Got Rice?

One consequence of having kids with food allergies, and who can eat basically only one grain, is that we take a hit when the price of that grain spikes. Given the role of rice as a worldwide staple for so much of the planet’s population, supply disruptions or crop failures in one part of the world can ripple through to impact the prices of grain we buy from California. For that reason, we try to maintain a prudent supply of bulk rice at our house, packed and stored securely to keep out moisture and rodents, as a hedge against price fluctuations. If the cost jumps temporarily, as it did during a panic in early 2008, we’re not over a barrel. We have some flexibility to wait the market out.

We’ve been concerned for some time now about the reckless behavior of the Federal Reserve, and its massive printing of money through “quantitative easing,” and the impact this could have on commodity prices. Oil is now over $90 per barrel, and we’re all seeing the effects at the gas pump. Agricultural commodities have been rising significantly as well; you can see that for yourself by checking prices at the Chicago Board of Trade. But here’s a more personal anecdote: a month or two back, the woman who manages the local grain elevator told me that so many farmers around here have tried to cash in on soaring commodity prices, by bringing loads of corn and soybeans to the local elevator, the elevator ran out of capacity. They actually had to turn farmers away, or send them on to other elevators. But it was obviously a problem for everybody.

Anyway, Bloomberg reports that agricultural commodities, including rice, likely won’t be coming down in price any time soon:

While gold “may go down for awhile,” the metal is “going to go over $2,000 in this decade,” [Jim] Rogers [chairman of Rogers Holdings], who owns gold, silver and rice, said today during a presentation to business executives in Chicago. Gold touched a record $1,432.50 an ounce in New York on Dec. 7. The price closed today at $1,387.

I’d rather own rice,” Rogers said. “I’d rather own something that’s more depressed than gold.”

Agricultural commodities are “going to boom” as demand increases in developing markets, primarily in Asia, he said. All commodities will be supported by the weakening dollar, which is losing value because Federal Reserve Chairman Ben S. Bernanke is “printing money” by buying Treasuries in an effort to shore up the U.S. economy, Rogers said.

“Paper money is made of cotton, and I’m long cotton, by the way,” Rogers said. “One reason I’m long cotton is because Dr. Bernanke is out there running the printing presses as fast as he can.”

Rogers said he doesn’t own shares in U.S. companies and is short U.S. long-term treasury bonds. The Chinese renminbi may provide “almost sure profits over the next five to 10 years,” he said.

“In the future, it’s the stock broker who’s going to be driving the cabs,” Rogers said. “The smart stock brokers will learn to drive tractors, and drive them for the farmers, because the farmers will have the money.”

Needless to say, I’m grateful that Mrs. Yeoman Farmer laid in a good supply of rice at last year’s prices. We may try to get some more at our next co-op order. If there is some grain or other commodity that your family depends on, I’d recommend you think about investing in a good supply of it now while the prices are relatively reasonable. It wouldn’t surprise me if coffee prices, for example, increase significantly; coffee is produced almost exclusively overseas, and its prices can therefore be influenced by currency valuations. I personally can’t live without coffee, and for that reason have invested in a prudent supply from Sam’s Club. For most of us, this kind of practical move makes a lot more sense than trying to buy a commodity contract on the Chicago Board of Trade. There’s really no downside, other than the lost opportunity to invest the money in something else. Commodity prices certainly aren’t going to be decreasing. And we’re eventually going to consume these stored products anyway.

And for those of you who don’t yet have your own farm: note well the final portion of the Bloomberg excerpt above.


A few days after taking our eleven lambs to the butcher shop, I got an interesting phone call from the owner. He’d nearly finished processing them, and said they’d be ready for pickup in two days. The call came fairly late in the evening, after the shop’s closing time, and I could hear plenty of activity in the background. It sounded like they were indeed swamped with work, and I was thankful they’d been able to work our eleven lambs into their schedule.

He then told me what the total price was going to be. The standard charge would be $55 per lamb, or $605 altogether. (I usually put that on a credit card.) However, he continued, if I wanted to pay cash…he would drop the total to $500.

Needless to say, that’s a pretty substantial discount. Some readers may suspect that cash payments are merely a way for a shopkeeper to evade taxes; I can’t speak to that…what I do know is that the guy who runs this shop strikes me as a very honest and upstanding person. And I will say this: credit card companies can charge some fairly steep transaction fees, especially for merchants with relatively lower sales volume. For the savings he was offering, I was perfectly happy to go to the ATM and withdraw what was needed (though, being a hard core Casablanca fan, I must confess that I couldn’t stop thinking about this classic scene the whole time I was doing it — the key clip comes at about 1:15 on the linked video).

