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Jim Rogers is Wrong!
By: Chris at www.CapitalistExploits.at
"If you've got young people who don't know what to do, I'd urge them not to get MBAs, but to get agriculture degrees," - Jim Rogers
"All your viewers who got MBAs made a terrible mistake; they should try to exchange them for farming degrees or mining degrees". - Jim Rogers speaking to a Bloomberg anchor
In 2004, Jim's book Hot Commodities was published. In the book he focuses specifically on sugar and coffee due to favourable supply demand issues. Over the few years following publication both commodities rallied hard producing gains of 155% and 232% respectively.
We did not disagree and discussed Input Capital and their agricultural streaming model which we really liked and still do. We discussed opportunities for traders in "The Ag Trade" where Mark discussed specific trading strategies he was employing.
Over the last 10 years the returns have been admirable as you can see from the chart. That is provided you'd invested in 2005 and held on till today, and refrained from investing at any of the peaks in the respective commodities.
Looking out into the blue horizon I have to remain long term bullish on agricultural commodities. The solution to insufficient supply is higher prices, and as Rick Rule is fond of saying the solution to higher prices is higher prices. Higher prices will come due to insufficient supply on the back of rising demand from a rapidly developing middle class in emerging and frontier markets. In a recent article in the Economist I read the following statement.
"In the next 40 years humans will need to produce more food than they did in the previous 10,000 put together."
Ok, so you're wondering why or where Jim Rogers is wrong...
The answer to this lies in a story which begins with two distinctly different types of people: farmers and bankers.
Farmers do their clothes shopping at 1960s department stores, drive anything that has a space for a dog in the rear and dine on meat and 2 veg.
Bankers line the interior of their cars with 16 dead cows, polish off filet mignon and truffles - truffles being something most farmers I know would think is a game of some sort, not a food - and they dress themselves at Louis Vuitton.
Let's take a look at the 2014 median farm household income forecast according the the USDA's own website. Note that this is for the total household.
Median total farm household income is forecast to decrease slightly in 2014, to $70,564, down from $71,697 estimated for 2013.
Given the broad USDA definition of a farm, many farms are not profitable even in the best farm income years. The median farm income of -$1,626 is down slightly from the 2013 estimate of -$1,141.
Most farm households earn all of their income from off-farm sources—median off-farm income is projected to increase 3.7 percent in 2014 to $64,825.
Now let's take a gander at our Brooks Brothers wearing friends.
Well, they've taken a hit. Poor Jamie Dimon CEO of JPMorgan Chase & Co has just received his first bonus in 3 years while his pay holds steady at $20 million. No really, feel free to read it on Bloomberg. Try not to throw up.
Goldman Sachs paid 121 of its London bankers an average of $4.7 million last year.
In case you think I'm cherry picking the top dogs consider the following pay scales for graduates.
- 1st Year Analyst Total Compensation Range: $135K to $145K
- 2nd Year Analyst Total Compensation Range: $155K to $170K
- 3rd Year Analyst Total Compensation Range: $185K to $205K
...or the following chart:
The chart above shows how incredibly profitable this has been for those in the financial services industry.
Why is it then that bankers are making many, many multiples of what farmers are making?
The answer to this lies in how our financial system is rigged and something called the "Cantillon effect" named after Richard Cantillon.
In 1719 Richard Cantillon bought shares in John Law's infamous Mississippi company. He noticed that the paper money being created by the government which was backed by shares in the company didn't reach everyone in the economy at the same rate. Those who were well connected would receive it first and by the time it had filtered all the way down to the minions, typically the labouring classes, it had lost value.
The vast amounts of money and debt creation, QE1, QE2, Operation Twist, deficit spending, bail outs, bail ins, and every other absurd scheme dreamed up by central bankers all allow for those closest to benefit first and foremost. Every other participant in the market relies on the trickle down of this capital.
When you consider that banks create money by issuing debt and then charge interest on that debt then it is simply not mathematically possible for the rest of the participants in the economy to compete with that.
