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Global food crisis coming? If so, how will it play out?


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I started listening to Peter Zeihan's recently published book "The End of the World is Just the Beginning" after watching these videos where he makes a bunch of bold predictions -- his presentation to the pork industry was packed with information, and very entertaining.  A lot of the info was new to me since I don't follow agriculture very closely. 

 

 

(and part 2)

 

Now I'm trying to chase down and verify a lot of this information...  For example, just in the first 90 seconds he says Ukraine with 17% of global corn exports has already fallen off the map and is not coming back.  Same with Brazil and soy exports (55%) which he says is falling off the market and won't be coming back either.  He explains why: Nitrogen fertilizer inputs are too expensive now.  China imports 59% of its soy, so their hog farming seems like it'll be pretty  wrecked.

 

He's was hired to make this presentation to the US pork producers industry, and his conclusion for them was that a lot of their competitors will be gone within 3 years and it'll be fat years for US pork producers.  

 

I'm not sure what I think.  If we get a global food crisis, wouldn't humanity switch to eating the corn and soy directly rather than feed it to pork?  If nitrogen fertilizer stays expensive, what crop yields suffer most, and where else does this cascade?  The price of gasoline is already causing  uprisings in parts of the world.  Won't it be even worse if the price of bread skyrockets?

 

Is there really a credible risk that Russian oil fields in the permafrost will get stopped and we'll lose 4-6mbd of Russian crude?  If it happened, would losing that much supply just wreck the whole world?

 

I'm interested to hear what anyone else thinks about this stuff... 

 

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Zeihan is incorrect in that Russia and Ukraine have fallen off the map. It seems that Russia exports more grain than last year for example and actually fills part of the gap from lack of exports from Ukraine.

https://www.bloomberg.com/news/articles/2022-07-18/russia-s-wheat-exports-are-off-to-flying-start-amid-bumper-crop

 

Ukraine is back online too, but I think their exports will be significantly reduced , but not zero either like Zeihan claims.

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This isn't the first I've heard of this impending "global food crisis" My opinion is that there will be areas that could be heavily impacted. But the US will likely be largely unaffected. Maybe some extreme inflation in certain foods. Its possible other areas of the world with less resources could feel the pressure of a global food shortage. 

 

I regularly think about how how fragile the global ecosystem is. Without the global capitalistic economy we would struggle to feed the 7B people on the planet. I try not to dwell on it and remain bullish that humanity will adapt and overcome any major shortages. Humanity is pretty good at working together for good. (except when we aren't).

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If you want to better understand the balance sheets for the major food grains, you should take a gander at the WASDE report: https://www.usda.gov/oce/commodity/wasde/wasde0722.pdf

 

With respect to world feed grain supply, what should jump out at you right away is the ridiculous quantities of corn that the United States dedicates unnecessarily to ethanol production.  The Unites States currently converts 125 million metric tonnes of corn into motor fuel every year.  Even in a good year, the Ukraine and Russia only produce about 80 million metric tonnes of coarse grain per year.  So, in short, the US effectively sends more coarse grain through cars' tailpipes than is even produced by the countries in that theatre of war.  A rational response from the US would be to fast-track regulatory approval to increase domestic refining capacity and to make room for that refined fuel by reducing or completely eliminating its ethanol mandate.  Does a democrat president in the White House swing a big enough stick to get that sort of policy through, particularly after the mid-term elections?  Would the republicans in congress take the current high grain prices as an opportunity to roll back the silly bio-fuel policy when that policy is much beloved by the fly-over states (particularly by the vowel states)?

 

Soy is a bit less of a problem because it requires far less nitrogen than coarse grains, like corn.  But, keep in mind that bean prices are up by like US$4/bu compared to the crop year 2020/21.  For a typical nitrogen application of 300 lbs/acre, the higher bean price doesn't quite offset the increase in nitrogen costs, but it's close.  The fear about Brazil is likely misplaced unless you see a drastic acreage shift next year in the US from corn to soy.

 

Where the pinch might occur is in the world wheat market because Russia and Ukraine represent roughly 25% of the world exports.  What they export is low quality wheat from the Black Sea into discount markets (ie, poor countries).  Some of the reduced supply on the export market might be offset by lower feed wheat usage in major producing countries, as places like Canada and the United States can displace the wheat in the livestock ration by switching to more corn and then export our poor quality wheat to low-income countries, but this is unlikely to happen in crop year 2022/23.  There will be much unhappiness in the low income countries that have traditionally depended on supply from the Black Sea.

 

What is clear is that meat prices have risen and will rise more.  That won't bother us all that much in North America or Europe, but in countries that already had limited animal protein in their diet, it might become very unaffordable.

 

All of this has the potential to create unrest in the developing world.  People don't always think of this but the Arab Spring was driven in large part by dry conditions in the vowel states.  The next bit of unrest might be driven by conflict in the Black Sea.  I am not optimistic that governments in North America will take the humanitarian approach to this and increase petroleum production, push for greater refining capacity and eliminate the ridiculous policy of wasting food grains to produce ethanol.  We will probably just stand pat to keep the fly-over states happy, irrespective of what suffering it causes in distant parts of the globe.

