the visible hand

it is the theory which decides what can be observed – einstein

Archive for April, 2008

consolidation in the meat industry

Posted by ecoshift on April 27, 2008, March 14, 2008
The “chickenization” of beef
by Steve Bjerklie

In the strange way these things sometimes happen, the Greeley operation was eventually spun off by ConAgra and renamed Swift & Co., returning one of the American meat industry’s grandest brands to currency. Then last year, in a stunning development, the Brazilian company JBS S.A. bought Swift. Not only did the purchase comprise the first serious landfall within the U.S. meat industry of a foreign-owned meat entity, but it meant that maverick Ken Monfort’s old operation now belonged to the largest beef packing company in the world.

And JBS has been unstoppable. Last week it announced that it will buy the No. 4 U.S. beef packer, National Beef, as well as the beef operations of Smithfield Foods, pending approval of the acquisitions by the Department of Justice’s antitrust division.

However, where some might see JBS bringing much-needed efficiency to an industry segment burdened by over-capacity and out-of-control feed prices, others see, in the way Ken Monfort did years ago, a shrinking competitive environment. Michael Stumo, general counsel for the Organization of Competitive Markets (OCM), calls JBS’s moves on National and Smithfield’s beef division the “chickenization” of the beef industry, referring to the kind of vertical integration that Tyson, Gold Kist and Pilgrim’s Pride brought to the poultry industry, which drove many independent farmers out of the business.

Where packer ownership and control of livestock is a vertical expansion, Stumo calls mergers and acquisitions of the kind made lately by JBS “horizontal.” “The horizontal concentration in the beef industry will stagnate the cattle herd and cattlemen’s profitability,” he predicted to MEAT&POULTRY. If JBS’s most recent buys are approved and made, the company will own 31.1% of the beef market, with Tyson controlling 21.2% and Cargill Meat Solutions (the successor to the old Excel) 21.0% for a total control by the three companies of 73.3%. Before the acquisitions, five companies, including National and Smithfield, held the 73.3 percentage.

While agreeing that worries about packer concentration are nothing new in the beef industry, “the reduction from five to three is in fact new,” Stumo said, pointing out that the Mandatory Price Reporting Act of 1999 allows prices to go unreported if less than two cattle buyers are active in a defined region. With just three packers controlling nearly three-quarters of the market, Stumo thinks that there will be many times when just two or even one buyer is making bids, resulting in huge gaps in price-reporting. “At best, the bidding and reporting, even with three, will be marginal,” he told M&P.

The OCM has asked the DOJ to block JBS’s planned acquisitions. “Current concentration in the beef industry has made competition weak in many areas and non-existent in large swaths of the country. Combining three major packers into one is unprecedented in the U.S. cattle industry. The cattle industry will wither and die in many areas, creating regional pockets controlled by one or two packers,” the organization claimed in a statement. Moreover, independent cattlemen cannot get bids “80 percent of the time,” according to OCM. “Captive supplies have shackle-space priority in packing plants, resulting in independent producers receiving bids only one day per week. As captive supplies have grown, most independent feeders receive competitive bids one out of approximately five weeks. Packers use this market access risk to drive producers into contracts which, in turn, creates more market access risk. These contracts are offered like credit cards to producers, with the market access risk serving as the hammer, like the mafia bosses requiring local businesses to pay them ‘insurance’ for ‘protection.’”


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credit card reform…

Posted by ecoshift on April 17, 2008

On the one hand it’s about time. On the other, I hope congress does better on this than they are doing protecting homeowners from foreclosure.

Lawmakers say legislation is needed to curb many of the ‘unfair’ practices employed by credit card issuers.”

Credit card providers appear to have developed a sophisticated counter argument in defense of current lending practices, practices that would make the folks at the Bada Bing blush. To wit: “If we can’t be unfair to high-risk customers you’ll force us to be unfair to everyone. We ask you, is that fair?

