O

ORGANIZATION FOR COMPETITIVE MARKETS POST OFFICE BOX 6486 LINCOLN, NEBRASKA 68506 ø www.competitivemarkets.com

OCM News | OCTOBeR 2010

3 FORGETOIL,WORRY ABOUTPHOSPHORUS by C. Robert Taylor

6 THECOMSTOCKREPORT REvIvALOFHOnOR- PARTII by David Kruse

Disclaimer Theopinionsof theauthorspresented inour newsletter are their own and are notintendedtoimplytheorganizationsposition.OCMhasmembershipwithdiverseview-points on all issues. OCM is committed tooneandonlyoneprincipal;competition.

INSIDE...What’s

Continue the March; no time for a unilateral truce!

by Fred Stokes, Executive Director

Over thepast30orsoyears, therehasdevelopedameekacquiescencetoagricul-tural market concentration and anticom-petitivepracticesandtheresultantharmtofamily farms and ranches, rural Americaandournationalfoodsecurity. Governmenthas seeminglybeen indif-ferent.TheU.S.DepartmentofAgricul-ture (USDA) has been captive to thoseitwas supposed to regulate and theU.S.Department of Justice (USDOJ) rubberstampedeverymergerthatcamedownthepike. Both departments share complicityinsetting inmotiona trendthat ifnotre-versed,willtakeAmericanagricultureoverthecliff. However, there is hope. A little overa year ago USDA and USDOJ signaledchangewiththefollowingannouncement: “WASHINGTON, August 5, 2009 - Agriculture Secretary Tom Vilsack

and Attorney General Eric Holder an-nounced today that the U.S. Department of Agriculture (USDA) and the Depart-ment of Justice will hold joint public workshops to explore competition issues affecting the agriculture industry in the 21st century and the appropriate role for antitrust and regulatory enforcement in that industry.”

At our 2009 OCM Conference in St.Louis, Phil Weiser, Deputy Assistant At-torney General for Antitrust, announcedaninitiativebyU.S.DepartmentofJusticetoaddresstheimpactofantitrustviolationsand anticompetitive practices in agricul-turalmarkets.AtthesamemeetingJ.Dud-ley Butler, newly appointed Administratorof the Grain Inspection and Packers andStockyards Administration (GIPSA), de-claredhiscommitmenttoenforcethelongneglected Packers and Stockyards Act of1921.Healsoannouncedthependingpub-licationofrulesthatwouldclarifyandmorefullypromulgatetheact,enhancingitsen-forceability. Earlier, Christine Varney, Assistant At-torney General for Antitrust came on thescenewithalltheearmarksofafemaleTed-dy Roosevelt. She summarily repudiated

PleaseseeSTOKESonpage2

Must the market reform effort now stand-down until after the November elections while the oppo-sition launches their all-out attack?

BOARD MEMBERS:

Randy Stevenson, President Wheatland, WY 307-331-1980 double_s_livestock@lycos.comMike Callicrate, Vice President St. Francis, KS 785-332-8218 mike@nobull.netBrother David Andrews, Secretary Washington, DCDan Hodges, Treasurer Julian, NE Eskridge, KSCap Dierks Ewing, NEJim Foster Montgomery City, MOJudy Heffernan Rocheport, MOKeith Mudd, Past President Monroe City, MOPaul Muegge Tonkawa, OKEricnelson Moville, IARichard Oswald Langdon, MissouriFred Stokes, Past President Porterville, MS

STAFF:

Fred Stokes, Executive Director Porterville, MS • 601-527-2459 tfredstokes@hughes.net

Pat Craycraft, Office Manager Lincoln, NE • 402-817-4443 ocm@competitivemarkets.com

