Posted on 03/27/2022 9:45:07 AM PDT by blam
It was a spooky time to be out at sea off the US East Coast on Halloween in 1991. A strong storm system over the maritime provinces in Canada merged with the remnants of Hurricane Grace, forming a new, epic, and dangerous Nor’easter. The winds of this new storm breached 70 miles per hour and a wave as high as 100 feet was measured off the coast of Nova Scotia, but the storm was not renamed as either a tropical storm or a hurricane – instead, it is known only colloquially as simply the Perfect Storm. Six fishermen from Massachusetts perished when their vessel Andrea Gail sunk in open waters, and the story of the storm and of that tragedy became the subject of a best-selling book and a blockbuster feature film.
While the concept of a perfect storm is often too casually assigned in popular culture, it is difficult to find a more apt description of what has been unfolding in the global agriculture markets over these past several months. The tempest caused by the European energy disaster has merged with the hurricane of consequences flowing from Russia’s invasion of Ukraine, forming the genesis of a generational crisis in food that will leave few unaffected. While we’ve been warning about just such a scenario for some time, after spending the past two weeks traveling across the US Midwest and conferring with our contacts in the agricultural sector, even we are a little spooked by what we’ve learned. In a financial crash, the correlation between all asset classes converges to one. The coming crash in global food supply will be driven by a similar phenomenon across virtually every input into farming – they are all spiking to historic highs simultaneously, supply availability is diminishing across the spectrum, and the time to reverse the worst of the upcoming consequences is rapidly running short.
Other than that, things are great.
We begin with the price of fertilizer, which has been soaring to record highs across the globe. Key sources of nitrogen, potassium, and phosphorous – important inputs into soil fertility, crop yield, and plant maintenance – have all gone vertical. Ammonia is derived directly from natural gas, and the price of natural gas outside of the US has gone vertical. It’s no surprise that the price of ammonia has tripled over the past twelve months. Belarus is the third-largest supplier of potash in the world and its state-owned miner, Belaruskali, declared force majeure after sanctions were imposed by the US and Europe. The number two supplier of potash globally? Russia. Perhaps front-running the Russian move on Ukraine, China halted phosphate exports last fall in an effort to ensure adequate domestic supply. The combined impact of these events can be seen in the Green Markets North American Fertilize Index, which tracks a blend of fertilizer prices globally:
Weed control is an important element of farming, and herbicides are an irreplaceable tool in the farmer’s repertoire. The most heavily used herbicide in the world is the controversial molecule glyphosate, known widely by its retail brand name Roundup. Invented by Monsanto (which is now owned by Bayer) in the 1970s, glyphosate has been linked to certain blood cancers and is targeted for elimination by many environmental groups. Despite these concerns, glyphosate remains a systemically important molecule – many seeds have been genetically modified to be resistant to it, allowing for its widespread use while minimizing damage to crops, and generics have expanded the market as it came off Monsanto’s patent.
Glyphosate is effectively little more than an elegantly modified fertilizer, containing both phosphorous and nitrogen. It is derived from similar starting materials – including ammonia – and, as such, its price has soared amid chronic supply shortages. This has caused the price of other herbicides to rise as farmers desperately seek substitutes, as described by this article in The Western Producer (emphasis added throughout):
“The much-ballyhooed glyphosate shortage is just the first domino to fall, according to a leading crop protection company.
‘The knock-on effect on basically every other herbicide molecule is starting to manifest itself,’ said Cornie Thiessen, general manager of ADAMA Canada. ‘We are seeing quite a domino effect in the market because of the glyphosate challenges.’
Bayer was already warning customers in late 2021 about a potential glyphosate shortage.”
If farmers skimp on herbicides to get by this season, it only makes dealing with weeds more challenging in the future. As one expert warned us, it only takes one year of negligence to do several years of damage to a field.
Diesel is another significant input into farming, and it too is facing a global supply crunch. Javier Blas, an energy and commodities columnist at Bloomberg whose Twitter account is an absolute must-follow, recently published an editorial sounding the alarm:
“The dire diesel supply situation predates the Russian invasion of Ukraine. While global oil demand hasn’t yet reached its pre-pandemic level, global diesel consumption surged to a fresh all-time high in the fourth quarter of 2021. The boom reflects the lopsided Covid economic recovery, with transportation demand spiking to ease supply-chain messes.
European refineries have struggled to match this revival in demand. One key reason is pricey natural gas. Refineries use gas to produce hydrogen, which they then use to remove sulphur from diesel. The spike in gas prices in late 2021 made that process prohibitively expensive, cutting diesel output.”
