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The Famine Of 2009

by SacredCowTipper Thu Nov 27th, 2008 at 10:48:01 PM EST

   Last week I received a very concerned call from South Dakota farmer and agronomist Bryan Lutter.  "Neal, we're out of propane!"  I figured this was personal distress - he and his family farm over three square miles of land and I know this has been a tough year for many people. He promptly corrected my misconception when I tried to console him. "No, everybody is out, all three grain elevators, we can't get fuel for the bins, and we're coming in real wet this year."

   There are equally dramatic issues due to the bankruptcy of Verasun and the apparent insolvency of the nation's largest private crop insurance program. Payments that would have come in June or July of a normal year are still not dispersed at the end of November and this has grim implications for next year's crop.

   I started digging into the details and unless I'm badly mistaken people are going to be starving in 2009 over causes and conditions being set down right now. It's a complex, interlocking issue, and I hope I've done a good job explaining it below the fold ...


  The Dakotas have faced fuel restrictions for at least the last two years. They're at the far end of the pipeline network and after complete outages in 2007 everyone orders their diesel well in advance. Vehicle tanks are kept fuller and the on farm tanks are not allowed to run low. Gasoline supply dynamics have changed as well; British Petroleum shuttered three hundred stations in the area, citing the high cost of trucking fuel to the locations from the pipeline terminals.

    This year propane is in short supply. Rural homes in that part of the world are heated with propane and the grain elevator and on farm drying require it to bring corn moisture down for storage. There is no sense that homes will go cold this year, at least not due to supply issues; the grain drying season is a short period of intense usage that will draw to an end within the next week. Pray to whatever higher power you recognize that the unheard of figure of 18% of the crop still in the field is brought in before the snow flies.

    The Dakotas were very wet this year and the corn is coming in at 22% moisture. A more usual number would be 18% and for long term storage it must be dried to 14% to avoid spoilage. That doubling in the moisture reduction needed, an 8% drop instead of 4%, pretty much doubles the amount of propane used. Right now the harvest is at a dead stop. What can be dried has been and what is left can't even be combined without the fuel to make it ready for storage; it would all just spoil in the bin if put up wet.

   I wondered if this was a spot problem in that particular part of South Dakota, but Bryan said it was widespread - he'd talked to farmers as far away as St. Louis and they were reporting similar issues.  I made a few calls to try to figure out how broad the problem was. I ended up talking to Rollin Tiefenthaler at fuel dealer Al's Corner in Carroll, Iowa about the issue.

   The Iowa crop comes matures earlier and is brought in earlier, so that is done, but he confirms that propane is being trucked long distances because local terminals have outages. They did have one farmer's cooperative run out of propane and they scrambled to get them enough, but in general it wasn't a problem. These are plains cooperatives, operations with thirty employees, dozens of vehicles, and tens of millions of dollars in inventory and commodities under management, so one running out of fuel is a problem that would affect a whole county.

 Diesel has been a bigger concern for them - instead of the thirty mile drive to the Magellan pipeline terminal in Milford they're running as far as Des Moines or Omaha, each about two hours away, and the added time and cost for running more trucks is eating them alive.

    The die has already been cast in the Dakotas, they'll either get the crop in or they won't. If they don't and it winters in the field they not only lose 40% of the yield on that ground they lose 20% of next year's yield in soy beans. The corn makes an excellent snow fence, trapping drifts six feet high, and they're slow to clear in the spring. The farmers have to wait until it's dry enough to plant before they can finish bringing in the corn crop, then they plant their soy, and that delay cuts into the growing degree days available for the soy beans and thusly we see the yield drop.

   A few of you might not be from farm state and thusly won't know the normal work flow. The corn crop is still partially in the field, but the soy beans are already done. Soy matures and dries earlier, so it gets tended first. There would never been an instance of soy being left to overwinter just based on crop timing and I don't think the small, thin stocks with relatively fragile pods would prove to be terribly durable under snow banks.