PROJECT ASSISTANTS

Jody Holland, Starkville, MSEric Lister, Brentwood, TN

OCMBOARDMEMBERS&STAFF

OCM - OCtOber 2010 2

STOKES(continuedfrompage1)

theabsurdmergerguidelinesoftheBushadministration (Section Two of the Sher-manAct),andpromptlyinitiatedinvestiga-tions into anticompetitive practices in thedairyandtransgenicseedindustries. At the Poultry Workshop in Alabama,when a contract producer testified that hewouldlikelyloosehiscontractasareprisalforhisparticipation,shegavehimhercardand told him to call her if that happened.The audience responded with laud ap-plause. At this writing, four of the five work-shops have been held with the last onescheduled for December. They have beeninformativeandpositive.Theoneon live-stockmarketsinFortCollinswasespeciallywellattendedandahighlysignificantevent.ItwaslargelyareferendumontheProposedGIPSARules.Abouttwothirdsormoreofthoseattendingsawtherulesasasignificantand positive first step, while the packers,integrators, their political minions and theorganizations they control, denounced therulesastheloomingruinationoftheindus-try. At the workshops, Secretary Vilsack,AttorneyGeneralHolderandAssistantAt-torney General Varney were convincing intheir empathy and resolved to address thelongstanding wrongs in agricultural mar-kets. They gave renewed hope to farmersandranchers,atleasttemporarily.

But now things seem to have sloweddown. Fixing the broken marketplace ap-pears tohave takenabackseat topolitics.Thishas allowedopponents ofmarket re-form to steal themarch.TheFortCollinsworkshop caused them to panic and putthem on the run, but now their lobbyistsandcaptivesonCapitolHillareinafren-ziedfullcourtpress.Itishavinganef-fect! It is understandable that the midtermcongressionalelectionswouldbeadistrac-tion,buttherecurrentlyseemstobereluc-tance to do anything that might becomecontroversial. There was the appeasing expansion ofthe normal sixty-day comment period fortheGIPSArulestosixmonth.Themale-factorswerenotplacated,theyjustbecameenergized and this gave them additionaltimetocreatetheirmischief. Must the market reform effort nowstand-downuntilaftertheNovemberelec-tionswhiletheoppositionlaunchestheirall-outattack? Farmersandrancherswhoaresystemat-icallyandincreasinglyshortchangedbythebroken market system were heartened bythehistoricjointeffortofUSDAandUS-DOJ to do something about their plight.Theyaretrulyappreciativeandsupportive.Buttheyseethisastheirlastopportunitytoremain independent and viable. They askthatUSDAandUSDOJnot letup;con-tinuethemarch!FS

WOULD YOU LIKE TO RECEIVE the OCM Newsletter by EMAIL? IFSO,Letusknowbysendingyournameandaddressandcurrentemailaddresstoocmlincoln@msn.comandrequestthatyournewsletterbesentbyemail.Thankyou.

OCM - OCtOber 20103

T Theworld’sagriculturedependsonamineralthatisdeclininginproductionandiscontrolledbyacartelofcompanies.Troubling,ain’tit?

Forget Oil, Worry About Phosphorus

“ThefollowwasauthoredbyC.RobertTaylor,AlfaEminentScholarandProfessorofAgriculturalEconomicsatAuburnUniversityandOCMSeniorEconomicFellowandpublishedintheDailyYonder.”

Modernfarmingmethodsdependincreasinglyonfossilfuelsandmajorplant nutrients: nitrogen, phospho-rus,andpotassium. Weknowthatpeakoil isfastap-proaching, if it has not already ar-rived.Thisisn’ttheonlyshortagethatshouldconcernus.Weareseeingthesame coming shortages in nitrogen,phosphorusandpotassium. Peak phosphorus is occurringalongwithpeakoil.Theearth’ssup-plyofthesecriticalresourcesisdwin-dlingrapidly. ANewYorkTimeswriterrecentlysaid[6]thatphosphorusavailabilityis“thegravestnaturalresourceshort-ageyou’veneverheardof.”Thefactis, corporate and political control ofessential plant nutrients may be thegravest long run competition issueyou’veneverheardof. And control of these resourcesmayalsobethegreateststrategic is-suefacingtheUnitedStatesthatyouneverheardof. The country has an ambitiousplan to replace imported oil withbiofuelsproducedfromplantmatter.But dwindling U.S. reserves of thenutrients needed to produce biofuelfeedstocksandpolitical instability incountrieswheremostphosphaterockreserves are held suggest that thisplanmaybereplacingenergydepen-dencewithphosphorusdependence. This is an issue for the world.ThepotentialseverityofphosphorusshortagehasledSwedishresearcherstoproclaimthat theglobaleconomycould flip from one that revolvesaround ownership of oil reserves toonebasedonwhoowns—andcon-trols—phosphorusreserves. Thechangecouldhappenwithintento20years. Where do we get our fertilizer? TheUnitedStatesisincreasingly

PleaseseeTAYLORonpage4MoroccoistheSaudiArabiaofphosphorus.

