domino / stress test
Farmers on the Brink - Doomberghttps://doomberg.substack.com/p/farmers-on-the-brink?s=rThe 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
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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
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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: 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.”
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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.
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the US exits the winter of 2021-2022 with concerningly low levels of propane inventory, well-below typical averages for this time of year: What does propane supply have to do with farming? Grain drying