In The Headlines
Russia’s Farming Renaissance Challenges American Growers
Almost 25 years after watching the Dawn of Communism collective farm where he grew up land in the dustbin of history, Andrey Burdin is helping turn Russia into something the communists never could: a grain-export powerhouse. Over the last few years, Burdin has tripled the size of his farm on the Steppes near the Black Sea, winning prizes from the local government for how much wheat he has produced from the rich soil here and pumping profits back into new tractors and sprayers. His harvest this season will be a third bigger than the yield just five years ago, helping fuel an explosion in grain exports that has allowed Russia to displace longtime global leaders like the U.S. and European Union.
Long known for its oil and gas, Russia is now moving to retake leadership in the world wheat trade which it last held when the Czars ruled. In the process, it is reshaping the market for one of the world’s most important traded food products. “People have started to think about the future,” said the 42-year-old Burdin, whose office window looks out on a row of new tractors. “Before, everyone just lived day to day.” He described his plans to buy a Deere & Co. sprayer for 20 million rubles ($311,000) to add to his fleet in time for planting next spring.
From the Black Sea coast and the Volga River heartland to the sun-scorched Steppes—or plains, Russia’s farm belt is enjoying a renaissance, with grain at the leading edge. Turbocharged by the 45% drop in the ruble against the dollar over the last few years and bumper crops, local producers are crowding into export markets long dominated by big western players. Last season, Russian topped the U.S. in wheat exports for the first time in decades and is expected to extend those gains to displace the EU from the top spot this year, according to the U.S. Department of Agriculture. Investors from local farmers to billionaire tycoons are pumping money into the business.
Russian wheat has crowded out U.S. supplies in Egypt, the world’s biggest buyer, and is gaining footholds in some other countries, such as Nigeria, Bangladesh and Indonesia. That is four decades after the Soviet Union turned to U.S. shipments of wheat and corn to offset shortfalls in its own harvests. Over the last decade, Russia has been the biggest single source of growth in wheat exports, vital to meeting surging global demand. “Russia will be among the top exporters for a long time, especially given the potential advances in productivity there,” said Tom Basnett, general manager at Market Check, a Sydney-based commodity consultancy. “Other producers need to fight harder to maintain their traditional markets.” The boom in Russia is attracting some of the world’s biggest trading houses, with Olam International Ltd., Cargill Inc., and Glencore Plc investing into everything from silos to export terminals. Rich soil, government support and proximity to Black Sea ports for shipping means Russian costs can be as little as half those of major competitors supplying key import markets in the Middle East, according to researchers at Kansas State University. Many growers in the U.S. and Europe have turned to higher-quality wheat to compete with the Russian supplies, which are mostly softer varieties that fetch lower prices. Some have also cut wheat plantings, which in the U.S. are expected to be the lowest next year since 1919, according to The Scoular Co., a Kansas grain supplier.
Limited storage capacity means most of the Russian crop is sold shortly after it is harvested, further depressing prices. Moscow has also imposed export tariffs and even a ban in the last several years in an effort to keep domestic prices down, scaring foreign buyers. The 2010 ban sent prices skyrocketing in key markets like Egypt, fueling unrest that contributed to a revolution. But exports have been growing since Russia first returned in volume to the global wheat market in 2002. Over the first seven months of this year, farm and food exports were 5.5% of Russia’s total, still far behind top-ranked oil and gas but the highest share in at least 15 years and more than big earners like weapons, according to official data. “With our nature and climate, it’s our destiny to be an exporter,” said Arkady Zlochevsky, president of the Russian Grain Union, an industry group. The price of Russian wheat for export from Black Sea ports dropped to the lowest in at least six years in July, and was last at $169 a metric ton as of Sept. 30, according to the Institute for Agricultural Market Studies.