A few more details below the article…

Credit card reform moves before Congress – Apr. 17, 2008
Last Updated: April 17, 2008: 12:28 PM EDT”

“The credit card industry has come under fire from lawmakers in recent months for what some critics have labeled “unfair” practices such as raising interest rates on debt even when consumers pay on time or when their credit scores change.

The focus of Thursday’s hearing, however, was the Credit Cardholders’ Bill of Rights – legislation proposed earlier this year by subcommittee chairwoman Rep. Carolyn Maloney, D-NY.

Levin, who was among a group of 15 different witnesses scheduled to testify, introduced a similar bill in the Senate last year. If passed, the law would stop credit card issuers from charging interest rates on debt that is paid on time and require that interest rate hikes apply only to future credit card debt and not debt already incurred.

The issue has also garnered the attention of the Federal Reserve, which has proposed separate action, including requiring credit-card issuers to notify consumers at least 45 days notice if they plan on raising interest rates.

Credit card companies have argued, however, that such a law would have dire consequences on all consumers by making credit more expensive and less easily available.

“In short, if this bill is enacted, the financial burdens associated with the higher-risk customers will be spread across all customers,” said John Carey, the chief administrative officer and executive vice president of Citigroup Inc.’s credit card division.

Still, lawmakers, including Rep. Maloney, stressed the need for greater protection for consumers.”


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Municpal Solar – a step in the right direction?

Posted by ecoshift on April 17, 2008

8) Here’s an item that makes some sense… 10 acres, 1000 homes. A couple hundred acres would go a long way towards insulating HumCo from energy price hikes as oil threatens to blow right by 100 a barrel and settle somewhere to the north of 110. (Oil breaks $115 after US stocks fall -Financial Times April 17th) I wonder if cows can graze under ’em.

Municipal solar could help make local businesses competitive and free up a bit of spending money for the rest of us… a rational economic stimulus.

Maybe Schatz Energy Lab should do the math for the county…

Municipal Solar Power Plants
April 16, 2008

Nanosolar Blog post: Posted by Martin Roscheisen, CEO

At Nanosolar, we believe very much that meaningful scale for solar will come foremost from utility-scale solar power plants, in particular from municipal solar power plants of 2-10MW in size. These are rows of solar panels mounted onto the ground of free fields at the outskirts of towns and cities, feeding power directly into the municipal electricity grid.

A 2MW municipal solar power plant requires about 10 acres of land to serve a city of 1,000 homes — that’s acreage generally easily available at the outskirts of any city of such size in even the most developed countries. Similar for a 10MW plant for a city with 5,000 homes: This would require five such lots.

Municipal solar power plants are an avenue for delivering a GigaWatt of power in a state through one solar farm each in a few hundred cities — local to where the power is needed — as opposed to constructing a new coal-fired or nuclear plant. They can also be deployed very rapidly. (It takes 10-15 years to get a new coal plant done; a solar plant can be done in 12 months — provided no administrative blocks exist).”

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Omnibus corporate bailout bill passes senate

Posted by ecoshift on April 16, 2008

This bill has precious little to do with preventing foreclosures. Hiding behind the image of weeping foreclosed families corporate lobbyists have managed plug enough corporate tax-break pork into this omnibus business bailout bill to feed an emerging market for several years. No wonder stocks are up in this slinking economy. When the economy is strong, they get the profits; now that it’s weak they know they’ll get the breaks….


Just one person’s opinion of course.

Big Tax Breaks for Businesses in Housing Bill – New York Times


Published: April 16, 2008

WASHINGTON — The Senate proclaimed a fierce bipartisan resolve two weeks ago to help American homeowners in danger of foreclosure. But while a bill that senators approved last week would take modest steps toward that goal, it would also provide billions of dollars in tax breaks — for automakers, airlines, alternative energy producers and other struggling industries, as well as home builders.

The tax provisions of the Foreclosure Prevention Act, which consumer groups and labor leaders say amount to government handouts to big business, show how the credit crisis, while rattling the housing and financial markets, has created beneficiaries in the power corridors of Washington.

