Farmers and agricultural publications continue to provide detail that shows the seriousness our politicians aren’t yet really facing.
Menker’s team at Gro Intelligence finds, as of May 19, global inventories of wheat amount to 20% of annual consumption, meaning the world has just 10 weeks’ worth of global wheat consumption in storage.
“Conditions today are worse than those experienced in 2007 and 2008,” she says. “The lowest grain inventory levels the world has ever seen are now occurring, while access to fertilizers is highly constrained, and drought in wheat growing regions around the world is the most extreme it’s been in over 20 years.”
AgWeb, Is the World Really Running Out of Wheat? 06/07/2022
Note that AgWeb doesn’t answer the question that they ask. The answer appears to be, “Yes, we are running out of wheat.”
More specifically, the world would probably be okay if we were getting bumper crops in the US and Canada, but we’re not. We’re lucky in that the over-wet weather finally broke long enough for us to get wheat, corn, and soybeans planted, but we’re not going to get a crop that will compensate for the lack of wheat elsewhere.
Also worth noting: The price of beef is not looking too expensive right now relative to expectations. Unfortunately, that appears to be because beef farmers are afraid that the cost of fodder and grains will go high enough that they won’t be able to keep their cattle profitably, so it’s better to slaughter and sell them in the short term than raise them longer term. That keeps a lid on prices right now — higher supply — but reduces supply in the future dramatically, because we’re killing tomorrow’s stock today.
I reiterate that I’m not an expert on this stuff and am only repeating what I hear from people in the business who seem to know better. Feel free to argue: I’d love to find out that I’m wrong.
McCormick says the demand [for wheat] sits around 1-1.2 billion metric tonnes and where the numbers sit now as far as potential available product, is somewhere around 700 million, which will no doubt have the potential to drive food prices even higher than what is being experienced right now.
If you want to put a number on the crisis we’re facing, here’s one estimate.
We need to be wary for the things that are going to kill us, because I do believe we’re in the middle of a war. But we have to beware of seeing snipers in every tree.
I feel like I have to say this, because otherwise people will take this post the wrong way: I believe that food cost and availability is going to be much more of a problem than it currently is, particularly outside of North America.
Okay, then. Now, someone I respect recently posted this article as an example of the ongoing war on food.
But a grain elevator explosion isn’t new or surprising. Fine dust from organic materials is always an explosion hazard. According to the Kansas State University, there were sixteen agricultural dust explosions in 1997, and a ten-year average prior to that of thirteen agricultural dust explosions per year. Of the sixteen in 1997, nine occurred in grain elevators.
So the raw fact of a single explosion needs to be put into context.
Are we seeing double the number of grain explosions? Triple? 100 times? Or, perhaps, half the usual number? One tenth?
And how much of our food supply chain does this affect? 1%? 10%? 0.001%?
My source shared this explosion because he sees that there are a large number of fires in our food supply chain. He’s not the only one. Here’s an article that points to a variety of fires that have hit food processing plants.
The headline talks about “fires” (plural) resulting in reduced capacity (a general quantity), which makes it sound like the totality of the fires will cause a general reduction in capacity. And it must be a newsworthy reduction, or why would it be in the news?
But in fact when you look at the article, there’s literally no sign of significant capacity problems beyond the single-plant level, and even the single-plant capacity problems are relatively few. Here, for instance:
Oregon-based Shearer’s Foods laid off its entire workforce—about 230 people—after a fire ripped through the Hermiston plant in late February.
“After assessing the damage, it’s clear that the destruction is too great to rebuild and begin production in the near term,” Shearer’s Foods CEO Bill Nictakis said in a March 8 statement.
Damn, sounds bad, right? But wait:
“Unfortunately, it would take at least 15 [to] 18 months before we could resume production,” Nictakis said. “We have not yet decided [on] the future of the Shearer’s Hermiston site. [It] has led to the very difficult decision to end employment for our team members.”
There’s more than one plant?
He said the company was “exploring opportunities to relocate team members interested in working in our other plants.”
Yes. And the others are still operational, which means Shearer didn’t lay off its “entire workforce”, but only the workforce related to that plant.
What about the four-alarm fire at Taylor Farms?
“This was an unfortunate event, but thankfully there were no injuries. We have a strategic network across North America where this will not impact the availability of fresh foods from Taylor Farms,” Rachel Molatore, the company’s director of communications, told The Epoch Times. “No employees were laid off; we are already underway to rebuild the facility, and the investigation is still going on regarding the cause of the fire.”
And so on.
On April 30, a soybean processing tank caught fire at a Purdue Farms plant in Chesapeake, Virginia. However, company officials said the facility would continue operating.
Even the poignant and sad event that leads the article, a fire at Wisconsin River Meats, shows how devastating such an event can be for…20 people.
Company owner David Mauer said the Mauston-based company “lost everything” related to production in the fire, and more than 20 people lost their jobs.
I have immense sympathy for everyone involved, but a 20-person company is a single sodium ion in the ocean of the US food supply chain. This is not a significant event — and the others mentioned appear to be even less so.
I haven’t even begun to try to do the full amount of research needed to quantify the impact of fires at food processing plants in an ordinary year, but it’s pretty clear from a quick overview that it’s pretty close to zero. But the people sharing stories like this seem to have even less of a baseline to work from, and they’re brought up short when confronted with the fact that the collection of fires they’re looking at represents a negligible fraction of our food supply chain.
I think we should be watching out for potential evil around us. We need to be wary for the things that are going to kill us, because I do believe we’re in the middle of a war. But we have to beware of seeing snipers in every tree. Focusing on what’s important means ignoring the unimportant, and these fires are unimportant.
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.
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.
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.
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(notby) 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.
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.
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.
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.
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.
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.