Farmers trace the roots of the rebound to the Kremlin’s move a decade ago to allow land to be bought and sold freely. That set off a wave of investment in new equipment, fertilizers and expansion of farms into lands long left fallow. Government subsidies and the ruble devaluation, along with good weather, have added to harvests in recent years. Burdin was granted five hectares of land for his own use in the early 1990s, when his collective farm collapsed in the wake of the demise of the Soviet Union. After working as a hired hand, he struck out on his own in 2005. He traded his old Lada for a used Russian tractor. He said he barely earned enough for food. “It was hard when we started out.” Now he drives a late-model Ford pickup. His fleet includes a half-dozen imported tractors and four combines, along with a German machine to spread the fertilizer that’s helped him to victory in local wheat-yields contests. He owns 200 hectares (500 acres) of land and rents another 1,500.
A few miles away, Viktor Borodaev, 64, said he and other farmers do not deserve all the credit for the recent boom. “We got a lot of help from God and nature,” he said, referring to the favorable weather that has yielded bumper crops in recent years. On the 40,000 hectares of fields at the Tselina farm company he runs, technology has also played a role. New tractors with GPS work 24 hours a day, with three shifts of drivers switching off. Profit margins were as high as 90% last year and earnings should be higher this year, he said. Last week, Agriculture Minister Alexander Tkachev reported to President Vladimir Putin in the Kremlin, predicting the best harvest in 25 years and forecasting it could grow another 20% over the next decade or so. “Exports give us a flow of cash, hard currency, from which our farm producers get rich,” said Tkachev, whose family is a major owner of farms and agricultural land in southern Russia.
Citations
1. http://bloom.bg/2dzSNnn – Bloomberg
2. http://on.ft.com/2dJm6DP – Financial Times
Is the Platform Economy Becoming Our New Safety Net?
The part-time pizza delivery driver in New York needed help meeting his expenses. The young mother of three from a town in Arkansas was looking for a way to make money after her first husband left her. The 33-year-old in San Francisco was hoping to circumvent employers who tended to judge her, she said, because of her weight, race, and personal history. In all three cases, they discovered a valuable safety net by turning to what the Institute for the Future calls a “radically different world of work,” the platform economy (also known as the gig economy and the on-demand economy), where independent sellers can offer goods or services to customers. Their stories—and many more—are included in a report that the Institute has published about those who, in its words, are “revolutionizing” the labor market.
The report uses an ethnographic approach to talk about people who are, effectively, “organization-less.” They land all kinds of gigs through an array of online services. The pizza guy, for instance, carries out various tasks via Amazon’s Mechanical Turk. The Arkansas mom uses Upwork to do freelance project management. The San Franciscan drives for Uber and snaps up other odd jobs on Craigslist. For all of this activity, the platform economy remains small for now. Two prominent economists, Harvard’s Lawrence Katz and Princeton’s Alan Krueger, indicated in a paper released in March that a mere 0.5% of the U.S. labor force is employed this way.
Marina Gorbis, the Executive Director of the Institute for the Future, suggests that the numbers are probably being undercounted. In any event, she says, the crucial thing is to understand where this segment of the labor market is headed because it is clear that it is not going to fade away. “What we’re trying to figure out is whether this is a signal or whether it’s just noise,” Gorbis says. “And when I look at the on-demand economy, it’s a signal. It’s a signal of how a lot of different things will be done in the future. It’s not just about today. Tomorrow it’s going to be a lot more.”
In its report, the Institute stresses that gig workers are not monolithic. In fact, it lays out seven “archetypes” of the platform economy. Those archetypes include:
• The Part-Time Pragmatist, who does not see online platforms versus conventional employment as a fork-in-the-road decision but adds platform opportunities to their traditional work.
• The Savvy Consultant, previous white-collar workers who see growth and opportunity, as well as freedom, in the on-demand economy.
• The Freelancer who wants the luxury of choice in weaving together assignments based on personal values.
• The Full-Time Gig Worker who maximizes efficiency by focusing on a single app—the closest thing to employees in the on-demand world.
• The Re-Entry Worker who uses platform work as a tool of resilience to ease them back into earning income while taking care of their health and well-being.
• The Entrepreneur who looks to incorporate a platform into their own entrepreneurial vision and desire for growth.
