This post is preamble: a long, potentially annoying infodump that serves as background for future posts that may actually be worth something.
And before I go too far, I’ll note one major problem: I’m no expert. I’ve only recently (late 2021) started watching this stuff, so you can’t really trust me. But I promise that I will only post things that come from those who know much more than I do.
I’ve been talking about the impending food crisis since late last year, when the early signs started to rise. The more time went by, the wider the circle with whom I shared my concerns. These discussions were part of the reason our Laughing Lupine host asked if I wanted to blog here.
Now the politicos and money managers have caught on, which means my opinions might not add significant benefit: Once they’re talking about it, the signs are too obvious for additional commentary to matter much.
That said, if we look at the signs that existed prior to their late entry into the conversation (late March 2022), we might see other things that they’re slow to see, and that might help us see farther than they are. It could also help us understand what not to believe among the fearmongers out there; I have a future post in mind on that topic.
To get this issue out of the way early, I think it’s unlikely that we’ll see a civilization-ending catastrophe, and all bets are off if we do. But meat, grain, and vegetable farming is a long-term project that has annual cycles, and this annual cycle is starting off really bad, which means it may be too late to counteract any price increases that are likely to come. Some of that will be mitigated by farmers shifting to different crops (e.g., soybeans vs. corn), so rather than outright hunger we’ll just see shortages of common goods.
But either way, I expect consumer spending to be curtailed quite a bit as we see significant spikes in food prices. We’re already starting to see Target and Walmart suffer massive stock market losses because their margins have been cut in half, at least partly because people are spending more on low-margin groceries and less on high-margin products such as electronics. (And some foodstuffs, corn in particular, are used in a lot more things than just food, but I’m getting ahead of myself.) I find it odd that sites like MarketWatch recognize the “shift” in consumer spending without relating that to margin:
Walmart noted the impact of inflation on grocery pulled sales away from other categories as low-to-middle income shoppers are cutting back on non-essentials, resulting in overall flat transactions year-over-year.MarketWatch, May 19, 2022
When your margin on grocery is something like 2% and your margin on other categories is something like twice that, your margins get cut when people spend more on groceries even if you have “overall flat transactions year-over-year.”
But this is already getting long, and I’m just winding up. So let’s go back some months. I’m going to start in January, though the signs were there before then.
The first thing I saw, which people in normal media weren’t discussing, was massive, unrelenting increases in the inputs to food. Not just price increases for today’s food, which does get media attention, but the cost increases for fertilizers and livestock feed necessary to get next year’s food to market. These things are priced into our higher 2022 prices by now, but I don’t believe they’re fully priced into late 2022 through late 2023 prices yet. That means we could see significant price spikes even from our current high prices.
First, watch the first 90 seconds or so of this video from January 3, 2022. The video isn’t about the problem, but boy does it show it.
The most recent Ag Economy Barometer from Purdue University study says the following:
Texas A&M economists found heading into spring planting, fertilizer prices are up 80% compared to 2021, and in some cases, farmers are seeing certain fertilizer prices more than double what they saw last year. But for the report, AFPC was conservative in its estimate, using a 50% increase in fertilizer costs.
Note: A conservative estimate is a 50% increase in fertilizer costs.
It’s not just climbing fertilizer prices that pose a problem for producers, either. It’s also availability that’s an issue for farmers still trying to source inputs for 2022. The study showed 40% of farmers had some difficulty purchasing inputs for the 2022 season.
The agriculture department expects the costs to raise crops and livestock will grow 5.1% to $411.6 billion over the 2021 figure, with the price of fertilizer climbing 12% and for livestock feed, 6.1%. This year’s expected hike in expenses comes on top of a 9.4% increase last year, the forecast said.
Lillibridge, however, said the increases he’s seeing are far greater. He said his fertilizer costs are up 300% and the costs of herbicides, pesticides and other crop protection products are up 100% to 150%….
Farmers have a lot on their minds going into the next growing seasons, he said. In addition to higher production costs, Iowa farmers are concerned about whether they’ll have equipment and parts next season, given supply-chain issues, and remain concerned about the possibility of a drought.
Iowa and large parts of the Midwest struggled with drought conditions last year. Many farmers said they received rain just in time to preserve crop yields.
The latest U.S. Drought Monitor report, released Thursday, showed almost 55% of Iowa experiencing abnormally dry or moderate drought conditions in the week ending Feb. 1. That was up from about 52% the previous week and about 48% a year ago.
