2023 could be world’s last ‘food-secure’ year for a while

Hey Everybody, still Peter, still Colorado, still snowy, still foggy. Yesterday, we talked about the African swine fever problem in China and how it’s turning into an issue for fertilizer. I want to talk now about weather. We’ve got a number of major agricultural basins in the world. And last year for most of them, the Greater Midwest, the Brazilian-Argentine systems, South Africa, Australia-New Zealand, the Eurasian wheat belt, and Northern Europe, we had a pretty good year, pretty much everywhere. And even in secondary markets that aren’t export-oriented, like India and China, things were pretty good. That helped us a great deal, despite the fact that we were having a lot of scares and supplies coming out of the former Soviet space. But there’s two issues that we have already seen are going to be boiling up. The first one involves Argentina. Now, as a southern hemispheric country, they’re exiting summer and going into harvest right now. And between floods and droughts, and pestilence, and basically all the horsemen playing a role here, adding a general dollop of government incompetence, it’s shaping up to be one of the worst records for corn, soy and wheat that we have seen in years, with on average about a 30% reduction in the foodstuffs. Now 30%, that is a weather-induced reduction, not a fertilizer-induced reduction, so it could have been a lot worse. But we’re already seeing at the beginning of the 2023 harvest season, that we’re getting off to a really bad start. Australia so far looks. And then of course, India is harvesting things all the time. Now in the Northern Hemisphere, we don’t get our first crops in for a couple more months. And harvest will continue throughout the late spring for things like winter wheat and going into the summer and into the fall. So we have a lot of potential crops ahead of us. But to kind of kick off with Argentina, which is traditionally in the Big Six for wheat exports,  and typically in the Big Three for soy exports, this is not a particularly auspicious start. The next major disruption I expect to see will be in Ukraine. We’ve all been seen through the winter that the Ukrainians have been suffering missile and drone attacks from the Russians who are trying to take up the power system, working from the theory that if you could knock out the electricity across Ukraine in the winter, you’re going to kill as many Ukrainians as possible and damage the morale of the war effort in general, because if you find out that your wife and kids back in Kyiv, don’t have power, it’s really hard to stay on the front. You feel like you should go and do something. Well, as we get into May, and especially June when it becomes apparent that knocking out the power doesn’t make anyone freeze to death anymore, the Russians are going to switch targets to go after the agricultural system, especially fertilizer plants, grain silos, grain transshipment locations at rail centers, ports and the rest. Already, we’re seeing the Russians backing away from the United Nations brokered deal that allows grain and corn and wheat and sunflower to get out of the system. Basically ships can come in, the Russians will search them on the way to make sure that they’re not carrying weapons, the Ukrainians will load them up with whatever foodstuffs they can export, and then we’ll be inspected by the Russians again, on the way out. It used to be that this deal was being renegotiated every 120 to 150 days, and the Russians want to shrink it down to 60 days, meaning that if this is renegotiated in March, it’s probably the last time it’s going to be renegotiated. Because the Russian goal here is to wipe out as many of Ukrainians as possible to make sure that they can’t fight. And that means taking the war to the civilian population. Electricity doesn’t work in the summer, so you go after the food supplies, which means that calendar year 2022 was probably the final year that Ukraine will be a significant agricultural exporter. Prewar roughly 85, in some cases, 90% of their ag products were shipped out by water with the rest going by rail. The problem is that the rail system in Ukraine doesn’t interface well with the rail system in Europe because it used different gauges. And you can only replace that and upgraded over the course of years. And it’s really hard to do when bombs are raining down. So we’re gonna get little trickles that go out of Western Ukraine that can take advantage of the rail. And that’s about it. And that’s of course, assuming that the Russians don’t achieve a breakthrough once they throw an extra 400,000 men into the fight come June. So we know we’ve already had a bad Argentine harvest and we know that the Ukrainians are probably going to fall off the map in terms of food supply. And honestly, that’s just the beginning. More in this in later issues.