Given current economic conditions, and that all of us are looking for ways to save some money, I wonder if we will see “cash discounts” become more widespread. I like using credit cards for the convenience, the “float” on the use of the money, and the rewards benefits. (We pay in full each month, so there are no finance charges.) But if merchants are willing to offer a lower price for the use of cash, so they can avoid the CC fees, I’ll leave the credit card in my wallet and pay with cash.

Is anyone else out there starting to see more “cash discounts” being offered? I’m starting to think it might even be worth asking merchants straight out, especially smaller shops and tradespeople, what kind of discount they would be willing to offer if we pay in cash.

Good Out of Evil

Mrs Yeoman Farmer came across the following story the other day and asked me to share it:

NAIROBI (Reuters) – A Kenyan man bit a python who wrapped him in its coils and hauled him up a tree in a struggle that lasted hours, local media said Wednesday.

Farm manager Ben Nyaumbe was working at the weekend when the serpent, apparently hunting for livestock, struck in the Malindi area of Kenya’s Indian Ocean coast.

“I stepped on a spongy thing on the ground and suddenly my leg was entangled with the body of a huge python,” he told the Daily Nation newspaper.

When the snake coiled itself round his upper body, Nyaumbe resorted to desperate measures: “I had to bite it.”

The python dragged him up a tree, but when it eased its grip, Nyaumbe said he was able to take a mobile phone out of his pocket and phone for help.

When his supervisor came with a policeman, Nyaumbe smothered the snake’s head with his shirt, while the rescuers tied it with a rope and pulled.

“We both came down, landing with a thud,” said Nyaumbe, who survived with damaged lips and bruising.

The snake escaped from the three sacks it was bundled into.

MYF’s comment: “Thank God my ancestors came here on boats 300 years ago, so my kids and I don’t have to live some place where giant snakes drag people into trees!”

When I finished laughing, she added: “I’m serious! You can quote me on that. Put it in your blog!”

Slavery, particularly the way it was practiced in the Americas, was a horrendous affront to human dignity; MYF and I would be the last people in the world to wish it on anyone. But it’s interesting the way such tremendous good can be drawn even from such a tremendous evil. Beyond freedom from giant serpents, MYF and other descendants of African slaves enjoy liberties and opportunities that are unthinkable on the African continent today — and we are deeply grateful for that.

With everything in the news these days, it’s easy to forget how blessed we are to live in this country — no matter how our ancestors got here. Sometimes it takes a truly odd news story (“man bites snake”) to remind us of that. And to remind us of all the ways in which God can draw good out of the evil that men commit.

I fully expect that, ten years from now, we will all be marveling at the unexpected goods that emerge from these present social and economic difficulties.

The .380 Mystery

Last week, I noted the strong sales of guns — and now, particularly, ammunition. Among other things, I pointed out that no retailers around here, even the local gun shop with high prices, seem to have .380 pistol ammunition in stock.

Ruger makes an extremely popular concealed carry weapon, the LCP, chambered in .380. It’s so small, it can literally fit in the palm of an average man’s hand. And while .380 isn’t the most powerful cartridge, the LCP can hold seven rounds. Our local gun shop cannot keep them in stock, and only sells them on a wait list. No doubt this is one reason why Sturm Ruger’s stock is trading near its 52-week high. (Also, Smith & Wesson released earnings data last night: Adjusted net income for the third quarter 2008 was $9.2 million, compared to $3.7 million in the 2007 third quarter.)

Anyhow, I wondered if the popularity of the LCP, and the shortage of .380 ammunition, were unique to our area. A story today from Tulsa suggests otherwise:

The surprise sales come with .380 caliber semi- automatic pistols. A relatively small self-protection weapon, it’s not one that people typically fire in great quantity at the firing range, Prall said. Yet, the ammunition is now hard to find. “Nobody would have predicted that,” he said.

“We ran completely out here of 9 mm and .380,” said Johny Mathews, product and service manager at the U.S. Shooting Sports Academy on East 66th Street North. “We were begging, borrowing and stealing from wherever.”

Concealed-carry classes at the academy are booked through April. “We used to do 15-person classes, and now we do 24 because of the demand,” he said.

