The Best Way to Bet on America

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There is lots of ugly economic news out there, but one key bright spot is world trade. In the US, one particular industry will enjoy windfall profits from exports this year. That industry is agriculture.

In 2009, world trade took a big hit in the wake of the financial crisis. Global exports fell 12%. Governments tried to protect their home teams and a wave of tariffs and other protectionist measures followed. This was what happened during the Great Depression, too, as the Smoot-Hawley Tariff Act raised tariffs on more than 900 goods.

As a result, world trade sank by 25% during the early years of the Great Depression. But that hasn’t happened this time around. In fact, the emerging economies of the world are already exporting and importing more than they were before the 2008 crisis.

In the US, a big winner is agriculture. US farmers are looking at record exports of $14 billion this year. The heat wave frying European crops (in particular Russian crops) helps that. But even before the drought, in just the first four months of the year, the US enjoyed a $4 billion trade surplus in agriculture. For years, the US has been the world’s largest exporter of corn, wheat and soybeans. It is a leading exporter of many other agricultural goods.

Today, US farmers are cashing in on demand from emerging markets, particularly Asia. China has been trying to build self-sufficiency in food. But it has a long list of hurdles, chiefly a shrinking supply of arable land and water shortages. Also, the median Chinese farm is less than one acre. This hinders the economies of scale that come from big farms.

In any event, US farmers are sending more and more goods to the Far East. So perhaps it is no surprise that first US grain export depot built in 25 years is not on the rim of the Gulf of Mexico, but on the Columbus River in Washington state, about 60 miles from the Pacific Ocean. The new Port of Longview grain terminal will handle 8 million tonnes a year. (The Port of Louisiana is the still the top grain export hub in North America, although California recently passed Louisiana as the top point of departure for US cotton.)

We’ll need more depots like the new Port of Longview. American infrastructure has had a hard time keeping up with surging ag exports. Outside of Seattle, for instance, 80 rail cars filled with dried peas sat for three weeks on the train tracks waiting for a ship to unload them.

It’s not an isolated example. A soybean exporter in, say, Minnesota, could normally ship 40 tons of beans to Malaysia in 15-20 days. With recent bottlenecks, it took 60 days. There are plenty of stories of everything from hazelnuts to soybeans tied up in shipping bottlenecks for weeks.

The US isn’t used to such export strength. As The Wall Street Journal noted, “America’s trading infrastructure grew imbalanced, with a huge capacity to import goods but an attenuated capacity to export them. Loads of grain or corrugated paper leaving the US took a back seat to the DVDs and toys coming in.”

That’s the problem. For too long, the US economy has been all about overindulged consumers. There were too many stores selling too much junk, too many houses people couldn’t afford and too much debt on all of it. This part of the economy grew to grotesque proportions, stimulated by easy credit.

But underneath it all, there is still the old world of making things. In my last issue of Capital & Crisis, I wrote about the surprising strength of American manufacturing. American agriculture is also a bright star in the US firmament and an appealing place to invest.

The future of American agriculture is very bright indeed, as a recent report from the FAO makes very clear. You can find the report, entitled “How to Feed the World in 2050,” right here.

This excerpt from the report sums up the investment case:

Even if total demand for food and feed grows more slowly [over the next 40 years], just satisfying the expected food and feed demand will require a substantial increase of global food production of 70% by 2050, involving an additional quantity of nearly 1 billion tonnes of cereals and 200 million tons of meat.

In addition to the usual assortment of resource issues such as water and soil and climate change, there are some topics you wouldn’t think of otherwise, such as biodiversity. Take a look at this:

The gene pool in plant and animal genetic resources and in the natural ecosystems which breeders need as options for future selection is diminishing rapidly. A dozen species of animals provide 90% of the animal protein consumed globally and just four crop species provide half of plant-based calories in the human diet.

I won’t highlight too much of this report, because I’d be repeating myself. If you’ve read my observations for the last year or so, you know all you need to know about what’s happening in the world’s market for food. Still, if you need an overview, the FAO’s report covers most of the issues.

