(Anyone who missed my analytical fact-sheet on why food prices are going to really take off—above general inflation—in late 2022 and beyond, please see it at the bottom of this email. At some point I will update it, there’s so much that’s happened since mid-November, although the trend is the same—for example, there’s such a severe winter in Iran that they’ve cut off the gas to Turkey, completely shutting down all Turkish industry for at least several days.)
The U.S. House Judiciary Committee’s subcommittee on Antitrust, Commercial, and Administrative Law held a hearing last week on “the effects of economic concentration on America’s food supply.” Translated into English, “economic concentration” is big companies dominating a given market.
The hearing witnesses did not disappoint. Except for one Heritage Foundation guy who was obviously invited by the minority staff, all of them were family farmers, small farm trade group leaders, etc., clearly handpicked, primed, and scripted to fit the narrative of greedy corporations being at fault for ongoing price hikes at supermarkets.
(For anyone not familiar with Federal or state legislative hearings, they are typically set up as a barrage of sob-stories or panic-stories in line with the agenda of the majority party running the committee. But, there’s a tradition of allowing the minority to bring in one witness to dissent.)
I’m not defending big agribusiness (no one likes them), but somehow this was not an issue of Democrat interest before, and we’ve always had corporations. What we didn’t have was a zany labor market (today, no one, not even illegal aliens, wants to do chicken-plucking jobs for near minimum wage, and turnover at all low-wage employers is insane) or a global natural gas crunch—and new export controls in China and Russia as well as Western sanctions on Belarus—leading to a historic blowout rise in fertilizer prices. Coming after months of comments from top Democrats (including White House spokes-robot Psaki) blaming food prices on greedy capitalists, it’s clear they are only accelerating this line of attack.
What “seems” unusual in this case is that the subcommittee is chaired by a rainbow gentleman from Rhode Island, trained as a lawyer and with a nearly 30-year political career—what does he know or care about farming? You might think “wrong committee for this issue”, but keep in mind, this is the Antitrust committee. With the testimony and related letters and other written submissions, they are establishing an “evidentiary” record and basis for action (whether from the legislative or executive branch.) This is what policy hearings are for.
Yes, I see your brain gears turning just like mine did. What’s likely to happen closer to the midterms, is Brandon/Kambodia will turn on agribusiness with a vengeance, using antitrust law as the vehicle for the assault. If you’ve seen Grand Moff Tarkin Merrick Garland in action, you know he will spring to duty with a quickness. When prices get really bad, we can’t even exclude some FBI raid, or raids (with CNN camera crews being tipped off days in advance—it takes longer to get a team out to small-town Nebraska than to Roger Stone’s Florida house.) You know they’ll do anything. Of course, these companies (and their executives and lobbyists and lawyers) constitute a big source of campaign donations for Republicans in Congress. The farmers may provide the votes in states like Iowa and Nebraska, but you need funds as well—and it’s the big companies that have the cash to spread around. In short, the GOP must be ready to fight this. Get some ads out about food inflation and its causes—GET AHEAD OF THEIR NARRATIVE, BECAUSE YOU KNOW WHAT’S COMING.
The Famine Year Approaches
2022 is shaping up to be the first-ever “global” famine year, and that won’t bode well for prices in our supermarkets. Let’s take it one step at a time and see how we got here, also with an eye to what Republicans can do or say about it.
Global energy shortage
· The wind turbines that normally power one-third of Germany, also much of the Netherlands, UK, and other European countries, have been (and still are) unusually still this year, reportedly producing as little as one-fifth of what was needed/expected. There just hasn’t been much wind. Europe has had to compensate (and is still compensating) by burning much more natural gas to generate power. Renewable energy is great when it works, but it doesn’t always work.
· Hydropower in Brazil and the Andean countries, also most countries in Central Asia, as well as our neighbor Mexico, is doing very poorly. Drought conditions in many regions have led to reduced water levels and thus reduced flow through the turbine sluices. Brazil has had to import much more U.S. liquified natural gas (LNG) for its power needs; other countries are burning more coal (or going dark) to compensate.