   I wrote earlier about the famine potential we face due to the underfertilization of the wheat crop. Wheat that gets enough ammonia is 14% protein, if it is unfertilized closer to 8%, and that 43% reduction in total plant protein is going to cause unimaginable suffering in places like Egypt, where half of the population gets subsidized bread. Global end of season per capita wheat stocks have been about seventy pounds my entire life, except the last three years where they've dropped to only forty pounds. One mistake in this area and one of the four horsemen gets loose, certainly dragging his brothers along behind. That mistake may already have been made in the lack of wheat fertilization this fall.

    The fall nitrogen fertilizer application has been 10% of the norm. A typical year would see 50% put on in the fall and 50% in the spring. During fertilizer application season the 3,100 mile national ammonia pipeline network runs flat out and the far points on the network experience low flow both fall and spring. If they try to jam 90% of the fertilization into a period of time when the system can only flow a little more than half of the need much of our cropland will go without in the spring of 2009.

    Finances as much as weather are the issue with regards to fertilization this fall. Crop prices have fallen to half of what they were, ammonia prices have dropped but ammonia suppliers here, receiving 75% of their supply from overseas, still have product in their storage tanks purchase at the historical highs last spring and summer.

    When farmers plant they record the acreage and they purchase crop insurance - $20 to $40 an acre depending on the crop. If they have a failure they file a claim, an adjustor contacts them, and they get a check to cover the deficit. Some of this runs through the U.S. Department of Agriculture and some of it is through private insurers.

   My conversations with farmers earlier this week lead me to believe that the largest private insurer, Des Moines Iowa's Rain and Hail Agricultural Insurance may be insolvent. Flooding claims from this spring were filed and payments would have typically been received by the end of June or beginning of July. It's now the end of November and payments are not being dispersed. Individual farmers are told there was something wrong with their paperwork, but this is nonsense - some of these guys have been farming thirty years and they all didn't forget how to fill out a simple form all at the same time. Iowa did have its second five hundred year flood in a decade and a half this spring which certainly has something to do with the situation, but I suspect Wall Street's sticky fingers got hold of Rain & Hail's assets, just as they've done to every pension fund and state run municipal investment pool.

  So, we're already facing what Bryan Lutter calls "the mother of all fertilizer shortages" next spring and on top of that local banks won't lend to farmers.

   The local bank was quite willing to lend to a farmer on a crop despite the weather related risks just like they'd lend on a car despite the driving risks. So long as the asset was insured the risk was deemed manageable. There were sure to be losses here and there, but they'd be administrative hassles associated with well known risks. If the auto insurance companies were viewed as untrustworthy no one would be getting a car without 100% down at the dealership and the same rule is now in effect for farmers.

   Farmers without financing can't afford nitrogen fertilizer at $1,000 a ton, which translates to $100 an acre at current application rates. They won't be paying $300 for a bag of 80,000 hybrid corn kernels, again a $100 per acre expense. The average farm size in Iowa is four hundred acres and planting to harvesting would run about $120,000.

   This looks incredibly bad. Bryan and I are both puzzled as to why the mainstream media isn't covering this. Perhaps the need to sell Christmas season advertising trumps the need for the public to know about the troubles that are brewing.

    This is already 1,600 words and I haven't even touched Verasun. Executive summary? The nation's second largest ethanol maker took corn from farmers, went bankrupt without paying many of them, and a whole lot of family farms are going to be foreclosed upon in short order if something isn't done.

Take Action

     The instant the Obama administration and the 111th Congress take their seats, before anything is done about Detroit, before anything is done about pension funds caught up in Wall Street's massive fraud, yes, even before they touch universal health care SOMETHING has to be done to protect our agriculture system from the volatility flowing from Wall Street's death contortions. This won't be a giveaway - it'll be a genuine investment with known risks and known returns for products that will experience ongoing demand. We, as a nation must provide our farmers with a fair, stable financing and insurance system or we're all going to pay a terrible price.