Farmers with windfall profits will have more money to expand production next year. That’s more money for things such as seed and tractors and fertilizers. As long as its export markets remain open, US farmers should have a great year.

As a long-term investment, Lindsay (NYSE:LNN) should benefit as farmers spend some of that money on irrigation equipment. The economics are attractive, as the machinery significantly boosts yields and makes more efficient use of water.

I also like the non-US ag plays, because high crop prices and the rising demand for food bode well for agriculture around the globe. In Canada, Viterra (TSX:VT) is a good long-term holding. It should rebound after excessive rains in Western Canada hurt grain production. In China, Migao (TSX:MGO), makes fertilizers for high-end crops such as fruits, vegetables and tobacco. It’s growing capacity, and as the financials reflect the additions, it should report good earnings.

Those are just a few. There are plenty more. The business of producing food should continue be a good one.

Chris Mayer
for The Daily Reckoning Australia

Chris Mayer
Chris Mayer is a veteran of the banking industry, specifically in the area of corporate lending. A financial writer since 1998, Mr. Mayer's essays have appeared in a wide variety of publications, from the Mises.org Daily Article series to here in The Daily Reckoning. He is the editor of Mayer's Special Situations and Capital and Crisis - formerly the Fleet Street Letter.
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Comments

  1. An agrarian led recovery maybe? The wheels keep on turning………

    Reply
  2. “Chris Mayer is a veteran of the banking industry, specifically in the area of corporate lending. A financial writer since 1998”

    Heck I wish I looked like that 12 years ago. In fact I would have been very happy to look like that 32 years ago! :)

    If there is an agrarian led recovery, I doubt it will be Oz based Annie?

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  3. “If there is an agrarian led recovery, I doubt it will be Oz based Annie?”

    Necessity may not force it to the same extent, Ned.

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  4. “Necessity may not force it to the same extent” – I continue to hope so Biker. Which is why I’ve not actually increased my ammo supply here yet. :)

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  5. Maybe not here as much Ned, but I have been reading how overseas companies are buying up lots of farmland both here and overseas. Forecasts for China alone say that they will increasingly have to import food. Throw some floods in there, a couple of earthquakes, environmental degradation and you have a lot less arable land for some countries to produce their own food. I would bet my bottom dollar that a lot of the flooding in China and Pakistan and India is caused to some extent by land clearing. Who cops it, yes the poor local farmer.

    I see there will be a move towards buying local produce. We see it in the farmers markets etc.

    Also poor people who used to feed themselves sustainably from forests are increasingly having to buy food as large corporations buy up their land and put down palm oil plantations or cattle ranches or such. Of course these things do not take account of externalities, such as the loss of productive uses of forests (forests cause rainfall, food, clean the air etc) and the associated increases in diabetes, cancer and reliance on government handouts and food by the locals. If they did, they would find the cost of taking out forests and thus a way of life to feed yourself, far outwieghs the benefits of trashing the forests.

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  6. The Chinese have certainly been taking out [very] long term leases on arable land in Africa Annie.

    “We see it in the farmers markets” – My concern with that in the West as it is, is all the benzene the farmers use driving the crops to those markets and all the other benzene the customers use driving to them to buy a few kilos of supplies and have a morning out chatting about what awful things the less enlightened folk are doing to the environment by shopping at Woolies. I’m definitely not anti – And would love to be pro – But am yet to be convinced perhaps?

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  7. “…there will be a move towards buying local produce. We see it in the farmers markets etc.”

    They’re starting to thrive here.