TheOilDrum[5]Modernagriculturedependsonphosphorus.Butphos-phorussupplieswillsoonbereceding.Forgetabouttheproblemsofpeakoil.Weshouldbeworryingmoreaboutpeakphosphorus.

OCM - OCtOber 2010 4

TAYLOR(continuedfrompage3)

dependent on other countries forcritical plant nutrients. Imports ac-countfor57%ofnitrogenand86%of potassium fertilizers used in theU.S. Atpresent,ourphosphorusfertil-izerneedsaremetfromdomesticallymined rock phosphate. About one-half of this country’s production ofphosphorus is exported, primarilytoChina,Australia,Canada,Brazil,andMexico. Morocco is the Saudi Arabia ofphosphorus. Nitrogen is made from naturalgas.SonitrogenimportscomefromTrinidad,Tobago,CanadaandRus-siabecausethesecountrieshavelownaturalgasprices.PotassiumcomesfromCanadaandRussia.

King Phosphorus Ofthesenaturalresources,phos-phorus is the most critical to theworld’s food security. Phosphorusis necessary for all living matter— plants, animals, humans, bac-teria,andallotherkindsofcritters.Humansgetphosphorusfromplantandanimalfoodproducts. From a practical standpoint,phosphorus is neither created nordestroyed, but it does change formand location. Phosphorus removedfrom fields in plant material musteventuallybereplacedtoavoidfoodandplantbiomassyielddecreases. Modern agriculture is verywastefulofphosphorus.Itisflusheddowntoiletsandlostfromfarmfieldsthrougherosionandrunoff. Factoryfarminghasconcentratedlivestock and poultry production,therebyconcentratingwasteproduc-tion in the same areas. Livestockandpoultrywastecontainsnitrogen,phosphorus and potassium and is avaluablefertilizer.

But this waste isn’t spreadaround.Itisheapedupinparticu-lar areas. There is enough poultrywasteproducedeachyearintheIl-linoisRivervalleyinnorthwestAr-kansastocovera115miletwolanehighway from Tulsa to Fayettevilletothedepthof18inches. Meanwhile, improper applica-tiontolandoroverapplicationcancauseenvironmentalproblems. Runoffoftenresultsinproblem-atic algae blooms—”pond scum”to rural folks--in tanks, lakes andrivers. Phosphorus from livestockwaste collects in sediments at thebottom of ponds, lakes and rivers,but recovery of this phosphorusfromeitherhumanoranimalsourc-esisexpensive. Who will control the supply of fertilizers? Morocco and China have 60%oftheworld’sestimatedphosphorusreserves.SouthAfrica, Jordanandthe U.S. have smaller deposits. Atpresent consumption rates, world

reserves will be depleted within acentury. TheU.S.supplywillbeexhaust-edin15to30years. Chinahas imposeda100-175%tarifftocurtailphosphorusexports,yet the U.S. continues exports toChina.Withoutchangesinfarmingsystemstoreduceoreliminatephos-phoruswaste,theUnitedStateswillbedependentonpoliticallyunstablecountriesforphosphorus.

Fertilizer cartels The world’s fertilizer industryhasalonghistoryofgovernmentorcorporatecartels.Thesecartelshaveagreements (either tacit or explicit)tofixpricesatartificiallyhighlevelsandtodividethemarket. Betweentheworldwars,90%ofphosphate rock exports were con-trolled by cartels. And cartels stilldominate fertilizer reserves andtrade. China’s export taxes effectivelytakethatcountryoutoftheworld

ForeignPolicy[7]Agriculturenowdependsonphosphorusasaplantnutrient,arelativelyrecentphenomenon.