Mathews believes that politics are partly to blame, but the economy also has people worried. “It’s 50/50, I think” he said. “When people lose jobs and get desperate, good people can sometimes do bad things. People hear more about home invasions, robberies, and they think it will only get worse. Then they’re afraid they might lose their guns or ammo, so they stock up.”

Sales are so intense that Stone has limited sales of .380 ammo to one box per customer at Dong’s. He has .380-caliber handguns for sale, and likes to be able to sell ammunition to whoever buys a gun, he said.

A shipment of 10 Ruger .380 LCP handguns was sold in 24 hours this week — seven the first day, three the next. “Last week I had 28 boxes of .380, rationed to one per person, and it was gone in three days,” Stone said.

Academy Sporting Goods stores also are low on .380 ammo. “The other day we got 16 boxes of .380 and a guy came in first thing and bought all 16,” said Jon Ide, hunting and fishing sales associate at the 41st Street store. “A few people are doing all the buying, and it’s the people who are trying to just get a box or two that can’t find any.”

I’m just glad I got my LCP, and a good supply of .380, when I could. Now, if only I’d invested an equal amount of money in Sturm Ruger stock at the same time…

Prairie Fire

No doubt many of you have already seen the video of Rick Santelli’s “Rant of the Year” on CNBC yesterday morning. The thing has gone completely viral, getting hundreds of thousands of views on the web — not to mention getting played all over talk radio yesterday. Santelli, who is a floor reporter at the Chicago Board of Trade, is discussing the President’s recent housing bailout proposal:

Based on what I’m hearing and picking up, I think it’s fair to say that Santelli’s rant is igniting what may grow into a prairie fire of backlash against housing bailouts (no matter what these bailouts are euphamistically called). While the floor traders who applaud him in the video may not be a representative cross-section of the American public, the sentiments he expresses (and the sentiments they are cheering) most certainly are. It’s dawning on people that — the President’s assurances aside — those who made some of the most irresponsible decisions about housing, and who contributed the most to the current difficulties, are about to get shielded from the consequences of their choices. It’s as if the old story of the Grasshopper and the Ant has been updated, and the grasshopper is poised to end up with the ant’s house.

I can only share our own family’s experience, but I don’t think we’re atypical. We lived in rental housing, and then a mobile home, the first few years we were married. With Mrs Yeoman Farmer home full time, we lived on what I could earn working part-time for a research firm and part-time as a graduate teaching assistant. We had one car. Extra money we could scrape together went toward paying off MYF’s law school loans and saving for the down payment on a house.

In early 1999, MYF (now five or six months pregnant with our second child), had had enough of living in a mobile home in the San Fernando Valley. She insisted we find something with a yard, where our firstborn (then aged two-and-a-half) could burn off more of his toddler energy. I began searching housing listings, and contacting Realtors, but everything in the area seemed priced far beyond our reach. Our bank confirmed this, telling me we qualified for a mortgage of no more than $130,000. There was nothing with a yard in any SF Valley neighborhood for less than $200,000 at that time.

Someone suggested we widen our scope, and look at the Antelope Valley communities of Lancaster and Palmdale. We quickly discovered that this extreme north, high desert portion of Los Angeles County was one of the few remaining enclaves of affordable housing within 75 miles of the UCLA campus. As we began working with a realtor, we learned the reason for all the good deals (and this is very important): there had been a housing boom throughout the 1980s, which peaked around 1990. Prices had skyrocketed, and then supply outstripped demand. In the early-to-mid 1990s, prices tumbled. People got underwater on their mortgages, and many homeowners walked away (does this sound familiar?). Banks foreclosed. And now, lots of those foreclosed homes were on the market at prices that even families like ours could afford.

Like I said, the bank pre-approved us for a $130,000 mortgage. We saw lots of really nice houses in the $110-$120k range, and thought about buying one. And then we thought some more…especially about our monthly payments. So we looked some more, and found that $65k was roughly the tipping point: even in the Antelope Valley, houses under that figure were either (1) in bad neighborhoods or (2) in need of more work than I could perform.

We ended up buying a 1400sf, 4 bed, 2 bath, foreclosed tract house for $72,000. When it had been built, in 1990, it had sold for about $115k. Apart from being filled with foreclosed “cookie-cutter” stucco homes on slab foundations, and on the northern edge of civilization, the neighborhood wasn’t bad. Our yard wasn’t huge, but it was a yard. And the house was in excellent shape, so we were able to move in the week after Baby #2 was born.