Those receiving lucrative government contacts for instance are close to the spigot. Consider, for example, at the heart of the death star a company such as Halliburton. It's not lost on me that while Halliburton is ostensibly an oil company it profits repeatedly from wars waged by its directors and shareholders, using government funding for those wars.
When the US government decide to go to war against some newly fashioned enemy of the day they borrow by issuing debt. In borrowing they create money. That money goes directly to arms dealers, oil companies who are contracted in, logistics companies, and bankers putting the deals together. They receive that money, money created literally out of fresh air. How far away is the average farmer from this crony capitalism?
It doesn't matter how money is created in this monetary chaos, whether it be via quantitative easing, deficit spending or bail outs. Banks are always sitting at the top of this house of cards.
Jim Rogers is right about one thing: agriculture will require large amounts of capital investment. But until we have a reset in the way the financial world operates bankers will continue to be the ones making all the money.
In the next post I'll be speaking about an agriculture based economy which is largely devoid of bankers.
- Chris
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Bankers are parasites; where is that "Hangman" degree?
Farmers do own and operate these; Combine (harvester) 350-420k, Tractor 320-350k, 16 row Corn Planter 150k. Often a fully equipped GMC pickup. They don't seem to be too interested in tooling around in a Lamborghini.
Your description of farmers is insulting an no longer accurate as there is an entirely new class of people who are not participating in INDUSTRIAL FARMING but rather decentralized, local, and personal farming. These will be the people who survive. And the ones who started in 2004 are now well on their way to self-sustainability. It's truly impossible to imagine how this can be beneficial unless you are able to scale back your ego and appreciately leaving materialism behind.
Testify.
That shit doesn't even tempt me anymore.
My grandfather once said to me that farming only pays in times of financial and world unrest. There is a flight of capital to safe havens such as land and commodities. I have lived long enough to also see the effects on land and farm commodity prices due to the differences in currency exchange.
As is, the prices of corn and soy have decreased 25% over the past year, in an inverse proportion to the increase in the dollar.
Rogers will be proved right when the ponzi-capitalist system blows up. MBAs will be out of favour then.
Getting a degree in agriculture is mostly a waste of time. You should get a degree in accounting then use that education to invest in agriculture.
Funny!
Agricultural engineers will alway be in demand. Bean counters are a dime a dozen, unless they lie big-time, in which case they get paid a little more.
Glad you got that off your chest! You got to take a pot shot at Jim Rogers AND at people who call themselves farmers, using infallible government statistics that PROVE that hobby farmers lose money. SO WHAT. Rogers was spot on in his analysis. Any young person choosing MBA cubical serfdom rehypothecating crap to infinity is making a very poor choice. Ag, on the other hand, is waking up from its corporate 'green revolution' nightmare of the last 60 years as consumers DEMAND food that will not kill them. Been to Whole Foods lately? You will NEVER find a succesful farmer driving a fucking Lamborghini, always the most beat up '70s chevy pickup. The Amish are the gold standard for the new breed: NO DEBT/CASH ONLY, totally organic, do not listen to the corporate lies propagated by the USDA. And yup, their overalls are dirty, truck is beat up and the farm looks kinda threadbare. But whose food do you want to feed your family: processed garbage from Coscto that makes you morbidly obese and looking like you were run over by a truck or healthy fresh meat eggs and produce that makes your kids tall and strong?
I have seen amish eating balony and mayo and white bread. served by dressed up amish women.
Good farmland, Iowa, Illinois, Indiana, presently commands $11,000-$13,000 an acre. Most farmers farming 1600 acres, are leasing 1000 of those acres. Not a lot of those land rent numbers have come down, only where the leasee has linked the rent to crop prices. Find some other segment of society to shit on.
I look forward to Chris's next article discussing "an agriculture based economy which is largely devoid of bankers".
I believe Rogers was referring to the value of farmland, which is indeed climbing. Current farmers may not have a lot of income, but an Iowa farmer with 400 acres could become a rich ex-farmer when good crop land goes to $5000 an acre. Meanwhile, bankers are being fired as they are replaced by trading algorithms, or when banks have laid off staff or even chopped who departments when they exit commodity trading or reduce bond trading.
try $10k to $12k for prime farm land
In Oxford County, in southwestern Ontario (Canada) prices usually exceed 20k/acre - for land that will yield around 230bu/acre corn in a good, hot year.
