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    Fertilizer Inflation and a Supply Chain Crisis Begets Food Insecurity – Part 2

    The world is waltzing into a crisis of food insecurity at a quickened pace as war in the breadbasket of Ukraine and Russia multiplies agricultural supply chain issues and inflation pressures that were already afoot. Sanctions against Russia may be necessary for the West to send a message, but while the West has Coca-Cola, McDonald’s, Netflix, PornHub, Starbucks, SWIFT, and Twitter, the Russians have fertilizer, food, gas, oil, gold, nickel, and palladium. It would have been wiser for the West to diplomatically de-escalate and politely address Russia’s concerns instead of disregard and humiliation since the 1990s.

    Food Prices Hit a Record and Now War Will Make It Much Worse… “Russia’s invasion of Ukraine shocked commodities markets and propelled prices for the ingredients of modern life to unseen heights, and in the aftermath lies a looming crisis. Combat in the fertile Black Sea region, and the ensuing international pullback in doing business with Russia, is strangling trade in wheat, vegetable oils, corn and the fertilizer to grow them, and tighter supplies get more expensive by the day. Global food prices jumped to a record last month, just as war started in the world’s breadbasket.” – Bloomberg, Mar. 5

    Global Food Prices Chart

    Chart Courtesy of ZH

    The U.S. is on the precipice of a stagflationary whirlwind that could be worse than the economic conditions created by the Great Financial Crisis (GFC) and its subsequent recession. A waltz is supposed to be a romantic dance that encourages the coupling of humanity, but the Biden administration, Europe, and NATO partners are dancing the world toward a financial catastrophe or WWIII. Here is an excerpt from Part 1:

    “Ammonia-based fertilizers are made from nitrogen and natural gas or methane (CH4) and account for nearly 70% of all manufactured fertilizers on the planet. It is used to support major agricultural crops such as coffee, corn, rice, wheat, miscellaneous forage, and home gardeners to produce higher yields. Roughly 80% of the cost to manufacture ammonia fertilizers is derived from natural gas with its recent price surge of up to 500% and impact on world fertilizer production. In addition, the demand for fertilizer components such as nitrogen, phosphorus, and potash are in a rising trend since at least 2011. Any shortage in fertilizers will eventually slash global crop yields. When other variables on the world stage are considered, the potential for deeper food shortages in the future snowballs.” – Jan. 31

    Iryna Manyukina Plays Piano in Ruins of Her Home Near Kyiv – Mar. 5, 2022

     

    Ukrainian BTR-4 on Streets of Mariupol vs. Russian Military Armor & Infantry

     

    A few highlights on the geopolitical and economic chaos that ensued since January include out-of-control inflation in energy and consumer goods that’s growing hotter than the ‘70s and early ‘80s, a military incursion by Russia into the Ukraine (Twitter thread), sanctions and embargos levied against Russia on multiple fronts, Russia reciprocating with its own economic arrows in kind, Saudi Arabia and Emirati leaders won’t return Biden’s phone calls to discuss oil and the petrodollar, Iran bombed a U.S. military compound in the Kurdistan region of Iraq with with 1,000-pound Fateh-110 ballistic missiles, and China is eyeing Taiwan along with bouts of retaliatory rhetoric that humiliate the U.S. hegemony and leadership on numerous fronts. Meanwhile, the worst for agriculture has not yet manifested, and farmers and truckers run on diesel. When they can no longer afford fuel, we don’t eat.

    China agriculture minister says winter wheat condition could be worst in history… “Concerns over grain supplies in the world’s biggest consumer.” – Reuters, Mar. 6

     

    Hundreds of Ships Trapped by Ukraine War, Endangering Sailors and Global Trade… “Port closings and missile strikes on vessels have ripple effects on trade, including grain markets.” – WSJ, Mar. 8

     

    Ukraine bans exports of wheat, oats and other food staples… “New rules on agricultural exports introduced this week also prohibit the export of millet, buckwheat, sugar, live cattle, and meat and other ‘byproducts’ from cattle, according to a government announcement. The export ban is needed to prevent a ‘humanitarian crisis in Ukraine, stabilize the market and meet the needs of the population in critical food products. ’” – AP, Mar. 9

