219 (1 July 2015)

Welcome to week 219!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by a title search.

You can find a pdf of this issue, a cumulative pdf for issues 1-208, and a cumulative pdf for issues 209-present at: https://sites.google.com/site/brucedeanlarson/the-invisible-forces.

(15 June 2015): “USDA Opens Enrollment Period for Agriculture Risk Coverage and Price Loss Coverage Safety-Net Programs” (http://www.usda.gov/wps/portal/usda/usdahome?contentidonly=true&contentid=2015/06/0173.xml)

********This is a press release from the USDA that was visually covered in the print edition of Bloomberg Businessweek for June 29-July 5; I failed to find an Internet version.  The essence of the press release, as the Bloomberg pointed out, is that due to the 2014 Farm Bill U.S. farmers could choose to enroll in a form of revenue insurance, called ARC for Agriculture Risk Coverage, or a form of price protection, called PLC for Price Loss Coverage.  Bloomberg describes the two in relation to the sources of risk, commenting about the press release: “On June 15, the U.S. Department of Agriculture reported how many farmers sought protection from market forces, and how many from acts of God, including floods and drought.”  Interestingly, soybean and corn farmers opted almost entirely for ARC, i.e., revenue insurance, whereas long-grain rice and peanut farmers opted almost entirely for PLC, price protection.  There must be some explicable risk analysis lying behind these decisions.  You can learn more about the program and the selections for various commodities at: http://www.fsa.usda.gov/programs-and-services/arcplc_program/index.  Check out the Tables, as well as the Related Topics on the left of the screen.

(25 June 2015): “Can Craft Beer Survive AB InBev?” (http://www.bloomberg.com/news/features/2015-06-25/can-craft-beer-survive-ab-inbev-)

——–“After 10 years of running Elysian Brewing, a craft beer maker in Seattle, Chief Executive Officer Joe Bisacca was ready for a change.  He was tired of worrying about making payroll, feeling guilty about the company’s miserly 401(k) plan, and trying to keep pace with the ceaseless demand for Elysian’s irreverently named beers . . . So he and two partners, David Buhler and Dick Cantwell, talked about selling.  Before long they were in touch with Andy Goeler, CEO of craft beer for AB InBev’s Anheuser-Busch division.”  As the world’s biggest beer company, AB InBev might seem like a strange match for tiny Elysian Brewing, but the founders went ahead and sold their business, remaining on to brew the beer and provide creative force; Cantwell has since left the firm.  Elysian is one of four U.S. craft brewers purchased by AB InBev, the other three are: Goose Island Brewing in Chicago, Blue Point Brewing in Patchogue, New York, and 10 Barrel Brewing in Bend, Oregon.  Although Goeler says craft brewing has nothing to fear from AB InBev, brewers and consumers are not so sure.  As one beer analyst notes, “There are many craft brewers who would never, never sell to AB InBev, even if they were offered a gazillion dollars.”  Likewise, the “faux craft brand called Shock Top” is “much ridiculed in traditional craft circles” and some beer drinkers who learn that their favorite beer has gone corporate become furious and “quit buying their beer.”

********It is easy to understand that the culture of craft beer and the culture of corporate beer might be difficult to combine.  So far, it seems, AB InBev seems to open to learning from those in the brewing business who are experiencing high percentage growth, albeit on a small base.  “Last year, AB InBev’s sales volume in North America, its largest market, fell 1.3 percent, in part because of the declining popularity of Budweiser, shipments of which dropped 4.8 percent in 2013.”  The question, of course, is will “craft brew ideas” scale?  The article has a nice two-minute video showing how Goose Island’s Bourbon County Stout is made.

********There were many articles on beer this week—here is one from The Wall Street Journal of June 25, “Trouble Brews for ‘Imported’ Beers Made in America” [SR](http://www.wsj.com/articles/trouble-brews-for-imported-beers-madein-america-1435188835).  The article notes, “If you though your favorite beer was an import, think again.  It may have been brewed in St. Louis . . . or Latrobe, Pa., or Fort Worth, Texas.  And, if that beer is Beck’s you might soon be eligible for a refund.  The refund—of as much as $50 for Beck’s drinkers who can produce valid receipts—is part of the settlement of a class-action lawsuit claiming that the beer’s maker, Anheuser-Busch InBev, tricked American consumers into believing that the beer was an authentic German pilsner, when it is really brewed in St. Louis.”  In light of the foregoing, it is easy to understand the concerns of some craft beer drinkers.

********A follow up on the article above, with additional perspective, appears at: http://www.wsj.com/articles/beer-brouhaha-fresh-vs-import-1435251902.  It turns out that other countries are not so finicky with regard to the provenance of their beer.

(25 June 2015): “Propane Prices Feel Heat of Supply Glut” [SR](http://www.wsj.com/articles/propane-prices-feel-heat-of-supply-glut-1435186536)

——–“Propane is tanking.  The U.S. benchmark price for the gaseous byproduct of oil production has plunged 18% this year.  Driving the selloff is a supply glut that some analysts said could keep prices subdued for years. . . . Companies that tap oil and natural gas from shale-rock formations have sought to bolster revenue by targeting fields with big reserves of propane and similar fuels that are used to heat homes, make chemicals and fire up grills.  For a time, relatively high propane prices helped offset the hit these companies suffered, from a decline in natural-gas prices and then from a plunge in crude.”  But that time is gone.  “Prices in western Canada, a key producing region, turned negative in May for the first time on record, meaning that producers paid buyers to take propane.”  Falling propane prices provide “the latest example of how the yearslong boom in U.S. energy output continues to upend markets despite expectations that supply growth could slow later this year as companies have cut spending on new drilling.”