Made sense if corn stays at $7, ond only climbs higher - except it's around $4 now. Modern dutch pig farmer doesn't care. Just as long as he can make payments, inflation will take care of the rest.
Far out. thanks for the head's up. Now, that's a bubble.
The reason for te increase in farmland prices, is the high availability of cheap credit to finance farm purchases. As soon as the interest rates go up 2 percent, farmers will go broke, and the land prices will drop at least 80%
I would agree with you most times, but my experience has been farmers seldom finance land purchases. Most farmers where we farm (west-central Illinois) use little to no credit for land. We would like to buy more but it rarely comes up for sale, it's staying in the family as many kids are going to school for Ag Science and coming back home to a bought and paid for business.
That's good to hear. All the family farms in my area are being sold to the "Nature Conservatory of Canada" (A bullshit charity that is trying to establish a tax-free carbon sink) or to a few large-scale (for Ontario) farmers, that grow between 5,000 and 15,000 acres. We are seeing huge droves of Dutchmen, and Mexican Mennonites that bid the land up to the stratosphere. The dutchmen dont worry about going broke, and the Mexican Mennonites have a dozen kids to do the work for free.
My grandparents squandered the farm they owned, and my parents lived in the city. I worked on a dairy farm for years as a teen-ager, and I now own 25 acres, and am busy working, to build up a reserve to buy some land when the numbers start making some sense. This happened in the 80's in this region, and it will happen again.
It will probably never become anything more than a hobby with me. Maybe I'll own a couple of hundred acres by the time I die.
more bullshit - farmers with irrigation in this area don't have much use for bankers - if they need a new tractor - the dealer has dirt free money - who needs bankers.
Yep. Just like 1929; which started off with "Cotton is down to a nicle a pound, and I'm busted" / lyrics to a popular blues song of the era. Gonna be some nice buying opportunities for the Silver Holders.
Farmland had been rising in recent years because our criminal banking/ hedge fund class has been chasing yield wherever they could find it. There are a bunch of ag IPO's lined up to be pumped and dumped.
The biggest problem the suits have- is finding the talent to run farms and ranches. The Farmland play is just another scheme- nothing more, nothing less.
As soon as interest rates go up 2% bankers will go broke as well... the land reverts to the capitalized value of its new income stream.
I sure hope not, but I'm getting to the point at which I could believe that there is noone on the planet the bankers would not gleefully sacrifice to get their next yacht, private airplane, or manor in the mountains, telling themselves, "yet again I prove how SMART I am"!
Perhaps some of that increase in value of farmland is helping VNQ and the other real-estate funds. If so, then that provides another way to take a stake in farmland.
There are exchange traded funds now for basic commodities.
John Law had nothing on the Fed. The Fed's creatures (public trough feeding "bankers") will dry up and blow away once the capital they feed on is taken away. Or exhausted. Farmers will come into their own in a big way, just like Jim Rogers - and James Howard Kunstler - say. But keep thinking that bankster parasites (but I repeat myself) have repealed the Second Law if it feeds your confirmation bias. These humps are dead. Dead in the ass. They just don't know it yet...
Jim is expecting a collapse of the financial system, something Chris doesn't seem to fathom. In a collapse scenario, most bankers will be entirely wiped out, forcing them to beg for food. This is the scenario where agriculture will trump the toilet paper made from nothing.
Most farmers don't "own" anything - not equipment, land, the seed they plant, or the fertilizer they spread. It's all done on credit, and when that credit stops everyone is screwed!.
That is, like, your opinion man. You are obviously not a farmer. Credit is used because it makes the process easier and money is so damn cheap. But if push came to shove most farmers could write a check for whatever they needed.
Actually, I am a farmer. Are you?
edit... my bad, I see that you are, from an earlier post.