    If you're not in an agricultural state and you see something come up about a plan to address these issues please take the time to call or write your delegation members and let them know that you realize how important this is, even though it doesn't directly affect your state.

My Personal Action

    Perhaps this is the first time you've ever noticed my work. I'm the executive director for the Stranded Wind Initiative, an organization founded to develop local uses for renewable energy in places that don't have transmission lines available. A few months back a small group of the volunteers from SWI formed Third Mode Energy, a commercial venture aimed at building renewable ammonia fertilizer plants. We're working on projects in New York, Iowa, South Dakota, Indiana, and I think one is going to start in Ohio. We're looking for about fifteen more sites nationally and we need local leaders to take these projects in hand. We're going to be producing a package of information on this for legislators and media figures active in environmental and economic issues which will be ready in the first few days of January, with the intent of getting some of that stimulus money directed at local, renewable ammonia production.

   If your town is down and hurting we might just have a partial solution to the need for jobs and energy. We've got a group for more detailed discussion on Kossacks Networking.

   If you look here you will see an article from last spring - our first attempt at plant development for renewable ammonia. That one didn't go but we learned a lot and the story should give you a sense of the renewable fertilizer, greenhouse produce, and other good things that come from such development.

  If you look here you will see an article I did on wheat fertilization on The Cutting Edge News.

(UPDATE:

    This diary spent some time on the rec list at DailyKos - I've kept a few of the updates I posted there as they seem relevant.

    I've received the usual suggestions about how our large scale grain production should be done organically. I have no ideological opposition to this and in fact I'm generally vegetarian and eat organic as much as I can lay my hands on it. The problem is that none of the proponents can describe to me what it would look like to cultivate an entire square mile in that fashion, let alone defining a plan that would allow a neat conversion of all of the forty to fifty thousand square miles of the state of Iowa to such methods. It's an admirable concept, but it doesn't seem executable. I do not at all accept that it's "big agriculture" keeping the farmers down. If there was a way to get similar yields without paying $100/acre for fertilizer and another $100/acre for seed the typical Iowa farmer with his 400 acres would be busy stuff an extra $80,000 a year into the bank. This is not the case today.

   Kossack cordgrass is going to be disappeared to Guantanamo or worse for speaking the truth. Let's wish he or she a fond farewell:


Real news, useful news that could predict the future is no longer in the MSM, precisely because hedge fund managers and people like that make money on the future.  Knowing what is going to happen in the future is money in the bank.  The more people who know the future, the less money the investor will make.

  Here is an article from The Grand Forks Herald about the propane shortage.

  And here is a direct quote regarding the wheat fertilization. The set of numbers indicate a fertilizer with 18% nitrogen, 46% phosphorus, and in this case no potassium. The source was Bryan Lutter, my agronomist friend in South Dakota. I redacted the farmer's name because I don't have permission to publish it.


Neal,

It's very frustrating there is not enough news on the lack of news
surrounding the under-fertilization of USA wheat. Example, [NAME REDACTED] is a large farmer in New Underwood, SD. He normally uses 5 semi loads of MAP (18-46-0) in the fall for his wheat. He used just 1 this year. The wheat is in the ground, and the die cast.

He explained his reasoning for reduced use very well. The extra yield boost costs too much. It's actually cheaper to simply buy the extra bushels which the fertilizer would provide.

Bryan

Display:
hasn't yet named an agricultural secretary. I wonder if he knows how important this appointment might be?

Back when oil was over $100 USD, and I learned here from the ET community how the credit crisis affected food supplies, I checked out the FAO website and found that worldwide fertilizer usage is expected to drop significantly next year. Other than lower yield, I didn't realize it meant a lower protein crop as well. Thanks.

It's going to take me awhile to game out the just what ramifications of what all this could be. This credit mess just keeps getting worse and worse.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Fri Nov 28th, 2008 at 12:55:44 AM EST
I saw this and commented on Daily Kos last night. Are you "Stranded Wind"?