 

 

SJ

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This is a very real possibility in developing places but here? It would be a hoax similar to ones past. For all the bitching about food price increases it’s like yo, sure your multigrain bread is now $7 a loaf…but store brand white bread is 99c. Oh a Big Mac is $11 now? Filet $30 a pound? Costco sells 18 burgers for $15 and London broil ain’t expensive. But we are a land of whiny and entitled brats and the media and politicians will take every opportunity they can get to create a new problem to get everyone fixated on. 

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9 minutes ago, Gregmal said:

This is a very real possibility in developing places but here? It would be a hoax similar to ones past. For all the bitching about food price increases it’s like yo, sure your multigrain bread is now $7 a loaf…but store brand white bread is 99c. Oh a Big Mac is $11 now? Filet $30 a pound? Costco sells 18 burgers for $15 and London broil ain’t expensive. But we are a land of whiny and entitled brats and the media and politicians will take every opportunity they can get to create a new problem to get everyone fixated on. 

 

Yeah, it's not such a problem for consumers in the United States who are well off.  On average, consumers in the US spent 10% of their disposable income on food during 2021.  Okay, the CPI rate for food is 10% these days, so maybe in 2022 that'll bump the average family expenditure on food to 11% of disposable income, meaning something else has to decline a wee bit to accommodate that increase?  And if you personally have an income which is double or triple the average, the percentage that you dedicate to food becomes trivial and the impact of higher prices becomes pretty irrelevant.

 

 

SJ

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In the 70's the outcry was that we would be out of food by the millennium.  Guess what?

 

Today, we produce twice as much food, with half the resources...technology and science increased yields and improved farming methods.  I can't believe that science and technology will not continue that trend.

 

I imagine in the next 20-30 years, a lot of food production will be done by robots.  Already large scale farms utilize automated tillers and harvesters that use GPS to do their job and work 24 hours a day.  Vertical farms will grow food close to city centers and maximize water efficiency.  Global warming will decimate some agricultural centers, but create new ones where the climate becomes more favorable.  Developing countries that are becoming first world economies will have access to capital and technology that will improve their production efficiencies.

 

One day, it may be hard to feed the planet...but I don't think that will happen in my life time or probably the next couple of generation's lifetime.  Cheers!

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7 hours ago, Parsad said:

In the 70's the outcry was that we would be out of food by the millennium.  Guess what?

 

Today, we produce twice as much food, with half the resources...technology and science increased yields and improved farming methods.  I can't believe that science and technology will not continue that trend.

 

I imagine in the next 20-30 years, a lot of food production will be done by robots.  Already large scale farms utilize automated tillers and harvesters that use GPS to do their job and work 24 hours a day.  Vertical farms will grow food close to city centers and maximize water efficiency.  Global warming will decimate some agricultural centers, but create new ones where the climate becomes more favorable.  Developing countries that are becoming first world economies will have access to capital and technology that will improve their production efficiencies.

 

One day, it may be hard to feed the planet...but I don't think that will happen in my life time or probably the next couple of generation's lifetime.  Cheers!

 

Litmus test will be how the Dutch Farmers shake out. They are probably the most efficient farmers in the country. They have found ways to reduce fertilizer drastically and for some major crops were able to figure out ways to reduce water usage by 90%. Dutch farmers have been at for forefront of Agriculture innovation for decades. 

 

Something tells me that when the "best" are out there protesting the new legislation surrounding their industry, the bureaucrats should re-evaluate their policy. Just because food production may be boosted by innovation long term does not mean that the policies/outcomes in the short term are advantageous. Famine leads to more famine, and places like Sri Lanka and other South East Asian countries are going through the ringer. A lot of it is due to poor policy in the short term. 

 

________

 

The adoption of "Green policy" in general has been terrible. The best way to hurt the poor is to drive up energy prices. The best way to get people to care about the environment is to shoot for a 5k GDP per capita (USD equivalent). Current green policy is "out of sight out of mind." We have Australia cracking down on coal use, but shipping it to China for use. We've got Biden cracking down on pipelines in the US while quietly lobbying for off shore drilling in Brazil and Venezuela. 

 

I'm hoping the pendulum swings and the globalists realize their missteps. It may take some time though as we still have politicians saying "$8/gal gas is actually good!" *cough *cough Ms. Freeman. 

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https://www.bloomberg.com/news/articles/2022-08-02/europe-may-turn-to-manure-in-switch-away-from-russian-fertilizer

 

Sounds like it'd take some years to transition to manure for some reason. 

 

If Nitrogen is so expensive to make with high NG prices in Europe and BASF isn't doing it there now, it seems like NG prices in USA will remain low enough for someone to build up a few nitrogen plants in America and export it over to Europe?

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Doom and gloom sells. Fact is that there is way more than enough food for the whole world - the problem is distribution, not supply. Food rots in one country while there is a famine in another. 

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