OCM - OCtOber 20105

market, leaving phosphorus minedin the United States and Moroccoasthemajorsources.Tradeinphos-phorus is dominated by three cor-porations: Mosaic (Cargill), PotashCorporation of Saskatchewan, andOCP.CargillandPotashCorp.haveannual fertilizer sales of about $20billionannually,whileOCPhasan-nual sales of phosphorus of around$10billion. Potash Corporation of Saskatch-ewan was formed as a Crown Cor-poration by the Saskatchewan gov-ernment in1975butwasprivatizedin1989,becomingapubliclytradedcorporation. Potash Corp. also hassubstantial stock holdings in otherfertilizer companies. It owns 14%of ICP (Israel, Spain, UK), 28%of APC (Jordan), 32% of SQM(Chile), and22%onSinofert (Chi-na). Cargillownsorcontrolsover30%of the U.S. reserves of phosphate

rock,whilePotashCorp.has50%ofdomesticreserves. OCP is a Moroccan-sanctioned,privately tradedmonopoly thatcon-trols practically all of the reservesin Morocco and the Western Saha-ra. OCPdeals exclusively inphos-phorus, while Cargill and Potash

Corp.alsomanufacturenitrogenandminepotassium.

Three company control Having only three transnationalcompanies—Cargill,PotashCorp.,and OCP — control reserves andtradeforacriticalinputtofoodpro-ductionisalarming.Butthepoliticalandeconomiccontroloftheseprod-uctsisevenmoretroubling. CargillandPotashCorp.formanexport cartel, PhosChem. It’s inter-estingthatPhosChemwasorganizedunder the 1918 Webb-PomereneAct thatwas intended tohelp smallAmerican businesses engage in col-lectiveexportsales.Itwasawayforsmallfirmstocountervailthepowerofforeigngovernments. But Cargill is the world’s larg-est privately held corporation, andPotash Corp is a Canadian compa-ny.Neither is “small”nor isPotash

“American.”Yet theycontinue tobegiven antitrust immunity under theantiquated W-P Act. (For more onthepotashcartel,seethisrecentNewYorkTimesarticle[8].)

Troubling, ain’t it?

But there is more. Canada sanc-tionedapotashexportcartel,Canpo-tex, whose members are none otherthanPotashCorp.andCargill,joinedbyAgrium.Agriumisthe6thlargestfertilizercompanyintheworldand,by the way, has small phosphorusholdingsintheU.S. The world’s potash reserves areprimarily inCanadaand the formerSovietUnion.Inthelastfewweeks,aRussianbillionairehasbeenwork-ingonadealtomergethetwoRus-sianpotash companies,Uralaki andSilvinit,andtheBelarusiancompany,Belaruskali.Alloftheseminepotash.Thereasongivenformergingthesecompanies is “so theywon’thave tocompete with each other,” which“willbeworthbillions.” Inthelastfewweeks,BHP,Ltd,the world’s largest miner, made ahostile bid of $38.5 billion for Pot-ashCorp.TheRussiandealandthehostile takeover of Potash Corp., iftheyhappen,willfurtherconsolidatemining and market power for basicnaturalresources. Bottomline:Worldtradeinpot-ash fertilizer may be dominated bytwo entities, Canpotex, a Canadiancartel,andtheconglomerationintheformer USSR. World phosphorustrade is already dominated by Pho-sChem,aU.S.sanctionedcartel,andOCP, a Moroccan sanctioned mo-nopoly.

Troubling, ain’t it!

Commercialagriculture,asprac-ticedforthepast50years,isnotsus-tainablebecauseitdependssoheavilyondiminishingsuppliesoffossilfueland mined fertilizer. Furthermore,controlofcriticalinputstofoodpro-ductionbyafewgiant transnationalbusinesses and politically unstable

PleaseseeTAYLORonpage7

ForeignPolicy[7]Asphosphorushascomeunderthecontrolofahandfuloffirms,itspricehasincreased.

