Western Hemisphere's Shale Men as Oil Industry's New "World Swing Producers"?

FASCINATING BRIEFING IN A RECENT ECONOMIST (23 JAN 16) ADDS A NEW TWIST TO AN ARGUMENT I'VE BEEN RECENTLY ADVANCING ON HOW NORTH AMERICA'S EMERGING ENERGY INDEPENDENCE DRAMATICALLY REDEFINES ITS OWN SENSE OF ECONOMIC RESILIENCE AND – ULTIMATELY – AMERICA'S GLOBAL SECURITY PERSPECTIVE. Think of the future as mostly about energy and water, with the latter accounting for food production. Any country seeking to ensure its economic resilience going forward wants to be either rich in both, or rich in secure access to both. This is essentially where China is weakest now and in coming decades (hence the aggressive military behavior on display off its coast), because it must import both food and energy in ever increasingly amounts (and overwhelmingly via seaborne trade). This is also where America (and North America in general) is strongest now and in coming decades, relative to just about every great power out there – save perhaps Russia. But even there, America has little reason to unduly worry about the widely-perceived renewal of strategic rivalry with Moscow, which invariably becomes China's economic vassal on that basis:

China, please meet Russia, an energy-business-masquerading-as-a-government, which is incredibly vulnerable on the subject of lower energy prices but stands as the world's largest exporter of energy.

Russia, please meet China, which is the world's largest importer of energy and the stingiest, most aggressively demanding trade partner in the world.

Please go about you co-dependency with all the respect and friendship that you've each bestowed upon the other's culture and civilization over the years.

As I've pointed out, North America is already the world's de facto swing producer on grains, which gives us an enormous strategic advantage – and power – that we scarcely realize.

We are, in effect, the Saudi Arabia of grain. So, if, in our imagination, they have the world over an oil barrel, then we've got the world over a breadbasket.

Guess who cries "uncle" first?

And yes, we'll maintain that status in spite of climate change, because we're that clever and that resilient and that blessed by circumstances.

But here's where the Economist's analysis of the recent slide in oil prices is so intriguing: what if North America were to become the world's swing producer on energy – as well?

From the piece:

Now the fear for producers is of an excess of oil, rather than a shortage. The addition to global supply over the past five years of 4.2m barrels a day (b/d) from America’s shale producers, although only 5% of global production, has had an outsized impact on the market by raising the prospects of recovering vast amounts of resources formerly considered too hard to extract. On January 19th the International Energy Agency (IEA), a prominent energy forecaster, issued a stark warning: “The oil market could drown in oversupply.”

Amazing what the fracking revolution in North America has wrought, and don't – for a minute – discount how that sense of energy independence influenced President Obama's decision to see a Nixon-like detente with Iran, identified in the piece as "the most immediate cause of the bearishness."

[Iran] promises an immediate boost to production of 500,000 b/d, just when other members of OPEC such as Saudi Arabia and Iraq are pumping at record levels. Even if its target is over-optimistic, seething rivalry between the rulers in Tehran and Riyadh make it hard to imagine that the three producers could agree to the sort of production discipline that OPEC has used to attempt to rescue prices in the past.

But it gets even more disruptive – again, because of the fracking revolution in North America:

Even if OPEC tried to reassert its influence, the producers’ cartel would probably fail because the oil industry has changed in several ways. Shale-oil producers, using technology that is both cheaper and quicker to deploy than conventional oil rigs, have made the industry more entrepreneurial. Big depreciations against the dollar have helped beleaguered economies such as Russia, Brazil and Venezuela to maintain output, by increasing local-currency revenues relative to costs. And growing fears about action on climate change, coupled with the emergence of alternative-energy technologies, suggests to some producers that it is best to pump as hard as they can, while they can.

So we witness the Saudis – yet again – trying to shake out the market, not to mention its fierce regional rival, through an extended period of self-destructive over-production relative to market demand. It will definitely hinder Iran's re-entry into the world and its energy market, but in the US?

Yet there is also a reason for keeping the pumps working that is not as suicidal as it sounds. One of the remarkable features of last year’s oil market was the resilience of American shale producers in the face of falling prices. Since mid-2015 shale firms have cut more than 400,000 b/d from output in response to lower prices. Nevertheless, America still increased oil production more than any other country in the year as a whole, producing an additional 900,000 b/d, according to the IEA.