Hey, Grandma Moses started late!
by LEP on Fri Nov 28th, 2008 at 05:51:35 AM EST
I see that you are "Stranded Wind." You post all those great photos from New England on the photo blog. :-)

Hey, Grandma Moses started late!
by LEP on Fri Nov 28th, 2008 at 05:55:19 AM EST
[ Parent ]

 Yep - that is me. I crosspost here less than I should and I ought to have provided a link.

 That story is the energizer bunny - 21 hours on the rec list and it doesn't seem to want to stop.

by SacredCowTipper (sct@strandedwind.org) on Fri Nov 28th, 2008 at 08:57:54 AM EST
[ Parent ]
the whole Wall Street, credit crunch, meltdown fiasco ... what is the current popular phrase, "Who could have predicted?  Who could have seen this coming?  My my!"

For next year's starvation, same thing, especially in America.  The general population has been dealing with obesity, not want.  Just have to wait till it hits, that's all.  (Sorry melo.)

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Fri Nov 28th, 2008 at 06:09:11 AM EST
THE Twank:
For next year's starvation, same thing, especially in America.  The general population has been dealing with obesity, not want.  Just have to wait till it hits, that's all.  (Sorry melo.)

haha, don't mind me!

afaics, there's no lipsmacking in this comment.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2008 at 11:53:54 PM EST
[ Parent ]
I'm a bit unclear from this story how much of the problem is related to cost of supply issues, distribution issues, genuine shortage issues, and insurance companies having insufficient assets to cover their liabilities - i.e. Wall street issues.

The consequences are clearer: lower yields, lower protein levels = less food availability - exacerbated by the biofuel issue - although that may reduce now that Oil prices have plunged.  

There are clearly serious short term issues which demand immediate attention, but the longer term issues regarding sustainable agriculture - in the financial, environmental, energy cost, and climate change senses of the term all seem to need a lot of working out.

I'm not aware of what was in Obama's program on this - other than favouring bio-fuels because he needed the mid west votes.  But is there a more general sustainable agricultural plan we could all support and lobby for?

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Nov 28th, 2008 at 01:34:13 PM EST
National Campaign for Sustainable Agriculture and Sustainable Agriculture Coalition.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Nov 28th, 2008 at 02:27:40 PM EST
[ Parent ]
Thanks

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Nov 28th, 2008 at 02:35:39 PM EST
[ Parent ]
I can't see any big names or big ideas in the Obama Transition team for agriculture - which is surprising given how close it is to core Democratic issues of the Environment, Energy, food, community, and sustainability.

Any ideas as to who might/should be the next Secretary for Agriculture?

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Nov 29th, 2008 at 09:43:08 AM EST
[ Parent ]
I haven't heard anything other than the float of Gov. Vilsack (Iowa), but anyone who should be Sec'y of Agriculture would be chewed up in confirmation.

Actually, despite being a former governor of Iowa ... or perhaps because of being, if familiarity with Agribusiness sometimes breeds contempt ... from what little I saw in the blogosphere reaction to Vilsack, it seems like he might have been better than some of the traditional Secretaries of Agribusiness that we have had.

Of course, on the timelines of transition past, we are getting announcements incredibly early.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Nov 29th, 2008 at 12:20:25 PM EST
[ Parent ]
I've received the usual suggestions about how our large scale grain production should be done organically. I have no ideological opposition to this and in fact I'm generally vegetarian and eat organic as much as I can lay my hands on it. The problem is that none of the proponents can describe to me what it would look like to cultivate an entire square mile in that fashion, let alone defining a plan that would allow a neat conversion of all of the forty to fifty thousand square miles of the state of Iowa to such methods. It's an admirable concept, but it doesn't seem executable. I do not at all accept that it's "big agriculture" keeping the farmers down. If there was a way to get similar yields without paying $100/acre for fertilizer and another $100/acre for seed the typical Iowa farmer with his 400 acres would be busy stuff an extra $80,000 a year into the bank. This is not the case today.