    The only point on which Dick Smith and I are likely to agree is that, as fuel prices rise in the next few decades, costs of extensive agriculture may become astronomical. Hopefully by then we’ll be self-sufficient (or expired! :D )

    One real advantage of intensive food production is that it’s more labour-based, less fuel-consuming. (Many other claimed advantages, of course.) It’s unlikely that this type of agriculture will feed the teeming hordes, but it can sustain small villages… . The absolute gem of our orchard is a 20 y o tangelo tree. Even the parrots agree*. Parrots eating citrus??!
    Yep, they know a good thing!~ ;)

    * Where’s my cricket bat?!~ :(

    Reply
  8. One of the houses in my neighbourhood has a wheelbarrow sitting on the footpath labelled “Free Oranges – Help Yourself”. Yes, over time us ‘little people’ might be able to work something out? If government would eff off! :)

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  9. Comment by Ned S on 1 September 2010:

    One of the houses in my neighbourhood has a wheelbarrow sitting on the footpath labelled “Free Oranges – Help Yourself”. Yes, over time us ‘little people’ might be able to work something out? If government would eff off!

    My first house had 2 orange trees and a lemon tree and a passionfruit vine, I used to put the excess fruit out the front with a sign free Oranges/Lemons/Passionfruit..
    After a while I started getting people knocking on my door looking for free fruit

    Stillgotshoeson
    September 1, 2010
    Reply
  10. Mate, you should be helping this bloke to get rid of those oranges. Lots of recent research indicating benefits for the heart. We have 80 citrus… and, along with friends, we manage to eat and juice the lot. Most weeks I also eat a dozen lemons. Juice of two lemons topped off with a ginger beer, in summer… as good as champagne!~ :D

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  11. “After a while I started getting people knocking on my door looking for free fruit” – I did say ‘over time’ Shoes – And yes, thinking a bit more that could mean a few generations! :D

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  12. The old handout mentality – Once people get it, it isn’t easy to break.

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  13. “Yes, over time us ‘little people’ might be able to work something out…”

    Many communities have a LETS* scheme operating. We’re not ‘formally’ enrolled, but we use the same principles, very informally, with friends:

    http://www.lets.org.au/

    * Local Energy Trading System

    Reply
  14. Gidday gang
    I’m hoping Ross’s thing about eggs being too valuable to sell turns out (ok not really) I got some new chooks recently after dingos knocked off the last lot. They get $7 worth of grain a week and alongside the ducks they pick up all the scraps around the grain feeders (quite a few) aswell. They produce around ten dozen eggs a week. Gold bugs, ammo bugs, citrus bugs …egg bugs ;) System drawbacks.. the head drake got stood on by one tonne of bull while raiding the bull rations last week. Now theres a power vacuum. He had three near adult sons. They fight a lot now.
    Re Stocks…I cant monitor volumes here at present but I have word that volume is heavy on the up moves.

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  15. Some of the advantages of a 5.0 kW solar elec system, Lachlan:

    * egg incubation (quail and chickens. Gone off ducks.
    Had four dozen. They crapped in our gutters!~
    Didn’t help our five-star skywine… .)

    * fruit dehydration (including ‘sun’-dried tomatoes)

    * aquaculture (including power filtration for fertiliser)

    * desalination / distillation (slightly brackish creek)

    * sale of surplus-to-grid @ 40c per unit;

    * tax claims: Exploring this now… works for rentals…
    not sure about main property. We think it _may_ fly.
    Watch this space.

    Technology is the answer!~*

    * Now what was the question???!!!~ :D

    Reply
  16. Crumbs BP your having fun over there.
    Your right about ducks. They stink. The owner here has a restaurant which is where they end up. They are popular with the kids but (in living form).
    Ive had a lot of experience with chem ferts. Naturally now with nothing but the garden and a farm full of manure I’m focused on that as nutrient source. Talk about non problematic …no acidification etc and generally supplying nutrients balanced across spectrum. The leaf expansion on my greens since Saturday is fantastic. The grain fed cattle produce manure with high ammonium…good stuff. I envy you having the chance to apply via fertigation over the larger area and observe results over long time span. Yes the filtration of solids is a problem though.

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  17. Have to watch the chook manure, Lachlan. Really needs to age… virtually all urea, initially.

    Brother-in-law pinched my cement mixer, which I’d planned to use for mixing compost, manure, sawdust, ash and sand from our firebreaks. Must get it back.