And here's where US technological resilience gets truly interesting:

During the year the number of drilling rigs used in America fell by over 60%. Normally that would be considered a strong indicator of lower output. Yet it is one thing to drill wells, another to conduct the hydraulic fracturing (“fracking”) that gets the shale oil flowing out. Rystad Energy, a Norwegian consultancy, noted late last year that the “frack-count”, ie, the number of wells fracked, was still rising, explaining the resilience of oil production.

The roughnecks used other innovations to keep the oil gushing, such as injecting more sand into their wells to improve flow, using better data-gathering techniques and employing a skeleton staff to keep costs down. The money is no longer flowing in. America’s once-rowdy oil towns, where three years ago strippers could make hundreds of dollars a night from itinerant oilmen, are now full of abandoned trailer parks and boarded-up businesses. But the oil is still flowing out. Even some of the oldest shale fields, such as the Bakken in North Dakota, were still producing at the same level in November as more than a year before.

No, we don't want to overestimate the economic boost to the US economy from all this. Our economic restructuring challenges are significant – as evidenced by voter anger in this year's presidential race. But others have it far worse:

Unsurprisingly some of the biggest splashes of red ink in the IMF’s latest forecast revisions were reserved for countries where oil exploration and production has played a significant role in the economy: Brazil, Saudi Arabia, Russia (and some of its oil-producing neighbours) and Nigeria. Weaker demand in this group owes much to strains on their public finances.

Russia has said it will cut public spending by a further 10% in response to the latest drop in crude prices (see article).

So where do we go from here? The article discusses "peak demand," something I've long argued would naturally precede the much-feared "peak oil" moment, primarily due to efficiency and environmental concerns.

Then the Economist lays out the crown-jewel argument – from my perspective – of the piece:

More likely, the oil price will eventually find a bottom and, if this cycle is like previous ones, shoot sharply higher because of the level of underinvestment in reserves and natural depletion of existing wells. Yet the consequences will be different. Antoine Halff of Columbia University’s Centre on Global Energy Policy told American senators on January 19th that the shale-oil industry, with its unique cost structure and short business cycle, may undermine longer-term investment in high-cost traditional oilfields. The shalemen, rather than the Saudis, could well become the world’s swing producers, adding to volatility, perhaps, but within a relatively narrow range.

Bingo!

Please keep that in mind when all the politicians and national security experts are trying to scare you to death during our ongoing transition from one president to the next: when it comes to food/water and energy, North America – and America in particular – is sitting pretty.

Why?

Because our national resilience on both continues to contradict the pessimists while amazing even the optimists like me!

Transparency Begets Measurability Begets Improvement Begets Resilience

YOU CANNOT IMPROVE AN INDUSTRIAL ACTIVITY THAT YOU CANNOT MEASURE, BUT YOU CANNOT MEASURE THAT ACTIVITY IF THE INDUSTRY ISN'T BEING HONEST. The world's fisheries are under a great deal of stress right now, between pollution and rising ocean acidity triggered by higher CO2 absorption rates. Unsurprisingly, the more regulated Western nations, having themselves long overfished, now do a much better job of measuring and managing fish stock. But with the ballooning middle class emerging across the East and South, two global regions even more given to eating fish than the West, the pressure for bigger catches is immense among those very nations featuring weaker governments and regulatory oversight, begetting a classic "tragedy of the commons" that is now being addressed by an aggressive expansion of aquaculture (fishing "farms") across Asia, which, in turn, generates new and profound environmental stresses along that continent's littoral zones.

The key to managing fish stocks is reliable data, which is hard to come by, the crucial requirement being open and transparent cooperation among commercial fishing firms and the scientific community. Where is that going to best happen? Where the regulatory environment is strongest.

However, a recent study suggests that, on a global basis, fish catches are systematically under-reported:

Tens of millions more tons of fish have been taken from the seas than are recorded in official statistics, suggests a huge and controversial project aiming to estimate the ‘true catch’ of the world’s fishing industry.

The work is detailed in a paper in Nature Communications by fisheries researchers Daniel Pauly and Dirk Zeller of the University of British Columbia in Vancouver, and it builds on a decade-long project that has drawn in hundreds of researchers from around the world.