“It probably wouldn’t take much for us to drop back into a drought,” Lillibridge said.https://www.desmoinesregister.com/story/money/agriculture/2022/02/06/2022-farm-income-expected-fall-production-fertilizer-feed-costs-rise/6665786001/
This is ZeroHedge, which tends to have a lot of hype, but the key fact of the article — that Tesco’s CEO said that “the worst is yet to come” — is true. This is in the UK, but I don’t think we’re so disconnected that we won’t also see issues here.
This article came out before the Canadian trucker protests that further disrupted supply chains.
Key statement: “Several larger feedlots have indicated that they will run out of all feed in a few days.”
That’s food insecurity for 1.5 million cattle. I didn’t hear about mass cattle starvation since then, but there shouldn’t even be a question that there would be sufficient food at a reasonable price. This is Canada, but again, the ripple effects aren’t minimal.
Elevators working in reverse as Alberta cattle feeders face increasingly desperate feed shortage.
“It’s a mess,” notes Kevin Serfas, of Serfas Farms, based at Turin, Alta. “If you only bought exactly what you needed on a week-to-week basis, you are in panic mode right now. I started November 1 and probably have half my orders. I’m not sure what needs to change. Everyone just blames the prior link in the chain.”
That chain includes grain companies, railways and railways, as well as trucking companies.
In some cases, grain handlers, such as Cargill, P&H, Richardson, and Viterra, are essentially trying to run their elevators in reverse. Rather than taking delivery from producers and loading grain onto trains, they are taking delivery of corn by train and transferring it onto trucks to fill sales contracts they’ve signed with cattle feeders — many of which are the same producers who otherwise sell grain to these companies.
Labour shortages, due to COVID-19 and more, have exacerbated the challenge in some situations, causing delays with loading and unloading trains and trucks. Several feedlots say delays in unloading trains have resulted in the railway putting a lower priority on these shipments. In some cases, they’ve been penalized financially with demurrage fees. [The guy who pointed this out to me commented: Stunning that the railway can simply stop shipping animal feed.]
There’s also concern the Canadian and U.S. government’s cross-border vaccination mandates, taking effect January 15 and 22, respectively, are removing a significant number of truck drivers from the road. Several sources told RealAgriculture they’ve also heard of a train being delayed due to crew members not wanting to have to quarantine in Canada.
To put the amount of feed that’s needed in context, ACFA says one rail car — the equivalent of approximately two super B trailers — will feed approximately 8,000 head of cattle for one day. There are approximately 1.5 million head in the province, meaning the industry requires more than a 100 unit train every day to replace the barley and wheat that would normally be sourced closer to home.
…and here’s a follow-up. Something to consider: Farmers need to make a profit, and even if they can produce something, that doesn’t mean they will if they can’t be sure that they’ll make money on it.
Something completely different: There have been a tremendous number of birds killed because of (not by) the avian flu this year — last I looked, something like 28,000,000. Note the German egg problem below, which wasn’t related to the bird flu.
From Thursday, 3/17:
This article about pigs is from the UK, but the principle is the same everywhere:
- Fertilizer and other inputs to grains have gone through the roof
- Grains are now going through the roof as a result
- Meat and other animal products (milk, in this case) will go through the roof as the growing season continues
So while people are talking about Ukrainian grain, we should also be talking about meat, dairy, leather, and other animal products.
Also from the UK, in March.
“But we also usually apply a liquid fertiliser in the spring. Last year that cost us £5,600, but the quote last week was for £17,000.”https://www.fwi.co.uk/business/markets-and-trends/input-prices/farmers-feeling-pressure-as-ukraine-war-sends-costs-soaring
Andersons’ own calculation of input costs shows that “agflation” has been rising at 10% a year in recent months, compared with 5.5% for the more general consumer prices index, and is expected to surge further ahead as the effect of the war in Ukraine is felt.
“The world has changed,” says Andersons partner and consultant Michael Haverty. “The Ukraine crisis has put renewed upwards pressure on everything, but especially fuel, fertiliser and animal feed.
“Whether any of this can be recouped by farmers depends on the extent to which consumers are able to pay more for their food,” he suggests.
…The real hike in costs is likely to hit the following season, Mr King suggests, with Loam Farm [one of four model farsm used for forecasting] forecast to see its margin from production drop from £325/ha in 2022 to just £30/ha, as variable costs climb another 36% while overheads reach £500/ha.
