Welcome to week 321! The articles below caught my attention this week. What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********). Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles may be found by an Internet title search.
If you have questions or comments, please send them.
(5 June 2018): “Could Ocean’s 8 Actually Work?” Bloomberg.com
********The subtitle of this article is “Why stealing giant diamonds is a terrible, no good, very bad idea.” This piece is not so much about the just-released movie but rather what one might be able to retain from stealing a diamond necklace worth $150 million. Not too much, it seems. As Martin Rapaport of a diamond-market company notes, “There’s legitimate and illegitimate markets . . . The spread . . . in the thieves’ market is really low . . . The buyer knows they’ve got you by the balls. Who are you going to sell it to? And if they rip it off, who are you going to complain to?” In the end, such expensive pieces are well known, and everyone involved in the process wants to be well-compensated for this knowledge and their participation in the process. Rothauser recommends that fictional and real thieves stick with gold. “You steal gold bars, and no one knows anything . . . It’s a commodity. It’s like stealing truckloads of water. But diamonds? If someone gives me a necklace and claims it’s worth $150 million and I try to sell it—or even just a couple of its stones—everyone would know. They turn me in just for the PR value alone.”
(7 June 2018): “America’s Largest Private Company Reboots a 153-Year-Old Strategy” Bloomberg Businessweek
——–Minnesota-based Cargill is the largest privately-held company in the U.S., with 2017 revenues of $109.7 billion and 155,000 employees. Its commodities trading business has long derived profits by acting as a middleman between farmers and food companies, employing an informational advantage driven by size and scope of its global operations. With the Internet, that advantage is diminishing and it “has lowered the spread that Cargill and other big buyers used to make on such deals.” In response to these new conditions, Cargill’s CEO David MacLennan is aiming “to remake Cargill into less of a trading operation and more of an integrated food company betting on growing global demand for proteins. Already the world’s No. 1 supplier of ground beef and the second-largest beef packers in the U.S., trailing only Tyson Foods Inc., Cargill is expanding aggressively into aquaculture. The company is also spending heavily on technology services.”
********The article provides a relatively-brief case study on how one very large private company is responding to a new business environment. I found two things especially noteworthy. First, “Agriculture is moving from a pure commodities business, where each bushel of wheat or corn is considered functionally identical, to an ingredients business, where consumers demand differentiation, such as organic produce and foodstuffs grown without genetically modified organisms.” The inability of traders to “substitute one origin for another . . . reduces their ability to make money from the supply chain.” Second, “The Food and Agriculture Organization of the United Nations says farmed fish overtook wild catches as the main source of seafood for human consumption in 2014, replicating the shift that occurred centuries ago in livestock when humans started to raise cows, pigs, and other animals as food.” Surely this development is due to the contraction of wild populations as well as the expansion of farmed populations.
********There is another article that has a different angle on product differentiation and markets: [SR] “’We Got Lazy’: U.S. Recyclers Try Cleaning Up Their Scrap” The Wall Street Journal. Here is the product is recycled materials. “American trash haulers and recyclers are becoming more prudent about how they collect and sort scrap after China stopped accepting most U.S. scrap exports earlier this year. The move has upended the U.S. recycling industry: Prices for recyclables are plunging, a glut of paper and plastic is accumulating in warehouses and some material is being sent to landfills. As a result, some recyclers have focused on producing cleaners loads of paper, plastic and corrugated cardboard, which can fetch higher prices.” In recycled materials, as well as grains, buyers care about product quality.
(7 June 2018): “America’s gig economy is smaller now than before Uber existed, official data show” The Washington Post
——–“Companies like Uber and Lyft—which offer workers flexible work without being employed by a traditional company—have been held up as transformational forces in the American economy. . . . But the gig-economy, which has drawn billions of dollars in venture capital and praise but deep criticism from policy makers, appears not to have caused the massive disruption to the economy that many originally thought. A new report from the Bureau of Labor Statistics, the first in 13 years on the topic, says the share of U.S. workers in these types of jobs has shrunk from 7.4 percent in 2005, before Uber and its like existed, to 6.9 percent in 2017. . . . The findings suggest that while the nature of work may be changing in certain fields like transportation, there is no dramatic shift away from traditional employment in the economy.”