According to Pauly and Zeller, global fisheries catches hit a peak of 130 million tons a year in 1996, and they have been declining strongly since then. This is substantially higher than the data collected by the Food and Agriculture Organization of the United Nations (FAO), which report that catches reached 86 million tons in 1996 and have fallen only slightly.

Actually, when you look at the above chart (note the typo on the vertical axis) that compares the two estimates (FAO v Sea Around Us), they appear to track with one another fairly tightly, with the new estimate just consistently higher throughout (roughly 50-60% larger).  But that's the point: if your most closely watched official estimate (FAO) is off by as much as one-third (underestimating the "damage"), then your calculations of fish-population resilience are likely to be significantly off.

Here's the real issue in data collection - a weak global authority relying on the honesty of member countries that are highly incentivized to low-ball their numbers to avoid criticism/penalties/etc.:

The FAO numbers have long been the only estimate of how many tons of fish are caught at a global level. But “the FAO doesn’t have a mandate to correct the data they get,” Pauly told journalists during a conference call.

This leaves the organization reliant mainly on the numbers submitted by member countries, he says, and “the countries have the bad habit to report only the data they see”. This means that many official statistics do not account for a huge amount of the world’s fisheries catch, such as that by small-scale and subsistence fisheries or fish thrown back as ‘discards’—species other than those being hunted.

To fill in the holes in official statistics, Pauly’s team embarked on an epic project to supplement the official baseline data from member nations. This included using results from peer-reviewed research, interviews with local specialists and consumption information from population surveys.

What I really about Pauly's team effort: it goes above and beyond the usual official reporting requirements and attempts to amass bigger data that yields more accurate truths.

The World’s Greatest Stability Enabler – Can North American Agriculture Remain Resilient?

WHEN I FIRST SAW THIS CHART IN THE WASHINGTON POST ALMOST A DECADE AGO, I WAS GENUINELY SHOCKED TO REALIZE HOW CENTRAL TO GLOBAL FOOD SECURITY NORTH AMERICA HAD BECOME. The chart basically shows which regions in the world produce more grains than they need, thus making them available for export - in a net fashion. That's the key point:  everyone exports some grains, but which regions export more than they import? Where are the reserves in the global food system? Where can we count on our resilience as food producers to keep feeding humanity?

Grains are the obvious focal point of any thinking on global food security, because they provide the bulk of humanity's caloric intake. The thing is, thanks to globalization's enabling of the rise of humanity's first-ever majority middle class cohort (reaching 50% of the world's population back in 2006), that demand for more calories significantly outpaces population growth itself - translating into a far more quickly rising demand for grains (used - at varying levels of intensity - to create all manner of foodstuffs).

So, when you look at the map, you quickly realize how global grain reserve capacity exists really in only four regions: North America (US, Canada), South America (Argentina, Brazil, Chile), the Black Sea Region (Russia, Ukraine, Kazakhstan), and Oceania (Australia, New Zealand), with North America typically providing more than half and upwards of two-thirds of that moveable feast on an annual basis.

So what happens if North American agricultural production were to take a long-term - or even a sudden, short-term - hit? Well, food prices would spike globally, and when food prices spike in places like the agriculturally-insecure Middle East and North Africa, where the vast bulk of their food is imported AND accounts for the bulk of household spending, you get political instability and revolution. Bread prices rose dramatically in Egypt in the months leading up to the Arab Spring dynamics there.

Now, America has long viewed itself primarily as a security-exporter (US military's global footprint and operations) and a technology-exporter (Silicon Valley's numerous advances),  but, in truth, one can easily argue that the most important US export is food, where we rule on corn, soybeans, wheat and - unsurprisingly - food aid.

Yes, we can worry about the developed world's approach to monoculture agriculture, and we should remain vigilant on the subject of bio-terrorism against food production, but, long term, the chief threat is clear - climate change and the stress it puts on crops in terms of droughts (longer and more harsh, by all modeling).

I'd like to highlight two MSM pieces that recently bookended - in my mind - our current challenge. The first is a Time summation of a scientific study published in Nature:

Researchers ... found that drought and extreme heat reduced crop yields by as much as 10% between 1964 and 2007. Extreme cold and floods did not result in a significant reduction in crop production, according to the study.

