3630158.htm

Beware of agronomists - GIWA "Seeding Success"

G.I.W.A. - "a voice for the grain industry", organised an agronomy update in Perth yesterday. It was a good chance to share yarns about how to grow a good crop. But the theme of the discussions and many of the talks could drive you to drink.
The cynical view is that agronomists have to find something that can be sprayed. So any new weed problem, disease or insect outbreak was keenly discussed. Of course, the breakdown of the old, cheaper herbicides is the next big thing.
You can now add new crop varieties to the hot topics. The farm supply industry has great plans, especially for canola seed sales, but also new cereal varieties.
I don't deny that I find all this interesting, but the axe hanging over our head, of the financial credit squeeze was hardly mentioned. Fair enough perhaps. After all, it was an agronomy meeting.
My problem is that we know a lot about what we can see - weeds, diseases, insects etc. However, "we", as an industry, don't know why we are only averaging 50 to 60 per cent of water use efficiency. It gets hardly a mention.
Another old chestnut for me, is that the more you spray with insecticide, the more insect problems you seem to have. I still can't prove this, but some of the discussion added further support to this theory. After lengthy discussion about threshold levels for spraying aphids in canola, it slipped out that "the crops are only getting the S.P. knockdown". You can't beat an agronomist on this one - the spray is cheap, you will be going over the paddock anyway, and it is not worth taking the risk of not spraying. Even better for the agronomists, is that if you do keep going hard with insect sprays, you will probably soon be seeing plenty of insect problems.
Maybe as the Monty Python galaxy song goes, "pray that there's intelligent life somewhere up in space, 'cos there's bugger all down here on earth".

Economists getting worse!

This time 20 out of 27 economists surveyed by Bloomberg predicted a Reserve Bank rate cut that didn't happen.
http://www.abc.net.au/news/2012-11-06/rates-on-hold-in-november/4355798?WT.svl=news1
You can only feel sorry for economists. Presumably they are trying to do a good job. Maybe it is just the Reserve Bank that got it wrong.
But it is even sorrier for us, if these guys are running our economic affairs. Let's just hope that they are not doing too much harm.

Alan Kohler and Robert Buckland

Alan Kohler interviewed Robert Buckland over the weekend. Though we know nobody has a crystal ball, you can follow trends, and use them to help direct your own affairs. (Of course it has to pass the common sense test, which usually means the idea confirms what you think anyway!)
Robert Buckland works for Citibank, and what (I think) he was suggesting was that we have passed the cycle of good returns from equities (shares) and now should invest in bonds (which I take to mean term deposits). Investment returns will come from cashflow - dividends, interest earned etc, rather than capital gains.
For farming, that would mean getting more from existing assets, rather than expanding to benefit from potential capital gains, as well as economies of scale.
Is this "common sense" in today's environment?

Remember copper deficiency?

Copper may only be needed every ten to twenty years on our soils, but that is long enough to forget. CSBP found a site near Jerramungup this year, and looks like they have confirmed a response. Note the weak stems, and heads which are more floppy. Maybe you can also see the first signs of poor grain fill.  At a later stage, accumulated sugars in the stems will make the crop darker.

The Denmark wind farm is happening

With enough of a government handout, you can make water run uphill.

Farewell old friend

Amazing how good cars are these days. The Magna has been farewelled at 324,000 km. This has been my second one with similar mileage, and neither has ever let me down.

My new "friend" is similar - a Mitsubishi 380. this time with spoiler. Not sure why you need a spoiler with a front wheel drive!

Shame they don't make Magna's or 380's anymore.

Tilting at windmills - frustrations of economists

An article by Satyajit Das reviewing a couple of books on economics.

http://www.nakedcapitalism.com/2012/08/satyajit-das-tilting-at-windmills.html

Maybe the final sentence sums it up - "The ideas in both books – sensible economic management and efficient investment behaviour- are probably beyond the human race in its current stage of evolution."

But worth reading to remind you about the esoteric complexities of economics.

How good are our economists?

A Bloomberg survey found that nine out of 28 economists predicted the interest rate cut. A grade of roughly 30 per cent, but not enough for a pass!

Watch out for MRI's?

Today's radio talk by Norman Swan - watch out for MRI's. Apparently two studies have shown that knee MRI's can do more harm than good. Most older people will find they have something awry, but only few have associated pain. Operations to clean and wash out can do more harm than good. Apparently also applies to back problems.

What grows a good crop?

A couple of observations from this years crops confirm our theories about what grows a good crop. The key is plenty of nitrogen, but this can come from release of nitrogen from soil organic matter - not necessarily from nitrogen bought from the fertiliser company.
Firstly, the harvest rain last year provided warm, moist conditions for extra release of nitrogen. This showed up in soil tests. However the differences evident in crop growth are being acheived in various ways. One is from a good history of liming, and another crop I saw seemed to be benefiting from deep cultivation that had incorporated organic matter from the topsoil.

Hopefully, a couple of pics show this story, though there are a lot more examples that support this theory. Just that you don't realise what is going on when you first see it. It only becomes evident when you reflect on what you have seen.