********The BLS report was widely reported but I found the graphs of The Washington Post to be the most illuminating. The results of the survey are certainly at variance with the conventional narrative, one that I’ve bought into, of the expanding gig economy. Perhaps the results were influence by the fact that the BLS “asked people only about their primary job, meaning if someone is driving for Lyft in the evenings or weekends to earn more money, that does not appear in the report.” It just might be that the primary job that people have is paying so little that they are working their primary job and a gig job. More research could shed light on this, but it seems like the funding for such additional surveys, at shorter time intervals, is not likely to be forthcoming.
(7 June 2018): “The market for driverless cars will head towards monopoly” The Economist
********A one-page exploration of some of the factors that are likely to lead to a highly concentrated industry for driverless cars. One part of the argument is safety, it being argued that consumers are likely, all things being equal, to purchase (or use) driverless vehicles with better safety records. Even now there are large differences in those records. “Between December2016 and November 2017 Waymo reported three collisions in 350,000 miles . . . of driving in California; GM, the nearest American competitor, had 22 in 132,000. Neither has been involved in a fatal accident, as Tesla and Uber have.” Also of interest is the brief discussion of ethical considerations in relation to regulation and the possibility of internalizing congestion effects when a particular type of driverless vehicle software is widely employed.
(8 June 2018): “Shale country is out of workers. That means $140,000 for a truck driver and 100$ pay hikes” The Los Angeles Times
——–Labor and housing markets in the Permian Basis of Texas are on fire due to the boom in shale oil production. “The oil industry has such a ferocious appetite for workers that it’ll hire just about anyone with the most basic skills.” Sales-tax collections for municipalities are increasing from expanded output but some of those revenues may needed to provide higher wages for city workers to keep them from leaving for the oil fields.
********It sounds like towns in the Permian Basin are experiencing the consequences of increased shale oil production just like North Dakota did a few years back. One difference, though, is that booms are nothing new to those in the Permian Basis. As a result, they might be better able to foresee and cope with the seemingly inevitable end of the boom. One interesting part of the story involves enrollments in programs at Midland College. Its oil and gas program, “which trains for positions like petroleum-energy technician enrollment is down about 20% from last year. But schools that teach how to pass the tests for a CDL—commercial driver’s license—are packed.” With such drivers earning upward of $100,000, it is not hard to see why.
(11 June 2018): “Dairy Farms Find a Lifeline: Beer” The New York Times
——–Dairy across the U.S. are having a hard time making ends meet, with milk prices cratering “driven by high supply and falling demand.” Sean DuBois, who with his wife Molly Stevens runs the 1,000-acre Carter & Stevens Farm in Massachusetts, notes: “To succeed today as a dairy farm, you need to diversify.” For their farm, that has meant a turn toward craft beer. They opened Stone Cow Brewery on the farm in 2016, “making beers like the Roll in the Hay I.P.A., which sells for $7 a pint at its taproom. That makes the beverage much more profitable than the dairy’s raw milk, which currently sells wholesale for about 16 cents per pint, even though it costs more to produce.” All this is another chapter in “the dairy and brewing industries’ interlinked history. Brewers often supply farmers with spent grains for feed, and many American craft breweries have started by using secondhand dairy infrastructure.” In fact, “Ken Grossman founded Sierra Nevada Brewing Co. in Chico, Calif., in 1980 with equipment scavenged from closed Midwestern dairies.”
********Clearly dairy farmers are up against it, helping to explain presidential rants about Canadian milk tariffs, as well as the efforts of North Carolina state representatives to delete the reference to ‘milk’ in almond milk. We see, then, three different approaches to a serious challenge for dairy farmers: diversification, jawboning, and legislation.
(13 June 2018): “Baby Food for Baby Boomers” JSTOR Daily
——–Modern baby food began in 1928 when “Daniel Gerber launched his first line of mass-produced canned strained peas for babies . . . The product became popular after World War II, when . . . Americans went on a nationwide spending spree. This embrace of consumerism included a new love of industrially-produced products like baby food. . . . By 1958 . . . 90 percent of mothers reported feeding their babies commercial baby food.”
********An interesting brief post about some of the factors that led to the widespread acceptance of mass-marketed baby food.
May you have a good week! Bruce