The research provides key insight on the effects of climate on agriculture as policymakers prepare for the number of extreme weather events to spike in the coming decades due to global warming. The study, which evaluated the effect of 2,800 weather disasters on cereal crops like corn, rice and wheat, suggests that the effects of drought worsened after 1985 and are expected to continue to deteriorate in the coming decades. The study speculates that’s because of more intense droughts driven by climate change, increased vulnerability to drought and changed reporting methods, but couldn’t confirm any individual factor with certainty.

Developed countries experienced some of the most severe crop loss due to drought and heat, according to the research. Crop production in North America, Europe and Australia faced nearly a 20% decline(emphasis mine) thanks to drought and extreme heat, compared to less than 10% in Africa and Latin America. Researchers attributed the disparity to a difference between the agricultural methods employed in the different areas. Farmers in developed countries tend to grow crops uniformly across large areas. Drought affects those crops uniformly.

Recent spikes in global food prices typically unfolded in response to reduced production in places like the Black Sea Region and the Horn of Africa - important regions but nowhere near as important to the global system as North America.

So the question then becomes, how is North America - and the US in particular - readying itself for this looming technological challenge? The answer, as argued in a recent NYT op-ed, is not well at all:

DESPITE the four-year drought that has parched California and led to mandatory restrictions on water use, farmers there have kept feeding the country. California produces more of 66 different food crops than any other state, $54 billion of food annually.

Maintaining this level of productivity has been quite a challenge in recent years and is likely to become more difficult over the next few decades as weather patterns, available water and growing seasons shift further and threats of invasive weeds, pests and pathogens rise.

If agriculture is to have any chance of answering these challenges, we must have new and improved techniques and technologies. The problem is that agricultural innovation has not kept pace.

The last time our nation was in a similar crisis was just after the Dust Bowl years in the 1940s, but the country’s agricultural science enterprise was in much better shape. At that point, almost 40 percent of American research and development spending was focused on agriculture. This ambitious embrace of research was part of the “green revolution” that significantly boosted agricultural output around the world.

Today, farm production has stopped growing in the United States, and agriculture research is no longer a priority; it constitutes only 2 percent of federal research and development spending. And, according to the Department of Agriculture, total agricultural production has slowed significantly since the turn of the century. We need another ambitious surge in agricultural science.

Why not leave that to the handful of US agricultural multinational corporations that dominate the world's grain trade?

While private sector research and development in agriculture have grown over the past decade and now exceed what is federally funded, this financing is focused on shorter term benefits. On the other hand, more than 80 percent of federally funded research is designed to provide the building blocks for long-term production increases to address the many problems we face in the decades ahead.

So, how is the US Government doing on funding agricultural research? The answer is, awfully stingy when compared to the behemoth Defense Department R&D budget.

And that's something we should question as citizens of this world, as we collectively move deeper into this century of global climate change.

(RESILIENT BLOG) Globalization = Industrial Agriculture = Monoculture = Loss Of Resilience?

WHEN IT COMES TO THINKING ABOUT THE END OF THE WORLD AS WE KNOW IT (TEOTWAWKI [tee-oh-tuh-WA-ki] as we used to call it during the Y2K build-up), science fiction films provide a great venue for projecting today's fears upon tomorrow's technological landscapes. But those fears shift over time. My favorite example:  I grew up with "Soylent Green" (so many people, we've got to eat them!) but settled into my middle-age with "Children of Men" (nobody's having babies anymore!). What happened between those two films was (a) China's one-child policy and (b) ultrasound technology reaching India and allowing abortions en masse (naturally in favor of males - just like China, which "exported" the surplus females via transnational adoption) ...

READ THE ENTIRE POST AT:

(RESILIENT BLOG) Beepocalypse (Not So) Now: The Fundamental Resilience Of The US Beekeeping Industry

WHEN WE SPEAK OF ANY ENTERPRISE'S INHERENT RESILIENCE, we're often talking about its ability to regenerate capacity despite the intervention by some degredating external variable - e.g., an attack or disaster.  Typically, something's got to give, for some period of time, when it comes to your product or service provision:  quality, reach, frequency, price, sheer volume - something. Thus, one question for any enterprise when it comes to thinking about building up its capacity for resilience in the face of disruption is, Which "give" does the least amount of long-term damage?  Here, the simplest example would seem to be market share - as in, What did the event, relative to your resilience, cost you in market share?

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Tracking agriculture's northward shift due to climate change

Fascinating NYT story on a subject I am very interested in tracking:  how ag moves northward with climate change.