Alan Kohler - analyst or popularist?

Alan Kohler - analyst or popularist?

Is this just what people want to hear - good for selling your brand?

Or does he make a good point?

If he is right, where (and how?) do you draw the line?

Financial bets belong under the Gambling Act

By ABC's Alan Kohler

Updated Thu Sep 27, 2012 10:09am AEST

Punters often don't realise they are being sold risky bets in the name of "securities", writes Alan Kohler. And when their bets fall, their money disappears.

I no longer think derivatives should just be banned. I now think they should be treated as gambling, and then banned.

That is, CFDs, CDOs, SCDOs, CPDOs, CDS and all the various other acronyms that might masquerade as financial instruments should be brought under the Interactive Gambling Act (2001), which makes it an offence to offer "real money" online gambling to residents of Australia.

Sometimes financial derivatives are used by those who have a genuine trade or credit exposure to hedge or offset, but most of the time - the vast majority of the time, in fact - they simply involve a bet, made by a punter, often online.

When they are not traded online, and are instead sold by liars masquerading as financial advisers, the "advisers" should be licensed as croupiers, and the "products" regulated as crap shoots and taxed accordingly.

The idea that derivatives are gambling and should be treated as such came to me this week while reading the judgment of Justice Steven Rares in the case of Wingecarribee Shire Council Vs Lehman Brothers Australia Ltd (in liquidation) - the class action on behalf of councils and charities that were sold Synthetic Collateralised Debt Obligations (SCDOs) by Lehman. The plaintiffs claimed they were not told the true nature of these instruments and sought $260 million from the liquidator of the collapsed investment bank.

An SCDO, by the way, is a ticket that pays out when a certain number of named companies go bust. It's not based on anything but a list of names.

Last Friday, Justice Rares found comprehensively in favour of the plaintiff, concluding that Lehman's subsidiary, Grange Securities, had engaged in "misleading and deceptive behaviour".

In paragraph 1,037 of the 400-page judgment, his honour says this:

The uncertainty of how to arrive at a present value for an SCDO is, in part, a reflection of the nature of the product. It is a "bet" of the kind described by Mr Finkel in the passage of his report set out at [888] above. Thus, a transaction involving it, is the sale of such a bet.… Bids represent a likely perception by one market participant of the lowest value that that person would place on the bet.

"Mr Finkel" is James Finkel, the plaintiff's expert witness and an expert in structured finance. He said, in paragraph 888, that an SCDO is "essentially a bet that the CDS (credit default swap) portfolio will only have a limited amount of net losses, which can be fully absorbed by others who have taken more junior slices [i.e. tranches] of risk (up to a specified loss threshold) on the portfolio of CDS".

Exactly right. In fact, all financial derivatives, including the still widely used Credit Default Swaps, are mostly bets, not financial securities. There are hundreds of times as much money outstanding in CDS as there is in real debt underneath them. They should be treated as bets by the law and not regulated by the hopelessly inadequate laws and bodies that govern securities.

The Interactive Gambling Act was introduced to ban online "real money" gambling because it was impossible to protect punters. Casinos and bookmakers are separately regulated under state laws and taxed heavily. Some states tried to ban online wagering as well as online gaming to protect their tote monopolies, but the fact that the Northern Territory allowed online bookies drove a truck through those bans.

Now online bookies are off to the races, as it were, and busily fleecing punters of their hard-earned, but at least they are kept honest and pay taxes.

The problem with regulating financial bets (AKA derivatives) as if they are investment securities is not that they are unregulated at the moment, but that the punters often don't know they are gambling because they are dealing in the world of "securities", not betting.

The Lehman CDOs, for example, were sold to the councils as "floating rate notes" which, at a stretch, they were.

IMF Australia, the litigation funder supporting the Wingecarribee Shire and others, is now suing ABN Amro plus Standard & Poor's over another instrument called Constant Proportion Debt Obligations (CPDOs).

These were very complex things invented by ABN Amro in 2006, which provided 2 per cent interest above Libor with AAA rating and were naturally hugely popular. It is alleged that S&P rated them AAA with doing any due diligence on the structures, and in fact they should have been rated much lower.

Like SCDOs, CPPIs, CFDs etc, CPDOs were basically risky bets sold as safe investments to unsophisticated wholesale investors (councils and charities) and therefore without the need for prospectuses.

In 2007-08, the bets all lost, and now the chickens are coming home to roost.

The reckoning for the lies told to investors by investment bankers in the bubble years leading up to 2007 will take many years to unfold and leave many of the victims well out of the money. Lehman's victims in Australia, for example, will end up getting around 30 cents in the dollar, which is definitely better than a poke in the eye with a burnt CDO.

But to ensure it doesn't happen again, governments need to find a way to distinguish between the use of financial derivatives for genuine hedging, and old-fashioned betting - and then regulate the latter accordingly.

First Blog

This is my attempt at a blog. I don't want to breach any confidentialities or upset anyone. On the other hand, it could be fun to dash off quick thoughts. So read the comments at your own risk! 
Let me know what you think eg with comments on the postings.