It also shows how legislation with a populist imperative offers a chance for lobbyists to press their clients’ interests.

This has proved especially true on the housing legislation, which many lawmakers and lobbyists view as one of the last opportunities before Congress grinds to a halt amid election-year politics.

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“It’s not illegal…. but it’s ugly”

Posted by ecoshift on April 16, 2008

Wall Street Winners Get Billion-Dollar Paydays – New York Times
Published: April 16, 2008

Hedge fund managers, those masters of a secretive, sometimes volatile financial universe, are making money on a scale that once seemed unimaginable, even in Wall Street’s rarefied realms.

One manager, John Paulson, made $3.7 billion last year. He reaped that bounty, probably the richest in Wall Street history, by betting against certain mortgages and complex financial products that held them.

Mr. Paulson, the founder of Paulson & Company, was not the only big winner. The hedge fund managers James H. Simons and George Soros each earned almost $3 billion last year, according to an annual ranking of top hedge fund earners by Institutional Investor’s Alpha magazine, which comes out Wednesday.

Hedge fund managers have redefined notions of wealth in recent years. And the richest among them are redefining those notions once again.

Their unprecedented and growing affluence underscores the gaping inequality between the millions of Americans facing stagnating wages and rising home foreclosures and an agile financial elite that seems to thrive in good times and bad. Such profits may also prompt more calls for regulation of the industry.

Even on Wall Street, where money is the ultimate measure of success, the size of the winnings makes some uneasy. “There is nothing wrong with it — it’s not illegal,” said William H. Gross, the chief investment officer of the bond fund Pimco. “But it’s ugly.”

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Fuel Choices, Food Crises and Finger-Pointing

Posted by ecoshift on April 15, 2008

Fuel Choices, Food Crises and Finger-Pointing – New York Times
Published: April 15, 2008

The idea of turning farms into fuel plants seemed, for a time, like one of the answers to high global oil prices and supply worries. That strategy seemed to reach a high point last year when Congress mandated a fivefold increase in the use of biofuels.

But now a reaction is building against policies in the United States and Europe to promote ethanol and similar fuels, with political leaders from poor countries contending that these fuels are driving up food prices and starving poor people. Biofuels are fast becoming a new flash point in global diplomacy, putting pressure on Western politicians to reconsider their policies, even as they argue that biofuels are only one factor in the seemingly inexorable rise in food prices.

In some countries, the higher prices are leading to riots, political instability and growing worries about feeding the poorest people. Food riots contributed to the dismissal of Haiti’s prime minister last week, and leaders in some other countries are nervously trying to calm anxious consumers.

At a weekend conference in Washington, finance ministers and central bankers of seven leading industrial nations called for urgent action to deal with the price spikes, and several of them demanded a reconsideration of biofuel policies adopted recently in the West.

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Retailing Chains Caught in a Wave of Bankruptcies

Posted by ecoshift on April 15, 2008

Retailing Chains Caught in a Wave of Bankruptcies – New York Times
Published: April 15, 2008

The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country…

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Asian inflation stings US shoppers

Posted by ecoshift on April 8, 2008

Asian Inflation Begins to Sting U.S. Shoppers – New York Times
Published: April 8, 2008

BAT TRANG, Vietnam — The free ride for American consumers is ending. For two generations, Americans have imported goods produced ever more cheaply from a succession of low-wage countries — first Japan and Korea, then China, and now increasingly places like Vietnam and India.

But mounting inflation in the developing world, especially Asia, is threatening that arrangement, and not just in China, where rising energy and labor costs have already made exports to the United States more expensive, but in the lower-cost alternatives to China, too.

“Inflation is the major threat to Asian countries,” said Jong-Wha Lee, the head of the Asian Development Bank’s office of regional economic integration.

It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to customers.