• The Hustler who doesn’t fit the mold of a full-time job—whether it is due to a criminal past, a career aspiration, or temperament. The Hustler searches for alternative income streams that fit into a flexible, unscheduled lifestyle.
For some of these folks, there are vast opportunities to make good money while not being beholden to anyone else’s schedule. For example, the 27-year-old MBA—an illustration of what the Institute labels the “savvy consultant”—who aims to pull down $10,000 a month by offering her expertise as a financial analyst on HourlyNerd. What stands out though, was how many of those in the report use the platform economy as a cushion against life’s vicissitudes. Even though gig jobs are often maligned for typically lacking health insurance benefits and retirement plans, their low barrier to entry has made them more and more of a go-to financial backstop for people. In February, J.P. Morgan issued a study showing that most Americans “experience tremendous income volatility” from month to month, and that the platform economy has “the potential to help people buffer against income and expense shocks.”
The Institute for the Future puts flesh to that finding. Those that it characterizes as online “hustlers” take it “one day at a time,” according to the report, often trying to “stitch together a living from four or more income streams.” A woman from San Francisco falls into this category. “I’m always chasing money,” she says. The pizza deliverer from New York is what the Institute refers to as a “part-time pragmatist”—those who combine their gig work with other employment and, many times, “dip into the platform economy and step back out as the situation warrants.” For the “re-entry workers” profiled in the report, such as a 35-year-old homeless veteran and a 60-year-old with health challenges, the platform economy has been an avenue to “ease back into earning income.” Even many full-time gig workers, the report says, “define themselves as in transition—recently moved to a new city, laid off from a job, working to finish a degree, caring for a loved one.”
The overarching goal of the Institute’s report is to help create what it calls “positive platforms”—ones that “not only return profits to investors but also provide dignified and sustainable livelihoods for those who use them.” To that end, Gorbis says she would like to see more support mechanisms—paid for by the platform companies—through which gig workers could access tax and financial assistance, physical gathering spaces for “social connectedness,” and a rating service capturing the employee experience on a range of sites. “Consumers have Yelp,” she says. “We need something similar from the workers’ perspective.” Gorbis also advocates the creation of a national portable benefits system. As increasingly useful as the platform economy is, the safety net requires a safety net.
Citations
1. http://for.tn/2e2ApH4 – Fortune
2. http://bit.ly/2dBjNXk – Institute for the Future
The Good News Is . . .
• One of the first indications of strength in the September economy was strongly positive as unit vehicle sales surged 4.7% to a 17.8 million annualized rate. This points to outsized strength for the vehicle component of the September retail sales report and also should give a lift to third-quarter GDP estimates. Strength is centered in North American-made models where the rate rose 6.0% to 14.2 million units. The strength in vehicle sales ultimately reflects the health of the jobs market.
• Constellation Brands, Inc., a leading international producer and marketer of beer, wine and spirits, reported earnings of $1.77 per share, an increase of 13.5% over year-earlier earnings of $1.56 per share. The firm’s earnings topped the consensus estimate of analysts by $0.12. The company reported revenues of $2.0 billion, a 16.6% increase. Management attributed the results to increased market share, strength in its craft beer segment, and improved operating margins.
• Cabela’s, a popular Nebraska-based outdoor recreation retailer, announced that it planned to sell its core retail business to Bass Pro Shops for $5.5 billion. Additionally, Cabela’s agreed to sell $5.2 billion worth of credit card receivables and $5 billion in associated liabilities to the Capital One Financial Corporation. The combined transactions make this the fifth-largest retail deal in the United States, according to data by S&P Global Market Intelligence. Cabela’s has been struggling in recent years with declines in same-store sales. Bass Pro Shops has agreed to acquire Cabela’s for about $65.50 a share. The deal unites Cabela’s 19,000 employees with Bass Pro Shop’s 20,000, and adds 85 Cabela’s stores to Bass Pro Shops’ 99. Bass Pro Shops also operates the White River Marine Group, which makes fishing boats.
Citations
1. http://bloom.bg/1Dl6vPO – Bloomberg Economic Calendar
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/2dA5K1K – Constellation Brands, Inc.