It's not just big agriculture keeping people down.  It's the notion of labor efficiency, and the development path it has led American agriculture to take.  Organic cultivation, even the large-scale sustainable methods (like in England - in America they just killed soils and moved on) they used on commercial farms in the nineteenth century, is much more process and labor intensive than mechanized mass agriculture.  Everything is divided into smaller units, those units go through different phases of this and that to maintain fertility, and everything needs a lot more human and animal tending.

On the one hand, there's nothing wrong with extra employment.  On the other hand, in a high-wage country like the US, increasing farm employment by a factor of five or ten is demographically impossible in the near future (not nearly enough people live in the right places), and result in a catastrophic transformation in food pricing.

by Zwackus on Fri Nov 28th, 2008 at 05:28:03 PM EST
people are gonna hafta get funky again, and a lot of people will find themselves a lot healthier than they'd ever believed possible, when they were callus-free and cancerous.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2008 at 11:57:34 PM EST
[ Parent ]
I'm trying to figure out whether this is a regional issue (US Middle West) or a global one.

A quick search on web sites following crop growing here in France, one of the largest wheat producers in Western Europe, didn't show any particular concern of wheat shortages next year. Quite the opposite: farmers seem mostly concerned with the wheat prices going south (300€ per ton last year, half of this today). Part of this is pegged on diminishing meat and poultry consumption worldwide because of the bad economy (2 kg worth of grains needed for each kg of poultry meat).

And the fall of maritime shipping costs is expected to bring more competition from Australian and Argentinian farmers.

I don't know much about the region, but the Dakotas don't strike me as the ideal geography to grow wheat: propane heating to prevent the crop from rotting? Never heard of this in Western Europe. AFAIK, wheat is harvested in late June in Provence, first half of July around my home town of Toulouse (all wrapped up by Bastille Day) up to end of August or early September in the northern part of the country; all of of this without any propane heating.

This is not to dismiss the magnitude of the problem: experts acknowledge that "a lower harvest in the United States always has serious repercussions in the rest of the world".

Again, I'm just trying to figure out what the effects will be on the world at large, beyond the serious problems faced by your friends and neighbors.

And crop yields doesn't seem to be the only problem for world wide cereal trade: maritime shipping is facing serious troubles of its own, as already pointed out on ET, here and here.

by Bernard (bernard) on Sat Nov 29th, 2008 at 01:26:03 PM EST

 The corn gets dried, not the wheat.

 The U.S., Canada, and Australia are major exporters. Some parts of the former Soviet Union are also players in this market. Globally per capita wheat stocks have been a consistent seventy pounds my whole life, until three years ago when they sank to forty pounds. If we have one bad harvest, which seems likely given underfertilization, that number goes below some critical level and the civil disorder events in Egypt, Kuwait, and Pakistan last year become weekly rituals.

  I wrote more about the wheat harvest concerns on The Cutting Edge News and I'll happily share my spreadsheet of wheat stocks vs. human population.

http://www.thecuttingedgenews.com/index.php?article=838&pageid=28&pagename=Sci-Tech

by SacredCowTipper (sct@strandedwind.org) on Sun Nov 30th, 2008 at 11:48:20 AM EST
[ Parent ]
Thanks Neal.

Again, my question was about the WW picture. If indeed, we have a bad harvest next year (and the signs from your  neighborhood are not looking good at all), then the first sign should be grain prices going North again...

Over here, from my cursory reading, farmers seemed to be cutting on wheat growing, but mostly because of costs (fertilizers, fuel...) vs. lowered sale price; one estimate of the break-even point being at 145€ per ton, including CAP aid.