    Cow manure or aged sheepsh*t are the best manures. I wouldn’t waste a cowpat!

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  18. BP the manures all produce alkaline soil reactions while allowing supply of ammonium form N.. which is very good right here on our quite acid soils (with high manganese which causes lots of probs.. availability manganese increases as pH approaches 4.. ie turns pineapples and ginger yellow by inducing iron deficiency plus other). We had probs with that in roses which are susceptible. Chook poo..I dilute or leave to age but it is a great source of phosphorus also which gets very dear in chem form (then again what isn’t a chemical)
    Over WA way BP there are problems with high pH soils and I suppose where these occur you can go for your life on chem ferts with acid reactions. Never been there. I believe the Tuart trees like alk.soils?
    Never tried sheep poo but WA’s seem to use it a lot I hear.
    I better settle down now..off topic mmmm grumble grumble, GFC.. ah thats better ;)

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  19. Crumbs …markets going up…but this black duck keeping outa their way

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  20. Once the US has “nationalized” all the failing companies (GM,etc…)it will go after the productive ones. Much like the Zimbabwe and Argentina, a kleptocracy will steal and “re-distribute” productive farm land. Or perhaps they will just impose punishing taxes on the last remaining productive sector – thus ensuring their failure.

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  21. Was going to get some ducks as I have a dam in this new place, but now I’m not so sure after the degoratory comments here about them. May stick with the chooks.

    Talking of free stuff……..I put one of those pvc portable pergolas out the front on one of those council pick up weeks. It had a pole missing. Anyway it went before the council had a chance to pick it up. A couple of days later a lady, (and I use that word figuratively), knocks on my door complaining about the missing pole and could I go and find one for her. hahaha. Yes she wasn’t insane, just obnoxious.

    Was thinking of converting the pool into an aquaculture adventure too. It’s a work in progress.

    Reply
  22. Annie, I think he means those ducks kept in enclosures, if the dam is away from the house and the ducks are a free range colony and there’s a quiet side to it where they take up and you don’t have to get the excrement on your boots every time you go near the dam and you take only the odd one, and your neighbours don’t get after them when they’re on the wing, then they’re fine. Again I think he’s talking about intensive farming them. Lachlan, on those eggs the quote I pulled was, and I think it might have been an account taken down by Geoffrey Blainey, that they were “too expensive to eat”. They always had a market. I had some farm fresh eggs recently off a place which is a big show on the river between Forbes and Condo. They were gold. You know you buy the best of the supposedly organic eggs out of Woollies and they just dont hold a candle in comparison.

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  23. Thanks Ross. The dam is away from the house in a sort of gully and the neighbours wouldn’t bother them. There are foxes around apparently, although I haven’t seen them. It my be hard to fence it off to keep them safe but may still see what I can do. But then the local wildlife wouldn’t be able to drink. I do love duck dinner though……….

    You’re right about those organic eggs from the supermarket. Not a patch on the real ones. Something a bit fishy about them as the yokes do not look organic.

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  24. The safe haven is gold & silver. The USTreasury Bond grand dissipation, the long bust process, will catapult the Gold price toward $3000, and suddenly. The gold community will find great amusement in watching the reaction to the naysayers and critics, except the world will change into something hardly recognizable. It will turn into an ugly version of Mad Max, the movie. Shortages and crises will abound. Chaos will reign. A form of darkness will befall the earth.

    Latest from Jim Willie, pretty good analogy given he’s an American…

    Reply
  25. “…the world will change into something hardly recognizable. It will turn into an ugly version of Mad Max, the movie. Shortages and crises will abound. Chaos will reign. A form of darkness will befall the earth.”

    Good luck with that, Bear!~ :D

    Reply
  26. What happens if Governments intervene to control the price of gold and/or restrict it’s usage as an alternative form of currency? In a Mad Max type of world, anything is possible. Sounds like the farmland scenario isn’t such a bad idea. Can’t imagine I’ll be growing much on my little 410 sq m block however! Go that AUD! I need to pay for some more accommodation in US this weekend.

