Bamboo and recessions

Dear Mr. Berko: I’ve been offered an opportunity to invest $125,000 in a Florida bamboo farm. Please tell me what you know about this industry. Also, could you give me your best estimate about when the next recession will be?
— WB, Destin, Fla.

Dear WB: In 2010, a Floridian whose family had been growing acres of oranges for several generations was having difficulty coping with the uncertainty that diseases and pests (citrus canker, citrus greening disease, citrus black spot, sweet orange scab, the fruit fly) were having on his groves. These problems led to a significant reduction in his and all of Florida’s orange crop. And after being hit by cold snaps and two hurricanes, which have decimated acres of orange trees in the past few years, he decided he needed another cash crop. So after 18 months of due diligence, he planted 40 acres of bamboo. He would have been better advised to grow marijuana because it’s a hugely more profitable crop. A commercial marijuana crop costs about $20,000 a year in maintenance per acre. That 1 acre produces an average of 500 pounds of marijuana. Using an average price of $2,000 per pound, a single acre of marijuana produces about $1 million, so the gross profit is about $980,000 per acre. Generally, orange trees produce about 400 boxes per acre. Each box yields about 6 pounds of juice. Given a price of $8 a box, gross revenues total $3,200 an acre. After subtracting for grove maintenance of $2,800 per acre, 1 acre of orange trees produces about a $400 profit.

Bamboo may be the fastest-growing plant on earth. And it’s an easy substitute for all wood applications without having to cut down entire groves and replant the crop. All it needs is water and fertilizer twice a year, and the life span is about 90 years. Bamboo grows about an inch a day. It doesn’t need chemicals and converts 35 percent more carbon dioxide into oxygen than a regular tree. And the bamboo products we see on the market today are just the tip of a monstrous iceberg. In the wood industry, bamboo is used for flooring, particleboard, two-by-fours and larger beams, roofing sheets, etc. In the pulp and paper industry, bamboo is used for newsprint, toilet paper, cardboard, bond paper and coffee filters. In textiles, bamboo is used in towels, sheets, socks, blankets, diapers, pillows and more. The bioenergy industry uses bamboo for charcoal, firewood, gasification, briquettes and biofuel. Bamboo is also used in construction, framing, clothing, electronic devices, cars and sports equipment.

While the outlook for the citrus industry is becoming darker and darker, the outlook for the bamboo industry in Florida is bright. The diseases have led to a significant reduction in the production of oranges, more than doubling their cost of production. And one of Florida’s largest citrus growers, Lykes Bros. (which has over 30,000 acres of groves), is looking at an alternative to citrus and has been considering a bamboo crop for over a year. By the way, bamboo shoots are delicious.

I don’t have enough knowledge to advise you on this investment. I urge you to write to the U.S. Department of Agriculture for information. It has plenty of bamboo literature. Then discuss this opportunity with your certified public accountant.

The next recession, according to economist Sydney Smallshovel, may be sooner than you think, even if the president doesn’t get us in a tariff war. Smallshovel referred me to the National Bureau of Economic Research, which keeps track of these things. Since 1854, the U.S. has had 33 recessions, and it’s been 106 months since the most recent one. If the economy manages to expand for 15 more months, it will have set a record. Here’s how Smallshovel says recessions happen: When labor grows scarce and wages climb, businesses ease back on hiring. Then the Federal Reserve raises interest rates, which acts as a braking effect on the economy, and everything goes to pieces. He says that the longer it takes for these events to occur the longer the recession will be. He thinks a recession will happen by early 2021.

—————

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@ yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2018 CREATORS.COM