· In other news, over the last few years, “activist” hedge fund managers have gotten on the boards of the largest Western energy companies, shaming/intimidating them away from new investments in oil or gas extraction, in favor of “green” investments (which may or may not be actually profitable.) Western sanctions on Russia and Iran and Venezuela, as well as the Israel-Lebanon maritime dispute, have also limited exploration and shut down or severely restricted potential new mega-projects.
· It’s gotten so bad that, in real (inflation-adjusted) dollars, investments by U.S. and European companies in new oil or gas projects are at or near multi-decade lows. The Brandon Administration’s crackdown on pipelines and on drilling on Federal lands has exacerbated this problem. No one wants to put up big investments now, when regulatory and PR knives on both sides of the Atlantic are out for the fossil fuels industry. It’s easier for the oil and gas firms to simply “wait it out” while sitting on record profits from higher prices. (Of course, they will be demonized either way.)
· Keep in mind, nothing “green” can heat your home in winter. You have to burn some flavor of natural gas or (in many countries, for home stoves or for district heating) coal. The Green Religion has no solution for this. The Greens want to crack down on fossil fuels so that electric generation shifts to renewables, but they have no way to keep you from becoming a corpse-icle in wintertime. They also forget that natural gas is essential for chemical fertilizer production, to keep humanity fed (more on this below.)
· There is a global bidding war on for coal and LNG. With respect to LNG, Europe is competing with East Asia (mostly Japan and Korea) is competing with Brazil. East Asia traditionally pays much more. Europe has had to bid up to compete, and is now paying an arm and a leg. You can imagine it is hard for a country like Brazil to stay in this game. Then there is Ukraine, which is running out of both coal and gas, forcing it to go full steam on its Soviet-era nuclear reactors, to include cancelling scheduled or ongoing maintenance on a number of units—certainly, there’s nothing to worry about!
· China has hit “peak coal” over the last two years; its huge domestic production is on an as-yet shallow but irreversible downslope. So, all coal importers must now compete even more strenuously with China on the global market. Note that China still derives 70 percent of its power from coal—it is far behind almost all other industrialized countries in its diversification. China’s nuclear power, as a proportion of electric generation, is barely even on the map. China recently made a show of planning for scores of new reactors, but that is ten-plus years away. This country will be gobbling up an ever-greater share of global coal indefinitely, keeping prices high. The era of cheap thermal coal is over.
· There are reports of diesel shortages as Chinese trucking competes with Chinese manufacturers burning diesel for their backup generators when the power goes off, as it has been doing. This may get much worse before it gets better. As of now, our “supply chain” horror story is about longshoremen, truckers, and warehouse workers here in the U.S., but soon enough it could be about Chinese suppliers no longer being reliable due to their own problems. We could fix everything here and still have big shortages in 2022.
Global fertilizer shortage
· The problem with burning more natural gas is that you have less of it available for fertilizer production.
· Most chemical fertilizers rely on natural gas as a “feedstock” or key ingredient in the production process. Through a series of reactions, hydrogen in the methane gas (CH4) is transferred to form ammonia (NH3.) Nitrogen in the ammonia is essential for chlorophyll and amino acid synthesis inside all plants. Although our atmosphere is mostly nitrogen, plants cannot use free nitrogen. Nature has ways to get nitrogen into the soil as ammonia, but it’s not enough. Chemical fertilizers solve this problem, and have supported massive increases in crop yields (and thus, population) in the last century. Without chemical fertilizers, most of us would starve to death.
· When renewables such as “wind” or “hydro” fail, you have to burn more gas for power, and again, the problem with burning more gas is that—if you do it in “unplanned” fashion, without raising production, finding reliable new import channels, or keeping more in storage—you have less of it left for fertilizer production. Even if you are compensating by burning coal not gas, you are “snatching” that coal away from someone else who might have to burn gas. We cannot get around this problem. Even “just” a coal shortage, means a fertilizer shortage.