This story focuses on ag's canary-in-the-coalmine, wineries.  Nothing is more sensitive, and thus wineries are the first to start shifting:

For more than a decade, wine experts have discussed the impact of climate change on wine grapes, agriculture’s diva, a marquee crop nurtured and pampered around the world.

Now scientists are raising a new question: when grapes are transported to new areas, assuming warming weather and flagging rain make current regions unsuited to such harvests, what will the crop’s arrival do to the animals and plants already in residence?

Will there be a conflict between prosecco and pandas in China? Will the contentious wolf hunts near Yellowstone National Park be complicated by new vineyards that crowd out everything else — wolves, elk and hunters?

“One of the adaptation strategies for grape growers will be to move into areas that have a suitable climate,” said Rebecca Shaw, a scientist at the Environmental Defense Fund and an author of a new paper to be published Monday in the Proceedings of the National Academy of Sciences. “This adaptation has the potential to threaten the survival of wildlife.”

Or, in the words of the new study, “Vineyards have long-lasting effects on habitat quality and may significantly impact freshwater resources.” In addition to introducing sterilizing chemicals and fertilizer, which remake the ecosystem, mature vineyards “have low habitat value” for native species “and are visited more often by nonnative species.”

So the interesting point to consider here: As climate change stresses "Middle Earth" (central band below 35 degrees north and above 35 degrees south), ag will be moving poleward for survival.  All sounds good until you realize that leapfrogging in this manner will be disruptive to what's already there.

So how do you balance the needs of enviro refugees (humans and their activities) with those of native species?

I can see this being a huge political issue going forward.  But, for now, just a glimpse.

Wasting lives over food "purity"

Bjorn Lomborg writing that 8m kids worldwide have died over the past 12 years because Western and local activists prevented the arrival of rice that is genetically modified to possess an abundance of Vitamin A:

Finally, after a 12-year delay caused by opponents of genetically modified foods, so-called “golden rice” with vitamin A will be grown in the Philippines. Over those 12 years, about 8 million children worldwide died from vitamin A deficiency. Are anti-GM advocates not partly responsible?

Golden rice is the most prominent example in the global controversy over GM foods, which pits a technology with some risks but incredible potential against the resistance of feel-good campaigning. Three billion people depend on rice as their staple food, with 10 percent at risk for vitamin A deficiency, which, according to the World Health Organization, causes 250,000 to 500,000 children to go blind each year. Of these, half die within a year. A study from the British medical journal the Lancet estimates that, in total, vitamin A deficiency kills 668,000 children under the age of 5 each year.

Yet, despite the cost in human lives, anti-GM campaigners—from Greenpeace to Naomi Klein—have derided efforts to use golden rice to avoid vitamin A deficiency. 

Great piece by a brilliant guy.

These fights are like every other one in a developing environment:  West wants South to avoid its own past 
"mistakes" and demands they develop in "pure" fashion.  Result is stunted development and wasted lives.  Truth of history is this: if you want people to care about the environment, get them richer first and then they'll care. Until then, expect a local rise in pollutions and other things because there really aren't any magical short-cuts on development.  Plus, quite frankly, the damage done while still poor vastly outranks the cumulative damage inflicted by the income/industrial rise.  But basic point:  don't be a hypocrit and expect the poor to atone for your past excesses.

On the GMO, the West's enviro case is far weaker.  There is no evidence of substantial risk and plenty of evidence of substantial gain.  This is simply rich people who can afford organic pretending they're doing good by telling the poor to hold out for it - or else.   

Expect a lot more fights as climate change exacerbates droughts in food-vulnerable regions and well-meaning Northerners do their best to prevent the application of genuine solutions.

Chart of the day: US farm income to be highest in 4 decades

WSJ story.

Despite last year's drought, net farm income in US (128B projected) will be highest since 1973 (adjusted basis).

Why?

Higher prices for livestock and poulty and "a continued boom in the farm belt initially fueled by rising global demand for grains" + that idiotic conversion into corn ethanol.

The big danger?  Great Plains enters the season way too dry - still.

So we see here the interplay between two dominant global dynamics in this century: rising global middle class and rising global temperature.

The growing Sino-America co-dependency on food

FT story on a subject I've been harping on since my last book (and in it):  the stunning co-dependency that arrives with America increasingly feeding China, making our ag output as important to Beijing as the PG's energy exports.