…The projections for Meadow Farm – a notional 154ha farm with suckler cows, finishers, sheep and arable, producing grain for livestock – suggest production margins will fall from a small profit of £31/ha in 2021-22 to a hefty loss of £202/ha in 2022-21.
The outlook is just as bleak for Uplands Farm – a 300ha beef and sheep holding with 90 spring-calving sucklers and 800 ewes in the north of England.
Even with 2021-22’s buoyant prices, the farm is projected to make a small loss on its farming practices while, for next year, a steep rise in feed, fuel and fertiliser is expected to push this loss to £165/ha.https://www.fwi.co.uk/business/markets-and-trends/input-prices/ukraine-war-to-squeeze-farm-margins-as-input-inflation-bites
My interpretation: If inputs are already that expensive, and margins are already that low, and outputs are expected to drop, then either the cost of food will dramatically (like 2x in some areas of the world, not the paltry 10% we’ve been seeing) over the next year or two, or there simply won’t be enough food available in some parts of the world as farmers drop out of the business and see their farms repossessed, or both.
Russia and China both stopped exporting fertilizer earlier this year.
“Russia is a major, major exporter across all of the major fertilizers,” says Linville. “Urea, they account for 14% of the global export total. UAN has been anywhere from 25% to 31% the last couple of years. Phosphate 10%. They are almost 20% of the global operating potash capacity of the entire world. They’re a big deal. Losing Russian exports is a very big deal. I don’t care where you are in the earth, it matters to you.”
However, even with Russia pulling off the world market, it still doesn’t create a “worst-case scenario” for fertilizer availability and prices. Linville says China holds the card for that scenario as Russia and China combined account for 40% to 45% of total global phosphate production.
“We are still working with the idea that China is going to come back to the export market in June of this year. If China steps out and says what you’re doing to Russia is like an attack on us, we are going to attack we’re going to take over Taiwan, we start to do the same thing to China, the rest of the world has done to Russia, then it gets worse than where we’re at today,” says Linville.https://www.agweb.com/news/policy/politics/if-you-think-fertilizer-prices-are-bad-now-heres-why-china-could-make
This is a Google translation, so forgive its awkwardness. This is also about Germany, not North America, but we’re all connected. This is the opening hal of the article:
The German egg industry speaks of “red alert”. Against the background of massively restricted supply chains and dramatic cost increases, especially for animal feed, the Federal Egg Association is sending an urgent wake-up call to politicians and the food retail trade.
From summer 2022 at the latest , the supply of eggs can no longer be guaranteed, writes the Central Association of the German Poultry Industry.
“Sheer existential fear” among farmers
The latest developments on the global agricultural market are bringing the German egg industry to its knees.
“There is sometimes sheer existential fear among our farmers. The prices for animal feed have more than doubled in a very short time. GMO-free soy is hard to come by. As a result, many keepers are no longer able to re-stall,” Henner Schönecke, Chairman of the BVEi, describes the situation.
No more restocking means fewer laying hens are available to lay eggs. Schönecke expects that the security of supply with German eggs can no longer be guaranteed by August at the latest.https://www-epochtimes-de.translate.goog/politik/deutschland/deutsche-eier-versorgung-a, sommer-nicht-mehr-gesichert-a3765818.html?telegram=1&_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en&_x_tr_pto=wapp
This is a lot of stuff, and there’s more I could post — this isn’t even the most paranoid stuff out there, by far — but I’ll stop. This selection is reasonable information from respected publications, not click-bait doomsayers. I haven’t even gotten into the weather issues we’ve had, where the western part of the US is in drought, the east has been too cold and wet to plant, and as a result of that (among other things!) we’ve had late crops, bad crops, and reduced expected yields. I’m understating the level of problems we’ve seen.
This information was all available before the mainstream press started talking about a food crisis. The first time I noticed a mainstream article citing a significant politician was in late March, when the UK environment secretary talked about a 30% increase in the cost of chicken. There were a lot of warning signs before then.
Some things have already been overcome. Some of the Canadian rail issues have been resolved. Bayer seems to have resolved its early glysophate problems. And America makes an incredible amount of food, a lot of which gets wasted, so I don’t see us going hungry.
But I expect significant price increases here, and even lack of availability elsewhere. And where there’s lack of food availability — hunger — there’s unrest. We needed bumper crops to get over the issues we were already facing, and it got worse with the Ukraine invasion. We’re not getting a bumper crop. There will be issues.
Gotta go. If you want drill-down on anything, let me know and I’ll tell you what I know so far.