One More Goes Down

No one should take comfort in another's misfortune but,things are going very bad.

IN RE VEBLEN WEST DAIRY LLP

In re: VEBLEN WEST DAIRY LLP, Tax ID/EIN 26-2017857, Chapter 11, Debtor.

Bankr. No. 10-10071.

United States Bankruptcy Court, D. South Dakota.

July 16, 2010.

CHARLES L. NAIL, Jr., Bankruptcy Judge

The matter before the Court is AgStar Financial Services, PCA and AgStar Financial Services, FLCA's Motion for Appointment of a Trustee. This is a core proceeding under 28 U.S.C. § 157(b)(2). This decision and accompanying order shall constitute the Court's findings and conclusions under Fed.Rs.Bankr.P. 7052 and 9014(c). As set forth below, the motion will be granted.
I.

Veblen West Dairy LLP ("Debtor") is one of several interrelated dairy operations in South Dakota and its neighboring states. Debtor is primarily a milking facility, with nearly 4,000 cows in production. Debtor's most significant ties to and direct connections with the various interrelated entities were with Veblen East Dairy Limited Partnership ("Veblen East") and Prairie Ridge Management Company, LLC ("Prairie Ridge"). Veblen East purchased dry cows from Debtor and the related milking facilities, supplied freshened cows to the same facilities, and operated a calving, special needs, and hospital facility. Under the direction of Richard Millner ("Millner"), Prairie Ridge managed Debtor, Veblen East, the other milking facilities, and certain related calf- and heifer-raising facilities. Several of the entities were financed by AgStar Financial Services, PCA and AgStar Financial Services, FLCA ("AgStar").

More here:

http://www.leagle.com/unsecure/page.htm?shortname=inbco20100716492

Good News - Maybe

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The Commodity Futures Trading Commission (CFTC) regularly publishes its "Commitment of Traders" (COT) report.

Above shows the most recent data for Class III milk futures. Notice the headings. Non - commercial means, for the most part, speculators. Now notice the "shorts" are running away. This likely means prices are going to improve.

Next, notice the total number of traders. No sane person would call this a real market. However, most of the experts are recommending "risk management" which means beware once again of a thin, thin market.

May Exports of Milk Powders

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The U.S. International Trade Commission (USITC) updated its trade database this week to include figures from May 2010.

Looking at the data is interesting because, everyone was told milk prices crashed because the export market for dairy dried up. Of particular concern was the crash of the milk powder market - nonfat dry milk (NFDM) and skim milk powder (SMP).

Total exports of dairy products are very high this year. The May 2010 dairy powder exports are 87% of May 2008. But, the "all milk" price is just 82% of May 2008.

The financial world is still very shaky. Credit is still a worry. So, my guess those with the power to put a little aside for a rainy day, are doing just that. Supply and demand alone, leave quite a few questions unanswered.

Dairy Market Failure

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This week the Bureau of Labor Statistics (BLS) released the Producer Price Index (PPI) and the Consumer Price Index (CPI) through June of this year.

The PPI shows farm milk and processor data. The CPI is the index of retail (consumer)prices.

An index takes a base period, in this case 1982 and compares each following period with the base. So the base is expressed as 100 or you could say 100%.

Naturally, there are glitches in any particular time period - exports for example. I took the average for June, of each segment to eliminate that problem.

The market system is supposed to be based upon costs plus profit equals selling price. This systemic failure is not a failure of information. There is a lot of information out there. The real problem is a failure to recognize the importance of power, or lack thereof.

Market Ideology

This is not directly related to dairy but, the gist is the same.

http://www.project-syndicate.org/commentary/turner1/English

"Adair Turner is Chairman of the United Kingdom's Financial Services Authority and a member of the House of Lords."

LONDON – John Maynard Keynes famously wrote that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than commonly understood. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

But I suspect that a greater danger lies elsewhere, with the practical men and women employed in the policymaking functions of central banks, regulatory agencies, governments, and financial institutions’ risk-management departments tending to gravitate to simplified versions of the dominant beliefs of economists who are, in fact, very much alive.

Indeed, at least in the arena of financial economics, a vulgar version of equilibrium theory rose to dominance in the years before the financial crisis, portraying market completion as the cure to all problems, and mathematical sophistication decoupled from philosophical understanding as the key to effective risk management. Institutions such as the International Monetary Fund, in its Global Financial Stability Reviews (GFSR), set out a confident story of a self-equilibrating system.

Thus, only 18 months before the crisis erupted, the April 2006 GFSR approvingly recorded “a growing recognition that the dispersion of credit risks to a broader and more diverse group of investors… has helped make the banking and wider financial system more resilient. The improved resilience may be seen in fewer bank failures and more consistent credit provision.” Market completion, in other words, was the key to a safer system.

So risk managers in banks applied the techniques of probability analysis to “value at risk” calculations, without asking whether samples of recent events really carried strong inferences for the probable distribution of future events. And at regulatory agencies like Britain’s Financial Services Authority (which I lead), the belief that financial innovation and increased market liquidity were valuable because they complete markets and improve price discovery was not just accepted; it was part of the institutional DNA.

This belief system did not, of course, exclude the possibility of market intervention. But it did determine assumptions about the appropriate nature and limits of intervention.

For example, regulation to protect retail customers could, sometimes, be appropriate: requirements for information disclosure could help overcome asymmetries of information between businesses and consumers. Similarly, regulation and enforcement to prevent market abuse was justifiable, because rational agents can also be greedy, corrupt, or even criminal. And regulation to increase market transparency was not only acceptable, but a central tenet of the doctrine, since transparency, like financial innovation, was believed to complete markets and help generate increased liquidity and price discovery.