Some data points on China's total imports (so not all NorthAm or US):

• Cereal imports into China up almost 13,000 percent since 2008 to current 5.2m MT
• Wheat up 6,000% to 3m MT
• Rice up 264% to 1.6m MT
• Overall rise from low-point of 2008 is from 2m MT to 12m MT.
• China is now the 7th biggest importer in world, after Japan, Egypt (remember that when you imagine Egypt going rogue under the MB), Mexico, EU-27, Saudi Arabia, and SoKo.  Japan is #1 at just under 25m MT.

Note that US is biggest world exporter of wheat, corn and soybeans.

Yes, China is planting like crazy, so its own ag output is up.  It's just that demand is rising much faster.

The key line of the piece: 

China still has an official policy that mandates 95 percent self-sufficiency - a policy known as the "red line" - but recent comments suggest that the insistence on self-sufficiency is waning.

The US is waking up to China as THE ag export market.  Nebraska's top ag official:

China represents a huge export market . . . [and] a growing export destination.  

Nebraska's corn exports to China have doubled in the last half-decade.

China is already the world's biggest soybean importer (and - again - the US is the biggest exporter), and "is adding corn, wheat, barley and rice to its shopping list" (and - again - the US is the biggest exporter of corn and wheat).

Obesity epidemic: one variant of the punitive approach

WSJ headline says Denmark scraps it's "much-maligned 'fat tax' after a year."

Danish lawmakers have killed a controversial "fat tax" one year after its implementation, after finding its negative effect on the economy and the strain it has put on small businesses far outweigh the health benefits.

Nations including Switzerland, the U.K, and Germany have held up the tax, which applies to any food containing more than 2.3% saturated fat, as a potential model for addressing obesity and other health concerns. But in Denmark, it has been a source of pain for consumers, food producers and retailers as the nation's economy struggles.

"The fat tax is one of the most maligned we [have] had in a long time," Mette Gjerskov, the minister for food, agriculture and fisheries, said during a news conference Saturday announcing the decision to dump the tax. "Now we have to try improving the public health by other means."

The failure of Denmark's fat tax is a demonstration of how difficult it can be to modify behavior by slapping additional duties on products seen by many as essential staples, especially during tough economic times. Products such as butter, oil, sausage, cheese and cream were subject to increases of as much as 9% immediately after the new tax was enacted.

"What made consumers upset was probably that an extra tax was put on a natural ingredient," said Sinne Smed, a professor at the Institute of Food and Resource Economics.

The fat tax comes to an end after netting an estimated €170 million ($216 million) in 2012 in new revenue. Danish lawmakers will slightly raise income taxes and reduce personal tax deductions to offset the lost revenue. The lawmakers also decided on Saturday to reverse an earlier decision to create a sugar tax.

"This is not what is needed in the current economic situation," said Holger Nielsen, Denmark's minister for taxation.

Human bodies are designed to crave fat, especially when we're stressed.  The body is telling us to store up because things seem dangerous.  This is evolution talking:  if things are going south, better to stockpile fat now for the bad days ahead.

Problem is, modern life creates all sorts of stresses and modern food companies love moving this sort of product, because it nets them the highest profits.

End result:  an obesity epidemic.  The food companies know how to trigger our interest, and life provides all manner of stimuli that triggers our desire.  The cost is pushed downstream.  

Governments want cheap food but then regret the healthcare bill that follows.  Governments then try to go punitive - actually on the consumer - by issuing a fat tax that the sellers pass on directly.  Consumers get mad, tax gets scrapped.

Conservatives yell, "nanny state."  But in truth, Western governments already lavish the ag and food industries with subsidies that encourage all this, meaning the nanny state is already here, she's just encouraging us to eat the worst sorts of food (or the most profitable to sellers).  In relative terms, veggies and fruits aren't subsidized, grains are.  So we're being fatted up by our nanny state for the healthcare providers.

Governments can't disincentivize bad eating by taxing people.  They need to rejigger the already bad incentive system for ag and food companies.

Still, the fact that states are trying is an indicator of the progressive agenda that eventually must come.

But Big Food wins another round ("See, the evil government is trying to deny you your bad diet!"  Cha-ching!)

Growing vegetables in the future

WSJ story about vertical farming vision from Sweden.