DavidKruseispresidentofCommStockInvestments,Inc.,authorandproducerofTheCommStockReport,anagcommentaryandmarketanalysisavailabledailybyradioandbysubscriptiononDTN/FarmDaytaandtheInternet.CommStockInvestmentsisaregisteredCTA,aswellasanintroducingbrokerage.Mr.KruseisalsopresidentofAgriVantageCropInsuranceandBrazilIowaFarms,aninvestorownedfarmingoperationinBahia,Brazil.(FuturesTradinginvolvesrisk.Pastperformanceisnotindicativeoffutureperformance.)ForinformationonsubscribingtothedailyCommStockReport,contact:CommStockInvestments,Inc.,207MainSt.,Royal,IA,712-933-9400,www.commstock.com.E-mailto:info@commstock.com

David KrusePresident, ComStock InvestmentsCopyright2010@CommStockInvestments,Inc.,DavidKruse

R REVIVALOFHONOR-PARTII

Therestofthestory.....

WhenCOOLwasbeingdebated,pack-

ers hated it. They made millions of dollars

selling foreign product to U.S. consumers

whobelieveditwasU.S.meatandtheyenvi-

sionedtheopportunitytomake$billions,ex-

pandingonthepractice,aprofitschemepo-

tentiallyunderminedbyCOOL.Aspartof

theiroppositiontoCOOL,packerslaunched

amisinformationcampaigndesignedtoscare

producers,makingCOOLlooksouglythat

eveninitialsupporterswouldrecoilinshock.

Theysentoutwarningsofdireconsequences

ofCOOLinproducer’schecks.Ultimately,

itprovedtobeunwarrantedintimidation.

Theyarepracticingasimilarstrategy to

pushbackagainstnewUSDAGIPSArules.

ThehearingheldinColoradoandcomment

period is supposed togather input thatwill

shape the final product. Some concern and

complaints are valid so rules need to be

adjusted to accommodate value based con-

tracts. I will believe that USDA will listen

andrespondcorrectlyuntiltheyhaven’t.The

threshold for packers to explain and docu-

menttheirpricingactivityshouldnotbethat

high for them to cross, nor should it nega-

tively impactproducer interests in themar-

ketplace.Packer threats relative toCOOL

weregrosslyexaggeratedandtheirresponse

tonewAPHISrulesshouldbenodifferent.

Our cattle company sells on the cash

marketeachweek.Nothingiscontracted.All

salesarenegotiated.Ourfeedlotisnotoneof

thosewhogotlazy,addingtopackercaptive

supply.Ourfeedlotcontributestopricedis-

coveryeachweekinsteadofsuckingthelife

fromitascontractfeedlotsdo.Themanage-

mentofthetypeofcattlefed,feedstuffsused

andfeedlotenvironmentprovided,produces

averyconsistentproductso that thepacker

knows what he is getting. It’s a myth per-

petuatedbyintegratorsthatyouhavetohave

acontractarrangementtomakethathappen.

Mostofourcattlearesoldtoonepackerwho

bidswhatwebelieve is topdollar, knowing

whathewillget.Thereisanexchangeofin-

formationbetweenthefeedlotandthepacker

withoutacontractbetweenthemthatequals

anycontractoutthere.

Dothenewrulesputourfeedlotsystem

and market practices in jeopardy? There

is no contract and the reason why they bid

what theybidcanbedefinedandrecorded.

Yet, packers are insinuating otherwise. The

feedlotpricedasetacattle$1/hrdabovethe

marketandapackertoldusthattheyhadnot

paidit,soiftheydid,theywouldhavetojus-

tify it under the new rules. They ended up

buyingthecattlefortheaskingpriceandthe

marketkeptrightonclimbing,butthatdidn’t

stopthemfromtryingtousethethreatofthe

rulestoavoidpayingmoreforthecattle.

Is that the rules fault or the packers?

NCBAorAMIwouldtellyouit’sbadrules,

buttome,it’sthepackers.Therulesprohibit

“Undueorunreasonablepreferencesorad-

vantages; undue or unreasonable prejudice

ofdisadvantages.”That’s targetedat sweet-

heartdealswherecaptivesupplyiscontracted

topackerssotheycanbidlowerinthecash

market.ThelateIBPpresident,BobPeter-

OCM - OCtOber 2010 6

(With Permission to reproduce)

son, expressed surprise that feedlots would

contractcattletopackersonaformulabasis

asheadmittedusingthecaptivesupplytofill

plantneedstoavoidhavingtopayupforcash

cattleintheopenmarket.