     

    RUSSIAN BANS EXPORT OF TECH, TELECOMS, MEDICAL, AUTO, AGRICULTURAL AND ELECTRICAL EQUIPMENT UNTIL END OF 2022 – Mar. 10

     

    The War in Ukraine Is Threatening the Breadbasket of Europe… “Millions of tons of grain may not make it out of the country this year. The shortfall could spread hunger and civil unrest worldwide.” – Wired, Mar. 11

     

    Putin Warns Attempts to Prevent Russian Exports of Fertilizers, Oil, Gas Will Have ‘Serious Consequences’… “Even if the war were to stop tomorrow, it’s already too late. It’s too late for the planting season for the Northern Hemisphere this year.” – Epoch Times, Mar. 11

     

    Flour rationing in Lebanon, grain hoarding in Hungary: How the Ukraine war is lurching the globe toward a new food crisis… “Russia’s invasion of one of the world’s leading breadbaskets — Ukraine — is deepening the worst surge in global food prices since the Great Recession, raising the specter that Moscow’s war could spark crisis-level hikes, inflame the scourge of world hunger and spark political turmoil far from the conflict zone.” – MSN, Mar. 11

     

    Argentina halts export registration for soy oil, meal… “The move stops sales and exports of the 2021/22 crop, but physical shipments have not started because no harvesting has taken place. The decision by Argentina, the top global exporter of both soybean meal and oil, will likely roil the world soy market, which has seen prices spike on Russia’s invasion of Ukraine.” – Reuters, Mar. 14

    The FOMC decision out of the Federal Reserve this Wednesday is expected to save face with a 0.25% punt to lift the Fed Funds Rate. In the meantime, the U.S. economy is shattering at the seams and the cost of gasoline is robbing you at the pump. Biden’s priority is to beg for oil from a communist dictator in Venezuela rather than releasing the U.S. energy beast and bringing back energy independence.

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    If You Liked Being Dependent On Middle East Oil You Will Love Being Owned By China… “As our sons and daughters fought and died for Middle Eastern oil, we dreamed of one day being able to supply all our own energy needs. Then, for one brief shining moment under Donald Trump, we achieved that goal. We could stand on our own two feet. We could fuel our own cars. No longer. Joe Biden took a sledgehammer to our oil and natural gas production the moment he stepped into the Oval Office. As gas prices rocket to unprecedented heights, we are now reduced to begging the likes of Nicolas Maduro in Venezuela to sell us oil. As bad as this is, though, it will get much worse. The ultimate plan is to push us into complete and utter dependence on Communist China.” – AND Magazine, Mar. 11

     

    Global diesel shortage raises risk of oil price spike… “Global stocks of diesel and other middle distillates have fallen to the lowest seasonal level since 2008, when similar shortages of these transport and industrial fuels helped to propel oil prices to a record high. Distillate fuel oil inventories in the United States are 30 million barrels (21%) below the pre-pandemic five-year seasonal average and at the lowest level since 2005, the U.S. Energy Information Administration said.” – Reuters, Mar. 13

     

    Danny’s View: S&P 500 and the BS Putin Story… “Goldman Sachs has downgraded its forecast for US economic growth in 2022. It now sees little to no growth during the first three months of the year. Goldman’s economists, led by Jan Hatzius, said the chance of a recession in the United States over the next year has risen as high to as 35%. ‘Rising commodity prices will likely result in a drag on consumer spending, as households — and lower-income households in particular — are forced to spend a larger share of income on food and gas.’ I think there is reason to be concerned. For me it’s plain and simple: The stock market will have a difficult time going up with inflation and rates going up, and a 25bps rate hike will do absolutely nothing.” – MrTopStep, Mar. 14

    GDP Now Atlanta Fed GDP Forcast as of Mar. 8, 2022

    Atlanta Fed GDPNow Mar. 8, 2022 (Next Update Mar. 16)

    The price of wheat has not been this high since 2008, and the GFC was just starting to dominate legacy media headlines. After the November 2020 election in the U.S., the price of wheat has surged up to 125% on the CBOT mini-futures in Chicago. Roughly 65% of that gain occurred since mid-February 2022, and it settled lower at 45% today. A commodities bull market supercycle and shockwaves in global agricultural markets are spreading to store shelves and checkout counters around the world. In Egypt, the world’s largest importer of wheat, price increases are threatening to implode its highly subsidized bread market and potentially launch a new Arab Spring that would make the 2010-2012 version look like a picnic.