Goal is to make food happen while farmland disappears (to urbanization and harsh climate change) and to be able to do so year-round in a northern clime. Then there's the local food angle (less transpo, etc.).

Critics say the economics won't work at this time, especially on the energy, but advocates say this is a long-term solution that will become economical as climate change raises the price of doing business in many parts of the world, triggering global shifts in food production and - presumably - migration.

Interesting stuff.

Interesting idea.  I think the notion may make some sense regarding vegetables, but I don't see either fruits (maintenance of trees too tricky) or grains (just can't get the volume).

On vegetables, they (and fruits) account for only 3% of US farmland use, which is overwhelmingly given over to wheat, corn and soybeans (and a few others).  So, given that reality, vertical farming for major urban areas may make economic sense on a major scale sometime later this century.

Expensive oil as trigger for less exhausting ag land practices

Special WSJ report on agriculture, with interesting article on "fertile land is under strain."

Ag takes up about 1/5th of energy consumption in the US, so higher oil encourages, over the long run, abandoning certain energy-intensive practices, such as tilling:

The most popular fuel-reduction strategy involves a radically new way of planting seeds. Instead of breaking up the ground with a plow to plant seeds, no-till farming leaves the remains of last year's crop on the surface.  Drills punch through this mat of vegetation and insert seeds into the ground.  Ditching the plow can cut fuel consumption by as much as half . . . It also reduces the need for expensive fertilizer.

A major enviro drawback, according to an accompanying article?  No-till requires more herbicides.

Another reason why farmers like to plow: you can dry out a wet spring field and thus plant earlier.  You see that hear in Indiana with its super-wet springs.  But with climate change making for more droughts, ag experts expect more and more farmers to adopt the no-till method (or one of its many variants) over time, thus reducing the ag sector's energy draw.  Fields that aren't plowed typically hold up much better in July and August when rain gets much more rare.  Indiana has suffered super-dry summers, with this year's summer reducing the crop haul by a large amount, as just my eyeballs can attest.

Interesting pair of articles.

The map and chart below came with the first cited piece.  Note all the stable soil in the "New North."

Click the smaller image for a more readable version.

Too few immigrants = an absolute ag industry loss

WSJ story on how 1/4 of second-biggest crop ever of Washington State apples is going to rot on the tree/ground due to a severe shortage of immigrant labor.  Compounding the insult, the apple crops elsewhere in the nation are dramatically down this year due to drought conditions, so the nation's is really screwing itself on an agricultural bright spot this year thanks to our inspired national crackdown on illegal immigration.

Apples are Washington's top ag produce earner: $7B supporting 60k permannent jobs in the ag sector.

But it doesn't work without the access to seasonal farm workers....

Yes, they have tried with prison labor in the past.  Turns out prisoners don't work very hard - go figure.

Damn (lack of) illegal immigrants are ruining this country!

Smart argument on handling America's water advantage

Smart op-ed in WSJ.

America is sending over huge amounts of alfalfa to China.  Alfalfa is a VERY water-intensive crop.  China uses it to feed their cattle which produce beef and dairy products.

Point of the article:  why not send beef and dairy to China instead and reap the better profit margin for our valuable water?

That's how New Zealand does it.  Its highest-value export is powdered milk, notes the authors of the piece.

The culprit?  America's antiquated and byzantine water-regulation practices - especially in the West.

US ag industry: the greatest force for stability on the planet

Pick out the world's biggest exporter of wheat from this chart.

It's the US, which is also the biggest exporter of corn, soybeans and food aid.

Guess what got devastated this year?  Corn and soybeans (where the US just lowered its forecase of yields for the 3rd time), but somehow the US pulls off a slight increase on wheat.  Problem is, everybody else is down.  From the WSJ story (which provided the chart above):

The weather troubles, if they continue [read, winter wheat], risk pushing wheat back to the fore of global concerns about soaring food prices.  Wheat is a staple food around the world and a major source of basic nutrition for the poor, and prior price spikes in recent years contributed to political unrest.

Like the doubling of bread prices in Egypt in the months leading up to Mubarak's fall.

I say this in presentations all the time: the biggest force for global stability right now is the U.S. farmer.

Chart of the Day: Water and Food in Mideast

Close the Straits of Hormuz, says the WSJ, and you shut down more than oil flow.  Ninety percent of food in the PG is imported.