If memory serves, we made a 5% down payment, so had to pay PMI, but we got a 15 year fixed mortgage so we could build equity faster. I think our monthly payment was less than $600. But there were two important things our bank made us do before we could get that mortgage: (1) prove my income, by submitting tax returns and pay stubs, and (2) clear up a blemish on MYF’s credit report. We had taken very good care of our credit, paying everything on time and paying off our credit cards in full every month. But way back in law school, MYF and her roommates had been in a dispute with their landlord; the landlord had lied and deceived them about the terms of the rental contract, and while the students were away for the summer got a court to issue a default judgment against them. MYF was not even aware of this judgment; the first she learned of it was when, eight years later, our bank pulled her credit report to approve the mortgage. The amount owed wasn’t huge, but our bank would not lend to us until we resolved it. MYF tracked down the collection agency to whom the judgment had been turned over, we paid what they wanted, and got the credit report cleared up. And only then were able to get our mortgage.

We made every mortgage payment on time, maintained our excellent credit, and watched as the neighborhood filled up (and housing prices slowly increased). In the spring of 2001, for various reasons, we decided to make our move to the country and become Yeoman Farmers. We were able to sell our house for about $110,000. After deducting what we spent on new carpets and paint, and real estate commissions, and moving expenses, we walked away with just enough cash to put a 20% down payment on our Illinois property. Again we opted for a 15 year fixed mortgage, to build equity faster. Again, we took good care of our credit. And as a result, when we decided to move to Michigan a year and a half ago, we were able to do so.

All of this behavior I have described is called “playing by the rules.” Nothing that we did was particularly heroic or extraordinary. None of it required luck, or special consideration. I’d contend that there are tens of millions of families in this country with experiences more or less like ours: we saved, started with what we could, and with patience got to where we wanted to be. We didn’t splurge and buy more house than we could comfortably afford, even when the bank offered it. We had to prove our income. We had to clean up our credit. And it infuriates me that so many others got away with doing otherwise for so long.

To the banks and financial institutions which made loans without verifying income, or demanding good credit, I say: you deserve to fail, and responsible lenders like ours deserve to fill the vacuum that your demise leaves in the marketplace.

To those who bought more house than they could comfortably afford, and treated their houses like virtual ATMs (cashing out equity to put in swimming pools and dream kitchens): you do not deserve to stay in those houses. Your houses need to go back on the market at reasonable prices that purchasers are willing to pay. Many of those houses will become homes for families like ours was, circa 1999, who would otherwise be locked out of the market if governments were to prop up those inflated prices by trying to provide people like you with the “soft landing” to which you are not entitled.

And, above all, to Rick Santelli, I say: Thank you, sir, for giving us a voice! And if you do decide to have that “Chicago Tea Party” this summer, I will make sure I have a reason for being in town.

Four Days in a Row

Earlier this week, I noted an odd historical occurrence on January 20th: for the first time since the 1991 Gulf War, the S&P 500 Index — a weighted average of 500 of the largest publicly-traded companies — closed below the price of a single ounce of gold.

I’m still not quite sure what this means, but I’ve continued to keep an eye on these markets. Tuesday, Wednesday, and Thursday all saw the trend continue. And then, today, metals markets really shot up. Gold broke $900 during the day, and closed at $899. Meanwhile, the S&P closed at $832 — a difference of more than 8%. I’ll do a little digging this weekend, but I believe it’s been decades since we’ve seen a spread of that magnitude.

S&P / Gold
January 20: $805 / $856.
January 21: $840 / $854.
January 22: $827 / $857.
January 23: $832 / $899.

Mrs. Yeoman Farmer and I have been sensing for some time that the current situation is different from previous economic downturns. I really hope we’re wrong, but I can’t help sensing that something really odd is afoot out there. As promised in the past, I am preparing a longer post about gold and precious metals; I’ve been thinking about and researching it for some time now. In the meantime…well, let’s just say that I’d encourage all my readers to keep a prudent portion of their savings in truly “hard” assets.

There is a reason that for 5,000+ years gold has maintained its position as the ultimate currency and store of value.


I’ve expressed my strong opposition to auto industry and other bailouts in other posts. Part of me dared to hope that the worst of these was over. But with the announcement of this morning’s “rescue package” for the Big Three, I simply must add a few more thoughts.

First off, among the more disingenuous rationalizations for the auto industry bailout is the notion that consumers will not purchase a vehicle from a bankrupt company.