But this is Western Europe: the Middle-Eastern countries you mentioned are large grain importers and any imbalance in the global supply would definitely show there first.

by Bernard (bernard) on Sun Nov 30th, 2008 at 01:42:28 PM EST
[ Parent ]

 How can the commodity price go north when everything else is sliding south? Grain will be more precious but that won't be translated into a price increase in the midst of a massive deflation ... right?
by SacredCowTipper (sct@strandedwind.org) on Sun Nov 30th, 2008 at 08:25:17 PM EST
[ Parent ]
http://online.wsj.com/article/SB122792036438265797.html
Seems like Cargill and ADM are sitting on their cash and not loaning it to Brazilian farmers, so their crops will fall short.
by northsylvania on Mon Dec 1st, 2008 at 03:23:57 PM EST
[ Parent ]
The impact of bubble finance has also caused the bankruptcy of a major regional cotton futures house in Texas.  Arkansas cotton farmers who thought they had sold their crops as $80-$90/unit in the spring, an excellent price, now find that the payments are not coming and the current price is $40/unit.  Who could have known that having a bunch of pension funds investing in "real products" such as cotton could have caused such a thing?  The one time the farmers might have made out the system blows up.  

Sorry for the lack of details.  The story was reported in the Arkansas Democrat Gazette and is a hassle for me to access, even though I am a subscriber and thus this is from memory.  I agree that Congress and the Obama Administration need to take steps to insulate farming from the effects of volatility in the financial dis-services industry, whose signature product these days seems to be financial black holes.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 29th, 2008 at 10:58:49 PM EST
Congress and the Obama Administration need to take steps to insulate farming from the effects of volatility in the financial dis-services industry
In theory, futures markets provide exactly that kind of service to commodity producers by allowing them to lock in a price. In fact, futures markets as currently configured are so central to the way people think about finance that I can't see how they could be radically reformed. Now, when you say
bubble finance has also caused the bankruptcy of a major regional cotton futures house in Texas.  Arkansas cotton farmers who thought they had sold their crops as $80-$90/unit in the spring, an excellent price, now find that the payments are not coming and the current price is $40/unit.
do you mean that a futures exchange clearinghouse has gone bust, or a broker that the farmers traded their futures contracts through?

Finally, on

Who could have known that having a bunch of pension funds investing in "real products" such as cotton could have caused such a thing?
None of this is investing, it's speculating (at least in the case of the pension funds - the farmers were hedging).
The one time the farmers might have made out the system blows up.
The farmers are not supposed to make out in this system - if they do the system is malfunctioning so it is not entirely surprising it would go bust.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Nov 30th, 2008 at 06:20:34 AM EST
[ Parent ]
Good to see you commenting, Mig.  As I recall, when last I read about this, the Dallas based cotton futures broker was unable to honor the contract when the cotton was ready for delivery.  I find it difficult to fault the farmers for selling their crops ahead at twice the usual price at the time they would normally be doing so.  They were using the futures system for its intended purpose.  My guess is that the futures broker was a bit queasy about this transaction.  My sense is that, in a relatively small market, the futures price rises to accommodate the amount of speculative money being injected into the system.  When that money began to rush out the broker apparently couldn't stay ahead of the curve.

I referenced this in a comment back in August or September.  Finding the original article in the newspaper would be easier once I find my comment.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Nov 30th, 2008 at 12:30:13 PM EST
[ Parent ]
the Dallas based cotton futures broker was unable to honor the contract when the cotton was ready for delivery.
What was the Dallas-based broker unable to do, exactly? If the farmers had actual cotton ready for delivery then money was coming the other way, so what is the problem?

And if the Dallas broker was on the wrong side of a trade and could not meet a margin call, that's what the futures exchange clearinghouse and daily mark-to-market are there for.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Nov 30th, 2008 at 03:32:26 PM EST
[ Parent ]
When I wrote of pension funds investing in "real products" I was echoing comments I had read in Barron's that had derived from an interview with an analyst who was employed by an investment firm dealing in futures.  She was touting the virtues of "investing" in real products with intrinsic value, such as oil, grain and metals.  I suspected she was recruiting "bigger fools" so that earlier clients could cash out.  It would appear that I was correct on that one.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Nov 30th, 2008 at 12:44:15 PM EST
[ Parent ]


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