    Could Russia’s Invasion Of Ukraine Spark Another Arab Spring?… “A combination of higher energy prices, disrupted food supplies, and fewer tourists could be a poisonous mix for the stability of the main power centers of OPEC (Saudi Arabia, UAE, Libya, and even Iraq) and for pivotal regional powers such as Egypt, Israel, and even Turkey. The stability of all MENA countries is now being threatened, both directly and indirectly.” – OilPrice.com, Feb. 26

     

    Egypt bread prices surge amid Ukraine war… “Egypt’s bread prices have increased 50% over the past two days, a week after Russia’s invasion into Ukraine. Local media yesterday reported that flour prices had jumped to 11,000 Egyptian pounds ($700) per tonne, up from 7,000 Egyptian pounds ($445). The rise was said to have caused anger among citizens. Arabi21 quoted flour suppliers and bakery owners as saying the ‘price of the small loaf of bread from 50 piasters to 75, and the large loaf from one pound to 1.5 pounds, and a similar rise in prices of all pastries, by 25 to 50%.’” – MEMonitor, Mar. 7

    In Turkey, sunflower oil is the main cooking oil and a key component in food budgets. Concerns over surging prices launched the hoarding of oils last week, and shoppers are searching for cheaper alternatives when sunflower cannot be found or the price is too high. Concerns over sunflower oil ramped up as ships that import the commodity are being held in the Sea of Azov due to war in the Black Sea region. Inflation in Turkey is at a 20-year high, and the last time food prices were this high triggered the Arab Spring.

    EXCLUSIVE-Ukraine war must end, Russia’s fertilizer and coal king says… “The war in Ukraine is a tragedy that must be stopped or there will be a global food crisis as fertilizer prices are already too high for many farmers.” – Nasdaq, Mar. 24

    I have gently nudged readers to keep your pantry stocked and have your financial house in order. This is not a drill and it’s not necessary to remind anyone of the price you’re paying for energy, food, and numerous consumer goods that are intermittently hard to find due to the ongoing supply chain crisis. I will leave you tonight with a note from Bank of America Securities, courtesy of Forex Live.

    “Perhaps the most ‘ominous’ message from our fertilizer panel at our Global Agriculture & Materials conference was the potential impact of the conflict in Eastern Europe on global crop production. Russia and Ukraine are critically important to global crop supply, representing 29%, 19%, and 13% of global wheat, corn, and vegetable oil trade, respectively. As for fertilizer, Russia alone makes up 20% of the global potash market – a key component for fertilizer, with Belarus making up another 18%. Thus, global crop prices are expected to remain elevated, supporting farmer economics in some regions and extending the agriculture cycle, but potentially leading to a significant supply shortage. Combining higher prices with less supply, US Chemicals analyst Steve Byrne raises his price objectives on Buy-rated fertilizer stocks – CF, NTR and MOS; while Alex Jones, covering European Chemicals, upgrades K+S to a Buy. Countries in LatAm could benefit too given many export food and energy and in a much broader note assessing regional impact from the conflict, the team raises LatAm GDP growth modestly.”

    UPDATE: China locks down 51 million in manufacturing/shipping hubs = more Supply Chain Crisis

    Courting The Blue Danube Waltz by Austrian composer Johann Strauss II

     

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    Fertilizer Inflation and a Supply Chain Crisis Begets Food Insecurity – Part 2

    Fertilizer Inflation and a Supply Chain Crisis Begets Food Insecurity – Part 2