Once again, we discover the vital role natural gas plays in many downstream verticals, a key theme of many Doomberg pieces. With inventories at record lows and supplies constrained, the retail price of diesel in the US smashed previous record highs. In Europe, which depends heavily on Russian imports for both diesel and its semi-processed oil precursor, the wholesale market is on the verge of breaking. Here’s an updated version of the chart in Blas’ editorial:
As expensive as it is to fuel the field equipment needed to farm, keeping them operational at all is becoming an ever-growing challenge. The same chip shortage constraining automobile production has struck the farming equipment industry, making new equipment and spare parts harder to come by. Farmers in Iowa recently vented their frustration at a Republican forum on agriculture:
“…they bemoaned the hit-and-miss availability of parts to fix their equipment — the result of pandemic disruptions in the production of those parts. Iowa Rep. Ross Paustian, R-Walcott, is a farmer who said his neighbor was forced to buy a hydraulic pump for his tractor from a Nebraska dealership because it was the only place in the country that had it stocked.
Jim Boyer, an Emmet County farmer, had a similar, personal anecdote. He’s awaiting a $40 emissions-related sensor for his tractor, and he’s not sure if it will arrive anytime soon.
‘I cannot drive that tractor — a quarter-million-dollar piece of equipment — because I cannot get that sensor,’ he said.”
Compounding these challenges with machinery is a burgeoning labor shortage that is rapidly adding pressure to this brewing catastrophe. Although the labor issues in the US span well beyond agriculture, there are aspects that exacerbate the impact on farmers, including the physical labor intensity and seasonality of many roles, as well as the reliance on foreign laborers to fill key positions US citizens have historically shunned. This is especially challenging in light of vaccine mandates at border crossings. Here’s a recent report from Wisconsin Public Radio which describes the challenges well:
“While some farms employ workers all year round, Strader said many jobs are seasonal, starting in March and April and going until late fall when harvest ends.
With producers on edge about hiring for this year, Strader said many farms started recruiting earlier than usual and developed a contingency plan for how to make it through the season without employees. That could mean discontinuing certain markets or scaling back the variety of produce that they’re growing.”
Farmers are also competing with other sectors for a limited pool of labor. The gap between job openings and unemployed but willing workers across the entire US continues to widen:
Even generously assuming farmers can cobble together enough fertilizer, herbicide, machinery, and labor to produce a good harvest this fall, they may be left to deal with yet another crisis of supply that few off the field have on their radar: propane. As Tracy Schuchart – yet another absolute must-follow on Twitter – has been flagging for several months, the US exits the winter of 2021-2022 with concerningly low levels of propane inventory, well-below typical averages for this time of year:
I know I keep bringing propane up, but the US is now just below 35 days of supply
You know what industry relies on propane the most?
Farming.
— Tracy (𝕮𝖍𝖎) (@chigrl) March 20, 2022
Here is the supply situation in chart form, with the shaded region signifying the high- and low-inventory levels over the past seven years:
What does propane supply have to do with farming? Grain drying. Here’s a primer on the importance of drying, from Wikipedia:
“Hundreds of millions of tonnes of wheat, corn, soybean, rice and other grains as sorghum, sunflower seeds, rapeseed/canola, barley, oats, etc., are dried in grain dryers. In the main agricultural countries, drying comprises the reduction of moisture from about 17-30% w/w to values between 8 and 15% w/w, depending on the grain. The final moisture content for drying must be adequate for storage.”
Many farms are located in rural areas without ready access to natural gas, and thus some 80% of grain dryers in the US, for example, rely on propane as a fuel. In a piece we wrote in December called An Urgent Call on Line 5, we chronicled how progressive politicians and environmental groups were targeting an important pipeline artery that runs from Canada, under the Straits of Mackinac, and across the State of Michigan. Line 5 is crucial to the stability of the US supply of propane, and yet – despite the catastrophic energy crisis we find ourselves in – the Attorney General of Michigan was recently captured on video spouting unserious nonsense:
“Acknowledging the legal battle she’s waging against Line 5 is an uphill and unpopular battle, Michigan Attorney General Dana Nessel blamed ‘propaganda’ from the pipeline’s proprietor, which she said has ‘really changed public perception and opinion.’
Nessel vowed to continue the fight against Line 5 and defended the attempts by Gov. Gretchen Whitmer’s administration to shut down the nearly 70-year-old pipeline during a recorded video chat with the Royal Oak Area Democratic Club. The conservative group Michigan Rising Action shared the video with Breitbart.”
We believe we are at the onset of a global famine of historic proportions. In a staggering defiance of logic, many US politicians are still attacking the lifeblood of our own energy production infrastructure, looking to score political points against “the other team,” blaming price-taking producers of global commodities for gouging, threatening producers of energy with windfall profits taxes, resisting calls to remove bureaucratic hurdles to new production, and refusing to open an introductory physics textbook to help guide them through the suite of policy choices that require true leadership to get right. They remain stuck in an endless loop of platitudes, blamestorming, corruption, and ignorance.
As Eisenhower aptly identifies in our opening quote, distance has an anesthetizing effect on the observer of any occurrence. One wonders how many people will starve before our politicians get serious. The populations most at risk of falling off the edge are half a world away and we worry that that number is uncomfortably high.
At Doomberg, we pride ourselves on seeing patterns early and being months ahead of the news flow. We are consistently human-centric. Never have we been more certain in our beliefs while fervently wishing that we are wrong. A global famine is no joke, and correctly forecasting one would bring no joy.