[Bush] said that bankruptcy was not a workable alternative. “Chapter 11 is unlikely to work for the American automakers at this time,” Mr. Bush said, noting that consumers would be unlikely to purchase cars from a bankrupt manufacturer.

I contend that when Chapter 11 is explained properly to consumers, they will be willing to purchase from a company which is reorganizing itself under its provisions. Perhaps two brief anecdotes from my own experience will illustrate this:

1) United Airlines filed for Chapter 11 bankruptcy protection in December of 2001, and didn’t emerge until February of 2006. Over the course of that period, I logged many thousands of miles (and spent thousands of dollars) on United Airlines…and many other passengers logged and spent much more. While it is true that a plane ticket costs significantly less than a car, for a business traveler the stakes can be very high: if an airline is liquidated on the eve of a critical trip, it may be impossible to arrange alternative transportation at the last minute. An entire, long-planned and potentially profitable trip can thus be wiped out. And for business or leisure travelers, if an airline liquidates in the middle of a trip, the traveler will be stuck at the destination (or perhaps even in a connecting city) without a ticket home. These facts were on my mind every time I bought a ticket on UAL, but I had confidence that the airline was simply reorganizing itself so it could emerge on its feet again.

2) Even if an automotive company liquidates, a vast network of aftermarket repair shops and parts suppliers will remain to service the company’s vehicles. I have an extreme example of this in my own experience: For the last eight years, I have been the happy owner of a vehicle make which has not even been imported into the USA since 1983, and which has not had a single dealership in this country for 25 years. And despite the puzzled looks from auto parts store employees when you ask for parts for a “Fiat,” once they start looking they can nearly always find what you need (or special order it). And if you want to bypass the local shops, there are online retailers who stock literally every single part of the car from bumper to bumper. When asked, nearly any foreign car repair shop will work on a Fiat. When I blew half of the motor a few years ago, it didn’t take long to locate a new short block — and arrange for a shop in Urbana (IL) to put the whole thing together. She’s run like a dream ever since.

Of course, my 1975 Fiat was many years out of warranty when I acquired it in 2000. For someone contemplating a new car purchase, warranty issues would loom larger; if I bought a new Chevy truck tomorrow, and GM liquidated next month, what would happen if my transmission failed before the warranty expired? This could be among the first issues addressed under a well-structured bankruptcy, with funds set aside and an independent entity established to cover such claims.

While there are many reasons Fiat withdrew from the US market, government regulations had a lot to do with it. Put simply, it got too difficult (and expensive) for Fiat to keep up with increasingly strict American safety, fuel economy, and environmental regulations. Anyone who has visited Italy knows how incredibly “basic” even modern Fiats are. Mine is laughably unsafe: no shoulder belts, no airbags, no roll bar, no crumple zones. The only safety features it has are lap belts (but only in the front — the back seat has no belts at all) and padded sun visors. But you know what? I don’t care. I love the car, and drive it every chance I get, anyhow. (Mrs Yeoman Farmer, by contrast, does care…and will not allow any of the children to ride with me.) And 20 MPG is plenty good gas mileage for my purposes.

Which raises an important question: Are the American automakers in trouble now for some of the same reasons Fiat was in 1983? Has the cost of compliance with federal regulations driven the price of the product beyond what consumers are willing to pay? While I can understand the need for some emissions mandates, crash safety requirements are a separate issue. Why not lift the mandates, and let the manufacturers differentiate themselves based on safety features? Let Volvo capture a larger market share of those who value crash safety most highly, and are willing to pay extra for it. While there are probably very few Americans crazy (or daring) enough to buy a car with as little crash safety as my 1975 Fiat Spyder has, I bet there are many who would be interested in a lower-cost “basic” vehicle that has less crash safety than currently mandated. As I understand it, the Big Three have no trouble selling such vehicles in overseas markets. Why not give Americans a chance to vote with their wallets and buy “Fiat-like” automobiles themselves?

I’d argue that the most effective auto industry bailout would consist of suspending all safety and fuel economy regulations for the next two years, and letting the auto companies build the vehicles that American consumers can afford and want to purchase.

But hey. Nobody in Washington listens to me. That’s why I think we’re far more likely to see something resembling this in 2012 than anything resembling a Fiat.

Now I’m going to go listen to Red Barchetta and dream about the day when we have Michigan roads clear enough to take my Spyder out on again.