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  27. On _The Road_ again, how I love to be on the road again….:D

    AUD is coming back ahead of QEII. It’ll be interesting for you davo, are you packing heat on this _road trip_? :D

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  28. “…are you packing heat on this _road trip_?”

    Ground control to Major Bear: “Are you still with us, Bear?!~”

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  29. Just linking Mad Max to your favourite movie Biker :roll:

    Planet earth is _blue_ and there’s nothing I can do :roll:

    Jim can get a bit dark, but the paragraph quoted above is a new low….

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  30. The only weapons we’ll have is my sharp wit, razor like reflexes (not) and the one truly dangerous item (the credit card). My wife can do some serious damage with that!
    I keep telling myself, Dave, “focus on those FF points”.
    They will provide the flights for the next trip – April 2011.
    Cheers

    Reply
  31. “The only weapons we’ll have is my sharp wit, razor like reflexes”

    Ahh, Blade Runner, my favourite movie…

    “I keep telling myself, Dave, ‘focus on those FF points.’
    They will provide the flights for the next trip.

    Now ya talkin’!~ :D

    Reply
  32. Nothing wrong with “The Negotiator” ;)

    When I was In India some guys decided to row a boat down Ganges from Varanasi through a bad district. They bought a WW2 pistol and ammo on black market. I couldn’t believe my eyes.

    Maybe your wife can flick the mastercard like a Ninja, that’ll keep the zombies at bay…
    Where is your next trip davo?

    Reply
  33. Bear,
    Haven’t yet decided. It’s for our anniversary (25th), so figure we’ll look at FF balance in March, see where that gets us to and pick some accommodation. At present, we have enough for one of us to fly return to Nadi from Brisbane, for example. I could handle a week or so in Fiji, as it’s been almost 5 years since we went there last. Probably will go somewhere different though. Maybe Vanuatu or New Caledonia, as we only had 1 day in Port Vila and Noumea when we did a cruise in 2005.
    Somewhere where the weather is nice, the booze is cold and I get to do a whole lot of nothing. Should stay home. Gorgeous day here today at 26C.
    Suspect I wouldn’t get to laze around for a week though.

    Reply
  34. Congratulations on 25 yrs davo

    you just have to get through the inflationary _arm_ageddon and you’ll be laughing. :roll:

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  35. “Was going to get some ducks as I have a dam in this new place”

    Dam the ducks!~

    Some serious ‘down’side with ducks, Annie… . Not just ‘fowling’ your tank water, but also your dam. Botulism is one of the worst risks in ponds and dams.

    The very liquid nature of their excretion is an issue on paths, lawns and driveways. Tends to stain, too. It seems to be far less of a problem with chooks. Ducklings also seem to attract goshawks and sparrowhawks. Hawks’ shredding of duckling heads, early in the morning, was a drama when our kids were small… .

    The upside? Duck eggs are great in sponge cakes. And yes, duck a l’orange is also a plus… . :D

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  36. I thought Jeremiah Johnson would have been your favourite Biker :)

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  37. The ducks I keep here are muscovies which are not a true duck I think but ducky enough for us. Anyhow they are what you’ll be eating if you buy duck to eat although there may be some less grown varieties around. Another upside is that kids can play with the ducklings as they are fairly tameable. My kids come here on weekends and play games with the ducklings for hours on end. Each new batch is a thrill for them but they do have favourites they will play with as adults (until the restaurant calls their number). I’m hoping my kids dont have botulism now ;) The smell is mainly a problem when they are confined or prone to gathering in certain spots and when the rain comes in.
    We dont like to lock our ducks up but had to for a while because of constant dingo/wild dogs/foxes visiting at night (only when I was away..crafty). After a while they just ripped straight through the wire anyhow. Then we discovered that leaving a fluoro light on kept them away…but I still see them occassionally just skulking in the paddocks closebye. I agree chickens are less trouble although my Lohmans are always keen to dig gardens up..hard workers but the worlds best layers too. Cheers