********Negative propane prices!  In economic parlance, a “bad” is something for which less is preferred to more.”  In such a case, as is apparently true in some places, people will pay to get rid of it, hence the negative prices.  So, there are places where propane gas is akin to garbage.  “Some place” was evidently Edmonton, Calgary.  Here is a five-minute video interview on the subject: http://www.cbc.ca/news/business/propane-prices-plunge-across-canada-as-bbq-season-begins-1.3123421.  If you would like to see some numbers, you can find them at: https://rbnenergy.com/no-where-to-run-no-where-to-hide-the-great-edmonton-propane-givaway.  Interesting times in which interest rates can be negative and commodity prices negative, too.

(27 June 2015): “Divestment campaigns: Fight the power” (http://www.economist.com/news/finance-and-economics/21656204-investors-are-being-pressed-sell-their-holdings-coal-oil-and-gas-fight)

——–Groups like 350.org are seeking to “dissuade investors from owning shares in the companies that produce fossil fuels and thus contribute to climate change.  So far the protesters have managed to persuade 220 cities and institutions to divest some of their holdings.”  Although divestment is not a new idea, it having been waged against South Africa in the 1980s, as well as arms and tobacco companies.  But divestment raises the issue of the “fiduciary duty” for financial managers.  Recent studies, though, suggest that the relationship between fiduciary duty and divestment is not clear.  “A survey published in 2009 of academic papers that focused on” corporate social responsibility, “including environmental measures, found a mildly positive correlation between the pursuit of socially responsible polices and financial performance.  A more recent study by MSCI, an index firm, covered the period from February 2007 to March 2015; it found the investment portfolios with greater exposure to firms with high ESG [environmental, social, and governance] ratings, performed better than the market as a whole.”

********The article provides some nuance to divestment, especially the point that “It is impossible to sell an energy company’s shares without a buyer, and the buyer will presumably care less about climate change” than the seller who divested.

(29 June 2015): “Hawaii Wrestles With Vagaries of Solar Power” [SR](http://www.wsj.com/articles/hawaii-wrestles-with-vagaries-of-solar-power-1435532277)

——–“For a glimpse of the promise and problems of turning the electric grid green, there’s no better place than Hawaii.  With 21% of its power now coming from renewable sources such as wind turbines and solar panels, Hawaii has become a laboratory for those intent on reinventing the grid.  A new law mandates that renewables supply all of the state’s electricity by 2045.”  Given its high dependence on renewables that are intermittent, the state’s main utility is wrestling with how “to keep the overall supply of power steady.”  Although these issues are acknowledged Mark Glick, the head of Hawaii’s State Energy Office, is confident they will be addressed.

********There are some interesting facts and aspects of Hawaii’s energy situation that bear noticing.  First, it has by far the largest amount of electricity per capita from solar power of any state, almost four times that of runner-up California.  Second, Hawaii “remains the only state that still burns oil to generate most of its electricity—about 70% for the islands versus 1% for the U.S. as a whole.”  Third, each Hawaiian island has its own, unconnected grid, whereas there are three grids that serve the lower 48 states.  And fourth, Hawaii’s average electricity price is “34 cents a kilowatt-hour, the highest in the U.S. and nearly triple the national average.”  In short, it seems that much can be learned from the Hawaiian experience that will have relevance for the U.S. as a whole.

(1 July 2015): “Bosses Reclassify Workers to Cut Costs” [SR](http://www.wsj.com/articles/bosses-reclassify-workers-to-cut-costs-1435688331)

——–“As courts and regulators increase their scrutiny of the relationship between businesses and independent contractors, employers are turning to a range of tactics to classify workers, taking them off the formal payroll and lowering costs.”  Relabeling of workers and altering the conditions of employment are not new, but “Now businesses are turning to other kinds of employment relationships, such as setting up workers as franchisees or owners of limited liability companies, which helps to shield businesses from tax and labor statutes.  In response, some state and federal agencies are aggressively clamping down on such arrangements, passing local legislation, filing briefs in workers’ own lawsuits, and closely tracking the spread of what they see as questionable employment models.”  These developments are taking place in the context of lawsuits brought against Uber Technologies and FedEx Corp. with respect to their employment relationships.  In coming days the U.S. Department of Labor is expected to release “a detailed memo on worker classification . . . A particular focus [will be] . . . brands that sell franchises not to a traditional small-business owner—say, a person who owns six outlets of a national fast-food chain and hires dozens of employees—but to low-wage workers such as janitors and delivery drivers who essentially pay franchise fees in exchange for work.”  Janitorial service company CleanNet and airport transportation provider SuperShuttle are two companies that have used such practices.

********It is surprising to me that there is so much in play in employment law.  It makes me wonder if legal change has created, in entrepreneurial parlance, these “opportunities for gain” or have they simply just been noticed and acted on.  It will be interesting to see how this connects up with the President’s recent proposal regarding overtime pay.  You can learn more about that proposal at: http://www.nytimes.com/2015/07/01/business/economy/obama-overtime-rule-scratches-the-surface-in-helping-the-middle-class.html.

May you have a good week!

Bruce

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