Water is perhaps the most complex of the region's resource-security puzzles.  Gulf countries have some fo the lowest rainfall rates and smallest water resources in the world.  Gulf countries satisfy demand by desalinating seawater, but that leaves them vulnerable if their desalination plants malfunction or are attacked.

When - and why - GMOs will attract a lot less criticism/resistance

WAPO story on how a few select US farmers are waiting on pins and needles to see how a planting of GMO corn ultimately handles the worst US drought in half a century - one that costs the US economy about $18B just after last year's TX-centric drought cost $8B.

In western Kansas, the corn looks unsalvageable. The landscape is rife with curled brown leaves, an unmistakable sign of severe drought.

Yet beneath those wilted leaves, some of the corn shows promise. The kernels have held up surprisingly well in a few places given this summer’s swelter. At hundreds of sites across the Great Plains, seed companies such as Monsanto and Pioneer are testing a slew of corn varieties engineered to withstand drought. As the harvest approaches, they’re anxious to see the results . . . farmers are more interested than ever in innovations that could make crops more resilient. That includes improved farming practices, better plant-breeding techniques and even — most controversially — genetic engineering . . . “I’ve been surprised so far. The plants are responding well,” said Clay Scott, a Kansas farmer who planted two plots of Monsanto’s genetically engineered DroughtGard Hybrids among his 3,000 acres of corn. The experimental strain, which carries a gene that helps it draw water more gradually from the soil, is slated for wider release in 2013. “The ear size, kernel counts, the ear weights look good,” Scott said. But, he cautioned, “pretty corn doesn’t always result in yield.”

For Scott, who lives in a region prone to dry spells, where irrigation water from the nearby Ogallala Aquifer needs to be conserved, these crops could prove indispensable.

It’s a pitched battle between nature and human ingenuity that will only grow more difficult. Earth’s population has soared past 7 billion. Climate models suggest that drought will become more frequent in North America. Water will become increasingly precious. Feeding the world will require wringing as much food as possible from every last drop of water.

It’s far from assured that human ingenuity will win out.

Human greed will win out.  US farmers and the US economy will want that income in order to exploit the wider human greed for better and longer lives through improved nutrient and caloric intake.

Yes, as the story points out, GMOs are only part of the equation.  There are plenty of tactics that improve yields and make crops more resistant to drought - but water is water, and climate change is undeniably here (to all but those who abandon facts for faith).

In the future, GMOs will constitute a clear margin between life and death.

Impact of the drought is multivariable

First, the good news: the "margin squeeze" due to rising corn prices/futures is killing corn ethanol - still the stupidest idea on the planet (outside of Washington-subsidized Iowa).

Then the worse news: Russia/Black Sea region is undergoing another bad drought, raising the specter of another export ban. US is biggest exporter of wheat but the Black Sea trio (Russia, Kazakhstan and Ukraine) account for one-quarter of global exports and are traditionally key suppliers to north Africa and the Middle East.

Chart of the day: Why US ag subsidies are going away

From an Economist story about how Congress will eventually dismantle the ag subsidies long distributed to US farmers and ag corps.

Something to watch re: global stability

FT piece on how the intense heat and drought currently across most of the US farm belt is causing grain futures to rise.

From lead:

Few farmers in America's corn belt have seen anything like it. Only weeks ago, they were looking at a record-breaking harves.  Those hopes are fast turning into a mirage.

The hote summer in the US, the world's biggest exporter of corn, soyabeans and wheat, could have far-reaching effects on global agricultural markets, where memories of the 2008-08 food crisis are still fresh and price have been volatile on the back of a drought in South America.

Indiana is a big corn and soybean producer, and I can tell you that, after a very dry winter and unusually non-rainy spring, we haven't seen significant (more than half an inch) rain since 1 May.  We are thus phenomenally dry - as in, unless you irrigate your lawn, you're done mowing (as I have been) for about 4 weeks now.

Example of US corn: farmers here planted 5% more acreage this year, and under reasonable circumstances, there were very solid expectations for record harvest.

Point being, we are looking at very far-reaching - as in, global - repurcussions on food prices, which - by extension, determine a lot of political stability in countries with high import requirments (Southwest Asia leads the way) and where well over half of family household budget is spent on food (virtually the entire Gap).