Developing countries have had bouts of inflation before. Indeed, some are famous for them, like Brazil, which experienced triple-digit inflation in the late 1980s and early 1990s. But two things make this time different, and together promise to send prices higher at Wal-Mart and supermarkets alike in the United States, just as the possibility of recession looms.

First, developing countries now produce nearly half of all American imports. Second, inflation in these countries is coming at the same time that many of their currencies are rising against the dollar.

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Too big to fail? Put it on the taxpayers tab…

Posted by ecoshift on April 2, 2008

A couple days ago the market shot up 400 points. Since most of the news on the economy was bad or at best mediocre it’s hard to understand why.

Some commentators guessed that it was because oil prices were down, or because the continuing huge write downs at the investment banks meant that finally, at last, the worst was over and it was time to buy equities again. Or perhaps it was because UBS and Lehman, in serious need of capital, seemed likely to actually raise some scratch. Based on what kind of projections or assumptions about future markets I don’t know.

But, the best explanation is this: The New York Fed actually got the treasury to back the 30 billion dollar buyout of Bear Stearns by JP Morgan. JP will take the first billion in losses, the taxpayer the rest.

This is what you call a precedent. The more so because it’s unprecedented.

If you are not paying attention, now might be a good time to begin. The investment bank bailouts are now directly secured by your money. No wonder the market is reassured, you’re taking all the risk and you’re not even asking for a reasonable share of any upside on these bargain basement fire sales. JP will owe you big time if it all works out, but I doubt that you have it writing.


David Freddoso on Bear Stearns Bailout on National Review Online
April 2, 2008 4:00 AM
Bear with Me: The mother of all government bailouts.

The short version of this story is that last year, Bear Stearns began to regret its decision to invest heavily in securities backed by subprime mortgages — lightly traded assets that throughout 2007 became increasingly difficult to offload. With billions sunk in securities no one wanted, Bear’s stock took a severe beating, falling to $80 by March 3, 2008 — down from $150 the year before. Their subprime exposure finally caught up with Bear around the Ides of March, when its clients panicked and its stock price fell off a cliff. The company had two choices: bankruptcy and the sale of its assets, or a buyout by rival JPMorgan Chase (JPM), backed by the Federal Reserve Bank. JPM’s initial offer of $2 per share has since been raised to a still pitiful $10.

The government’s involvement here is highly irregular — the March 28 report from the non-partisan Congressional Research Service sheds light on just how bizarre the terms of this deal really are. To begin, the Fed has not used this statutory power to bail out a bad company since it was first enacted during the New Deal. Ironically, the bailout is only legal because no private firm would ever agree to its terms. As the governing statute states, the parties involved must be “unable to secure adequate credit accommodations from other banking institutions” for the government to interfere in this way.

“Nothing like this has ever happened,” says John Carney, editor of the financial blog “There isn’t even a court precedent related to this. We’re reaching back to a power they were given ages ago, that nobody thought they would have to use. Suddenly, here they are, pushing JPMorgan, perhaps the only American bank that could do it, to make the deal.”

Even in a sophisticated financial world light years away from the New Deal, the Federal Reserve Bank felt Bear was “too big to fail” — or at least “too connected to fail” — because it was so deeply involved in so many aspects of the homeownership economy. In order to force a buyout, it offered JPM a sweetheart loan, the likes of which no student borrower has ever seen. The $29-billion line of credit comes at the discount interest rate — currently 2.5 percent — over 10 years. This is a rate normally restricted to overnight loans, applied only in special cases to loans that last as long as four weeks.

The only collateral for this loan is the $30 billion in Bear Stearns’s un-sellable mortgage-backed securities, the real value of which is — shall we say — difficult to assess when no one is buying. And unlike most loans the Fed makes, it has no recourse here if the collateral loses some or all of its value. In fact, the CRS report notes, “[T]he agreement has some characteristics more in common with an asset sale than a loan.” The report adds dryly that JPM was unwilling to hold onto these assets itself, perhaps because it “could have believed that the assets were worth . . . significantly less than the current market value of $30 billion.”

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