· A number of fertilizer plants in Europe have slowed or simply shut down (taken a production pause) due to the gas shortage over there. Presumably, Europe will have enough (more or less) fertilizer for its own needs next year, but it won’t be exporting nearly as much of it to developing countries.
· Reportedly, Russia has instituted some type of export controls on chemical fertilizers, to ensure that it has enough for itself first and foremost. I’m not sure if the U.S. has been impacted by this yet, but generally, about 40 percent of ammonium nitrate and 20 percent of urea used in U.S. agriculture is imported from Russia.
· CF Industries Holdings, Inc., the U.S.-based fertilizer giant, put out a red alert on a recent earnings call, stating that (as summarized by Bloomberg) “farmers won’t be able to get what they need.” As CF Industries produces and sells in a number of countries, it was likely not speaking about American farmers specifically. However, prices for “basic materials” tend to be—if not global—then at least, globally influenced. Ultimately, everyone is competing with everyone else for everything.
Global food shortage
· Russia’s share of Latin American fertilizer imports is even higher than it is here. Latin America is a weak domino. If Russia can get a better price from China, then “south of the border” may have a very poor harvest. And if they can’t eat, they will be coming here, in numbers as yet unseen. You think you’ve seen a big “caravan” from little Honduras? Wait until Mexico comes over for dinner.
· Many countries in the Muslim world—Egypt, Syria, Lebanon, Iran, Afghanistan, among others—are already just barely surviving, and much higher costs for imported fertilizer and food can push them over the edge very quickly. We saw this with the “Arab Spring” in 2010 and 2011, but it’s looking to be potentially worse now. That’s surely wonderful news for Europe and its migrant situation.
· The U.S. will be affected. Even if we have enough fertilizer here, every nation’s agriculture is influenced by global prices and demand. This has been clearly demonstrated in Russia, the world’s largest wheat exporter, which has had to curb exports somewhat, to keep bread and noodle prices from blowing up at its own shops and bakeries. Simply put, if your middlemen can get a better price elsewhere, the product will start leaving your borders at a higher than usual volume, and export controls become necessary—although the U.S. even talking about capping its grain exports would likely spike prices worldwide.
· The grocery price hikes that we’ve seen so far in the USA, are just the start of a trend. They are not “transitory.” We can expect huge inflation and “shrinkflation” through all of 2022 and into 2023. Of course, prices of other goods and services will boom as well, which is “great news”, if you believe Brandon’s spokeswomen and the Democrat media complex. (Soon enough, it won’t be “great”—it will just be “Trump’s fault.”) But that’s beyond the scope of this fact-sheet.
Political aspects
· Republican talking points will probably go like this:
o “We need power from all sources. Renewables can be great, but you can’t crack down on oil and gas and expect food prices not to go up. You need natural gas to make fertilizer, you can’t get around it. If there’s not enough natural gas, people will go hungry. What the Left has done is try to socially engineer a Green Revolution, forgetting that we still need fossil fuels to make food. They tried to solve one problem, but they created others. And now, people can’t eat, and governments are falling. We don’t need Ideological Leadership—we need affordable energy, and food on the table.”
· “Grand Moff Tarkin” a.k.a. Merrick Garland can keep signing ORDERS TO DESTROY REBEL PLANETS political search/arrest warrants on the deck of the Titanic—it won’t make any difference to the ship. There will be nothing left of this would-be dictatorship, soon enough. They are a nasty runt dog pissing on your beach towel, with the water receding and a tsunami approaching. The day-to-day noise is the runt, the big picture is the wave.
· Republicans should just be right and sit tight. Try to help the politically persecuted, build your organizations, true the vote, don’t pull a Todd Akin. Give to your local food bank. Better yet, build “prophet credibility” by getting your candidate or local party brand involved in helping your food bank BEFORE the wave hits. Food, inflation, and shortages will define 2022 and much of 2023.