Only as long as people are able to borrow money, to buy your farm.
20 yrs of in-the-ass-prison will fix this in a heartbeat
I don't know many farmers with access to hundreds of billions of dollars for zero interest.
Rogers is yet another shill with nothing to really offer society. Execute this fuck already.
In Canada, Farm Credit will loan you money for your crop - interest free. As long as you pay it back before the end of the year. The really big farmers have employees dedicated to managing their relationship with the ministry of agriculture - in order to sniff out grants, and interest free loans.
Agricultural commodities don't beat cpi in the long run. Only gold, silver, oil, stocks and real estate. Anything with a fixed supply. Crops can be regrown. Oil and gold cannot. Stocks beat inflation in that prices go up in general which benefit profits and necessarily increase the stock price.
"Crops can be regrown. Oil cannot" -- FAIL.
Guess what asshat? BOTH crops and oil can be replaced, but only if you have the resources and ENERGY available to do so.
Pull your head out of your ass. Don't think oil can be produced from bacteria or algae? Point your browser to LS9 and their website you stupid simpleton fuck.
No need to be rude. There's a big difference between what's possible and economic feasability.
I take it you haven't seen many of his posts then?
G Edward Griffin explains the Cantillon Effect very simply in his essay THE REALITY OF MONEY , which can be heard/viewed on YouTube. Prepare though , since it is 4 1/2 hours long. A thinking person will want to summon the stamina to LISTEN to Griffin. One can learn a lot by doing so.
Lamborghini actually makes also excellent tractors for farming, therefore, farmers do drive Lamborghinis every day.
He is correct in that farmers, at least many of them in my locale, are not driving a Lambo. No, instead they drive around in a $60K Ford F250 King Ranch, then go hop in a $300k JD with likely $100k worth of tillage in tow.
I don't say this becuase I hate farmers, in fact I know many of them and even work part time for one during spring tillage and fall harvest. I enjoy it very much, I only bring this up because there are a lot of farmers that do VERY well, perhaps much better than many bankers around here at any rate.
Most farmers are deep in debt. Buying big equipment is a tax write-off given by the government in order to farm more acres (corporate farming). With prices so low last year most are struggling to pay off the 360+ acres of land @ $5,000 dollar an acre they bought a couple of years ago. Average crop gross per acre is $400 per acre....do the math and see who is getting rich loaning them money at 4.85% interest....OH, and the collateral is usually the land plus.
We touched $20 g's an acre not far from where I stomp few years back. Granted, it was a pissing match between a couple of locals which is usually the case, and there was old money involved.
Land has come down from those lofty peaks since then but still pretty damn high around here.
I won't argue with you in the fact the local banks are doing very well. It's almost comical in that if one builds a new structure, a competitor will either build a new one or add a huge and fancy addition. The real kicker is there are a good number of bank owners that also own crop land.
Had an auction for prime river-bottom land occur last year. Bidders were a local family farm operation that owned land around this plot vs. an investment group out of Chicago. I think it got to 17k an acre before the investment group stopped bidding. The family meanwhile, will be lucky to ever come out ahead given their interest expense (which of course, is far higher than the investors in Chicago).
You just can't compete with "free" money.
I know of a "farmer" who lives in a $20M dollar home on the beach in La Jolla. He controls about 100,000 acres of farm land and owns several vintage cars and has a $1.5M motor home. He brags about the fact that his hands have never touched soil. His education consists of a JD. You see, this particular fellow earns money from the government. Yep. He only controls marginal crop land and keeps it out of production but he's paid for it. It's all very illegal but he and his ilk successfully lobbied in Washington to prevent any investigation by the Department of Agriculture. I guess you could say he cultivates Congressmen and milks the taxpayer.
He is hiding his intentions like all intelligent people would do. He is a decent honest person playing by the rules. The rules are not honorable or honest.
After a reset, do you really want to own a Lambo?? It's like asking to be pitchforked.
not unless it runs on biodiesel. They'd have to catch you first!
http://www.autoexpress.co.uk/lamborghini/murcielago/31818/diesel-power-a...