Morecattlearesoldinthenorthinnego-

tiatedcashsales,60%inNEversusjust26%

inTXwherethevastmajorityofcattlearefed

undercontracts.FrionaIndustries,a275,000

headfeedlotinTexassays,“Thecashmarket

isaverypoormethodfordeterminingvalue.”

There has to be a cash price negotiated by

someone somewhere in order to provide a

basepriceforcontractsthatFrionathinksitis

gettingapremiumabove.Anypremiumthey

getbycommittingcattletothepackerhelps

thepackerdepressthebaseprice.

We sell 100% of our cattle in the cash

marketandIwouldputourresultsupagainst

themanyday.Aregionalshifthasoccurred

since2000totodaywheretheconcentration

of cattleon feedhasmovednorth from the

southtotheMidwest...fromwheretheycon-

tractcattletowheretheynegotiatethesales.

Captivesupplydepressescattlepricedis-

coveryinfavorofpackers.Inthehogindus-

try,94%ofhogswereownedorcontracted,

leaving just 6% on the open market. Meat

prices now determine the hogs values and

packerscanchoosewhatproduct tradethey

reportsothatonlytheinsidersknowthecon-

ditionofproductmovement.

That’sabigflawinthemandatorypric-

inglawthatIhavenotseentheNPPCtryto

fixbecause theywork for thepackers.Hog

contract production is different than poul-

trycontractsbutmarketaccessiscontrolled

by packers in both. Beef Magazine/NCBA

wouldhavethebeefindustrysufferthesame

fate, calling it efficiency, creativity or prog-

ress.DK

OCM - OCtOber 20107

Please consider contributing to theOrganization for Competitive Markets

this year to help in our mission to work for transparent, fair, and trulycompetitive agricultural and food markets. (8/11/2010)

We can make a difference.

OCM is an approved nonprofit, charitable organizationpursuant to IRC 501(c)(3).

All donations are tax deductible.

Please mail your contribution to OCM - P. O. Box 6486 - Lincoln, NE. 68506

MAKE A CONTRIBUTION FOR 2010.ALL DONATIONS ARE TAX DEDUCTIBLE.

SUPPORTOCM TODAY

TAYLOR(continuedfrompage5)

governments is unacceptable. Mo-nopolyisbad. Thecountriesoftheworldmustbegin meaningful discussion aboutwhat kind of food production sys-temandfoodeconomyarebestforhumanity.Thosewithnarrowpoliti-cal interests or the selfish few cor-porateexecutivesandtheirpuppetsshould not prevail in developing anewfoodsystem.

Theworld’sagriculturedependsonamineralthatisdeclininginpro-ductionand is controlledbyacar-tel of companies. Troubling, ain’t it?RT

see us on the webwww.competitivemarkets.com

NON-ProfitORGU.S.POSTAGEPAID

Lincoln,NEPERMIT#1734

68506

BECOME A MEMBER TODAY!Email:ocm@competitivemarkets.comWeb:www.competitivemarkets.com

ocm

SUPPORTOCM TODAY

OrganizatiOn fOr COmpetitive marketsTel:(402)817-4443•Fax:(360)237-8784P.O.Box6486Lincoln,NE68506

ADDRESSSERVICEREQUESTED

OCTOBER2010

OCM - OCtOber 2010 8

RECLAIMInGTHE

AGRICULTURAL

MARKETPLACEFOR

IndEPEndEnT

FARMERS,

RAnCHERSAnd

RURAL

COMMUnITIES!

Type of Membership: _____Renewal _____New

__ Gold Member ($1,000 and over) __ Regular Member ($200)

__ Friend Of OCM (Non-Voting Member) ($50) __Donation $_________

Name

Occupation

Address

City State Zip

Telephone - Fax Email Address

✓Yes, I would like to become a member!

Make checks payable to: OCM, PO Box 6486, Lincoln, NE 68506

JOIN OCM TODAY!