O’Biden is getting what he wants.
Punishing U.S. farmers, and rewarding the Red Chinese.
Go ahead. Put all of your life savings and everything you can borrow into grain futures. It’s a sure thing. What could go wrong?
The Liberals have stated that the earth can only support 30 million people.
They are trying to get us to that number.
Nothing is mentioned of the Invisible Hand - weather.
Well....those designated to go aren't going to go without a fight. Eh?
Heard there’s an idle potash mine in New Mexico from someone on here the other day. Ruy, was that you? Near Carlsbad IIRC.
I had an Oklahoma wheat farmer, on this forum, tell me his yield could be off as much as 50% if he had to plant with no fertilizer. If that’s the case globally, we are already screwed.
And the naysayers here are not concerned.
There is a huge normalcy bias still happening here and in the population general.
Bumped into a Mother & Father shopping in Walmart this morning. She stood in front of the near empty pasta aisle and asked out loud where all the pasta was at. She looked dead at me confused by the evidence in front of her.
I told her what Biden said this week about food shortages are coming. Her response was with 6 kids she doesn’t have time to watch the news. I responded, “Well, ya’ better start.”
What we have right now is still the supply chain issues. By late July-early August the food shortages will be getting real.
Part of this issue is the fertilizer price and part is the almost 5 dollar a gallon diesel fuel. Fertilizer in this area mostly all gets trucked in from Houston as it is needed.
What people need to realize is what these inputs actually mean as we are just into spring planting here and it goes to the north as it warms up. If fertilizer hits 2320 dollars which it appears it will easily, that will mean my input cost on one single item will be 1000 percent higher. Figure in diesel costs twice as much this year and parts are ridiculously expensive and hard to come by as well as oil and lubricants to service my equipment and you are basically going to come up with a commodity price that is 15 times what it was last year.
All that will rapidly filter down to the grocery stores as most all of it is traded on the futures and what that boils down to is if a grocery bill from last year cost 200 dollars I wouldn't be surprised to see it north of 2000 before very long for the same items.
I highly recommend planting a garden if a person is able to and stock up on flour, salt, yeast, dry goods and can goods while the market is still sane.
I plant a 50’x50’ garden. I went to Southern States three weeks ago to buy seed. Plenty of seed. I asked about fertilizer and was told they had some. Another employee chimed in they still had some because the price was so high. I was then told the manager had already let the employees know that, as of three weeks ago, they had zero fertilizer in their distribution chain, nothing for spring planting coming. My immediate fear was producers like you being told the same thing. Have you heard of a projected end of the line of fertilizer supplies at any price yet?
Invented by Monsanto (which is now owned by Bayer) in the 1970s, glyphosate has been linked to certain blood cancers and is targeted for elimination by many environmental groups.
—
There is absolutely no credible scientific study that links glyphosate to anything other than plant genes. There is however, tons of anecdotal tales, stories, “evidence” that glyphosate is the worst killer of humans since DDT. However, last I heard of 7 suicidal people, having failed to achieve their goal, drank the 43% stuff (not he 3-4% store bought products) and several suffered stomach aches of varying degrees of distress, one did achieve his goal. You will definitely be in trouble if you are a plant or some sort of “human” with plant genes.
Bayer has either sold or is in the process of selling its glyphosate manufacturing division. Might be bought by any one of the dozens of other glyphosate manufactures.
I grew up two miles from a very sleepy potash mine in central Michigan. It was surrounded by fields, dirt roads, and zero infrastructure.
20 years later I haven’t been in that area in years but I have to wonder what that plant looks like now.
Biggest issue is you have to have it to produce the yields that are being demanded. Until the commodity prices react some I think some farmers may choose to leave some land out of rotation this year. But then again what do you do. If you don't plant it you don't get a crop and no crop no income.
I also do a bunch of custom work both planting and harvesting for other local farmers as it is more lucrative but as this has all unfolded many of my customers have already canceled plans for me to farm their fields even before I have told them that harvesting costs will be double this year. I would say about 80 percent have already bailed on me this year. Gonna be a hard year for everyone I reckon.
You farmers are beginning to scare me badly. Maybe I better go back and let the politicians reassure me. I really appreciate what you guys do. Good luck with the crop.
Like I said plan and prepare if you can and know that those of us who do this for a living buy groceries too. We ain't out here making a killing off of the work we do. Its all about the love of working the land and producing food for everyone.
In reference to earlier about the supply of fertilizers, production is already ramped up but there is a limit to how much can be produced as well as how difficult it is to increase capacity. We wont run out of fertilizer just wont be able to afford the cost due to demand. The distribution side of retailers will run out immediately because the are trying to avoid getting caught with a bad spot price as well as they know that the everyday consumer probably won't purchase a bag of fertilizer at ten times the price and it would be foolish to be sitting on that inventory.
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...potash mine in central Michigan.
“... about a potential glyphosate shortage.”
Reopen the mines at Carlsbad NM.
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