But the belief system of regulators and policymakers in the most financially advanced centers tended to exclude the possibility that rational profit-seeking by professional market participants might generate rent-seeking behavior and financial instability rather than social benefit – even though several economists had clearly shown why that could happen.

Policymakers’ conventional wisdom reflected, therefore, a belief that only interventions aimed at identifying and correcting the very specific imperfections blocking attainment of the nirvana of market equilibrium were legitimate. Transparency was essential in order to reduce information costs, but it was beyond the ideology to recognize that information imperfections might be so deep as to be unfixable, and that some forms of trading activity, however transparent, might be socially useless.

Indeed, the Columbia University economist Jagdish Bhagwati, in a famous essay in Foreign Affairs entitled “Capital Myth,” talked of a “Wall Street/Treasury” complex that fused interests and ideologies. Bhagwati argued that this fusion played a role in turning liberalization of short-term capital flows into an article of faith, despite sound theoretical reasons for caution and slim empirical evidence of benefits. And, in the wider triumph of the precepts of financial deregulation and market completion, both interests and ideology have clearly played a role.

Pure interests – expressed through lobbying power – were undoubtedly important to several key deregulation measures in the US, whose political system and campaign-finance rules are peculiarly conducive to the power of specific lobbies.

Interests and ideology often interact in ways so subtle that is difficult to disentangle them, the influence of interests being achieved through an unconsciously accepted ideology. The financial sector dominates non-academic employment of professional economists. Because they are only human, they will tend implicitly to support – or at least not aggressively challenge – the conventional wisdom that serves the industry’s interests, however rigorously independent they are in their judgments concerning specific issues.

Market efficiency and market completion theories can help reassure major financial institutions’ top executives that they must in some subtle way be doing God’s work, even when it looks at first sight as if some of their trading is simply speculation. Regulators need to hire industry experts to regulate effectively; but industry experts are almost bound to share the industry’s implicit assumptions. Understanding these social and cultural processes could itself be an important focus of new research.

But we should not underplay the importance of ideology. Sophisticated human institutions – such as those that form the policymaking and regulatory system – are impossible to manage without a set of ideas that are sufficiently complex and internally consistent to be intellectually credible, but simple enough to provide a workable basis for day-to-day decision-making.

Such guiding philosophies are most compelling when they provide clear answers. And a philosophy that asserts that financial innovation, market completion, and increased market liquidity are always and axiomatically beneficial provides a clear basis for regulatory decentralization.

Here, I suspect, is where the greatest challenge for the future lies. For, while the simplified pre-crisis conventional wisdom appeared to provide a complete set of answers resting on a unified intellectual system and methodology, really good economic thinking must provide multiple partial insights, based on varied analytical approaches. Let us hope that practical men and women will learn that lesson.

Block Cheese Price

Probably most people have noticed the price of block Cheddar is rising at the Chicago Mercantile Exchange on bids. Jerome Cheese, which makes cheese,seems to have disappeared.

So, now we seem to have a situation where another manufacturer of cheese, Mullins, appears to be bidding for cheese.

My guess is that if there are two theories about what this all means, they are probably both wrong.

The average world price for Cheddar is still at $1.79 per pound. one thing about world prices is the value of the dollar compared to other currencies. since, the U. S. dollar is falling world prices will probably stay high. But, who knows?

Play 60

http://dairyline.com/wpbackend/?p=2276

Note the promotion of skim:

July 12th, 2010


Dairy farmers, through the National Dairy Council (NDC), have provided child nutrition, research, education, and communications to schools for over 95 years and the newest program is called “Fuel Up to Play 60.” NDC Executive Vice President, Jean Ragalie, reported in Monday’s “DMI Update” that it’s a partnership between the NDC, the National Football League, and USDA.

In its first year it’s already in 60,000 schools across the U.S., according to Ragalie, and is expected to continue to grow. When asked why it’s so popular, Ragalie said it came about at the right time and the right place.

“Kids are fatter, weaker, and wider than ever before,” Ragalie said, “And schools are a critical place for us to get our students and youth eating better and moving more and this program is a one-stop shop for schools to look at nutrition and physical activity.”

One of the “magic formulas,” she said, is that it encourages kids to eat more of the foods that they aren’t eating enough of, which includes low fat and fat free dairy products. The program will get even more dairy products into the schools, she concluded, “so kids are eating more nutrient rich foods than ever before.”

http://www.fueluptoplay60.com/getinvolved/about.html


The last paragraph:

The United States Department of Agriculture (USDA) has joined this effort. Its involvement and educational resources also maximize reach and impact for the program. Fuel Up to Play 60 is funded with an initial private-sector financial commitment of $250 million over five years by America's Dairy Farmers. Funding is expected to grow as government, business, communities and families join this effort. More than 60,000 - or 60 percent - of the nation's 96,000 private and public schools are currently enrolled in Fuel Up to Play 60.

$250,000,000 You would have thought someone would have checked the science.

http://www.reuters.com/article/idUSHAR26781420080102

(Reuters Health) - The amount of calcium and vitamin D in the diet appears to have little or no impact on the risk of prostate cancer, but the consumption of low-fat or nonfat milk may increase the risk of the malignancy, according to the results of two studies published in the American Journal of Epidemiology.

But...

In an overall analysis of food groups, the consumption of dairy products and milk were not associated with prostate cancer risk, the authors found. Further analysis, however, suggested that low-fat or nonfat milk did increase the risk of localized tumors or non-aggressive tumors, while whole milk decreased this risk.

Fads prevail over everything. Dairy farmer money should be withdrawn from this project.