4. http://nyti.ms/2d2yPPK – NY Times Dealbook
Planning Tips
Guide to Financial Safeguards when Disaster Strikes
Are you financially ready for a natural disaster? The recent massive floods in Louisiana and Hurricane Matthew are just the latest examples of how important this is. If you need to evacuate, file an insurance claim or apply for an SBA disaster loan (they are for homeowners and renters, not just businesses), organizing important financial papers ahead of time will mean far less stress. Even better, you will be able to take advantage of these financial safety nets more quickly. Below are preparatory steps that you can take. Be sure to consult with your financial advisor to implement the financial safeguards appropriate for your situation.
Know exactly what your home or renter’s insurance covers – Sit down with your insurance agent and go over the fine print of your policy, discussing various scenarios. Know in advance what you are covered for. For instance: Would your evacuation expenses be covered? Do you get replacement cost for damaged possessions or just their depreciated value? Does your policy have a hurricane deduction, which may mean you are responsible for 2-5% of your home’s value before the insurance kicks in? Most homeowners’ policies do not include flood insurance (unless you mean damage from a leaky pipe). For natural floods, you will need coverage under the National Flood Insurance Program. But be aware: It takes effect only after a 30-day waiting period, so if you are in a flood zone, don’t delay.
Keep a written and photographic inventory of your home and possessions – In the aftermath of a disaster, it may be hard to accurately recall all the contents of your home. An inventory will make the claims process a lot smoother and get you a fairer settlement. If you need to claim tax losses, it will serve as backup. Go room to room, taking digital pictures. Open drawers and closets. Don’t forget the garage or attic. Take notes as you go along, including any serial numbers or models you know, and attach receipts or appraisals if you have them. Even better, use video, which allows you to make a commentary about items’ purchase dates and value. Software, such as Collectify Home Inventory for Windows, Delicious Library 3 for Macs, or Know Your Stuff from the Insurance Information Institute, can simplify this. The IRS website also has a downloadable disaster-loss workbook, Publication Number 2194, to help you compile a room-by-room list of belongings.
Practice the backup 3-2-1 rule – For all your critical financial and legal documents and records, make three copies, in two different formats (for example, DVD and hard-drive or remote server) and keep one copy off-site. With recent disasters affecting whole regions, you may want to keep a backup disk some distance away, which can be as simple as sending it to a trusted relative in another state. Protect original documents by placing them in a bank safe deposit box.
Put certain essential records in a portable waterproof/fireproof bag or box – This is your financial “go-bag.” Store the bag (First Alert makes a variety of them) in a convenient place near the door where you can grab it as you leave in an emergency. Consider including copies of all the documents you have in your safe deposit box. Think of records you’ll need to make an insurance claim or apply for an SBA disaster loan. For instance, you may need to document your disposable income or show proof of ownership or residence. Put enough cash in your financial go-bag for three days’ expenses for your family. ATMs often don’t work after a disaster, or banks may be closed if power is out. Include a roll of quarters (cell phones may not be reliable either). Even when ATMs are back online, you may not have access to your mail to receive checks. Enroll now in direct deposit through your employer, or if you get any federal benefits, enroll through godirect.org.
Add a letter of intent to your financial go-bag – You will want to do this in case you are not there to help your family through a disaster. Think of this as something you would give to someone if you were leaving tomorrow morning on a year-long trip. It is not a legal document, but if you are seriously injured or worse, the instructions and information it contains will be very helpful to your family. Include where important documents are located; the names and phone numbers of your legal and financial advisers and your employer; passwords for online accounts; a financial inventory to explain what income, investments, or insurance proceeds they can expect to receive (retirement plans, vacation pay, business expenses not yet reimbursed); and which expenses will come due.
Citations
1. http://bit.ly/2a9Ebxl – IRS
2. http://bit.ly/1SQ05yq – Ready.gov
3. http://bit.ly/1qPLw4K – Investopedia
4. http://bit.ly/2eecdAJ – USI.com
5. http://bit.ly/2dSDKUW – CreditCards.com