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  38. “I thought Jeremiah Johnson would have been your favourite Biker :)”

    Funny that, Don… . A friend just returned from California… and knowing my mixed feelings about government(s) brought me back a T-shirt featuring Sitting Bull’s* portrait and the text: “SURE YOU CAN TRUST THE GOVERNMENT”
    and below the portrait: “JUST ASK AN INDIAN”

    * Probably more appropriate than Running Bear’s image… . ;)

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  39. Wonder if a fluoro in the henhouse would work, Lachlan? Easy to power… I’ll take the little solar panel off the kids’ cubby. :D

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  40. Actually Biker the fluoro here is in a hay shed and the chook pens are built off the side of that. The hay shed is open fronted so the light just keeps the general area luminated but doesn’t actually get into the hen house much.
    Its a cheap option and if you got solar better still. If that ever fails us I have seen these automatic chicken doors for about $200 which would be well worth it. I noticed some owners of these devices have made little videos and put em on youtube.

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  41. Thinking of growing turkeys this year. In for a penny ….. ;)

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  42. Lachlan, just ask Biker, he knows plenty about ’em ;)

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  43. Lachlan: Thinking of growing turkeys this year. In for a penny ….. ;)

    Bear: Lachlan, just ask Biker, he knows plenty about ’em ;)

    Only since _you_ started posting, Bear. :D

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  44. Auto-Chicken-Doors: Hadn’t seen that before!

    http://www.youtube.com/watch?v=ncCu1-m52Bo

    Mine dew, I think someone is probably inside, chuckin’ ’em out, Lachlan! :D

    I want mine with facial-recognition… and a sharp blade attached…
    for Mr Fox. Don’t laugh. We’ll probably see it on youtube next year… ;)

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  45. I think about paris when Im high on red wine
    I wish I could jump on a plane
    So many nights I just dream of the ocean
    God I wish I was sailin again
    Oh, yesterdays over my shoulder
    So I can’t look back for too long
    There’s just too much to see waiting in front of me
    And I know that I just can’t go wrong

    With these changes in latitudes, changes in attitudes
    Nothing remains quite the same
    With all of my running and all of my cunning
    If I couldnt laugh I just would go insane
    If we couldnt laugh we just would go insane

    Jimmy Buffet

    it is fitting to pay homage… :D

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  46. “I think about paris when Im high on red wine…”

    Yes, I recognise the symptoms…. zero punktuation, for a start.

    But I pay homage to your taste in music… :D

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  47. Annie, our first test of a good egg is yolk colour. Our chooks lay eggs with golden yolks (Note this well, o goldbugs!) Supermarket eggs usually have pale, insipid, dull yolks.

    Good description here:

    http://www.yellow-egg.com/wEnglish/das_gelbe_im_ei/Der_Eidotter.shtml?navid=18

    We’ve moved from Light Sussex, Plymouth Barred, Australorps and Rhode Island Reds to Isa Browns. Favourite chookie is still the Plymouth Barred. The roosters will fight a fox to a standstill… .

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  48. HaHa… Here’s the big issue facing internet censors. Just mentioned our favourite chookie breeds, including Light SusSECKS.* Yep, you guessed it.
    The auto-mod put my comment on hold…

    * Only I spelled it correctly… .

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  49. Biker
    “Have to watch the chook manure, Lachlan. Really needs to age… virtually all urea, initially.”
    I’m pretty ordinary in the garden, but my Mum was a green fingered genius.

    The old garden bed was allowed to produce a lot of weeds. It was then chopped down roughly with a spade (not dug in), and then I had to put a couple of inches of raw chook poo on top.

    The ammonia killed all the feral seeds and quickly broke down the flattened vegetation.

    The bed was then left until more weeds started to emegse..time to rake the in and plant seeds/seedlings..worked atreat and not so labour intensive.

    PS enjoy all posts on this site .. some interesting perspectives

    Reply

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