The Global Food Crisis
A future famine?
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I have held out writing this newsletter because I was hoping that we would see some stabilization across the global food markets. Unfortunately, the global food supply chain seems to be getting worse. If we keep this current pace, we will be facing a global food crisis by the end of this year.
As you might know, I take pride in explaining complex issues in a very simple and easy to understand way. However, the global food supply chain has tons of moving parts so if you have any questions, I will be happy to answer them!
In the past, I have discussed the implications of the war on the commodity markets that you can read about here.
However, in this newsletter we are going to specifically talk about the oncoming global food crisis specifically the wheat crisis.
In the early 1990’s, we started tracking the global food prices and now we are seeing the food prices hit the highest that they have ever been. This includes staples like corn, wheat, soybeans, and many more.
I don’t mean to scare anyone, but the United Nations Food Chief has just recently came out and said that the war in Ukraine has created a catastrophe on top of a catastrophe. He believes that we are facing the worst food crisis since World War 2.
Russia and Ukraine provides for 12% of the world’s calories that we consume. As of last year, Ukraine’s total agriculture export was $27 Billion and Russia’s was $34 Billion. In other words, they are massive players in the global food chain supply.
The first important point to note is that about 15% of the world’s calories comes from wheat.
35% of ALL the wheat exports in the world comes from just two countries, Russia and Ukraine. In other words, these two countries control a lot of the wheat in the world.
Russia has decided to stop exporting wheat to other countries due to the economic sanctions that the international community has put in place.
You might be wondering, “We have helped Ukraine out, can they help us out with wheat?”
Due to the war, a majority of farmers have left their farm to take up arms against the Russians. This means that they were not able to plant wheat back in March during the planting season.
So not only is the current wheat supply facing major problems, the future wheat supply is facing even worse problems.
The entire planet works on a 90 day food supply. In other words, if we stopped making food today, we would be totally out of all food in 90 days.
Another way to think about this is that our food supply excess is 25% of our global production, so if we lose 12% of our production then we have lost half of our food supply.
This is not just linear across all nations, what happens is that the third world countries will lose their food supply first due to the first world countries buying their food supply on the open market to secure their population’s calories.
This puts certain countries at a real risk of a famine. We already have about 800 million people on earth that eat less than 1,200 calories a day. (These people live in third world countries not because they are on the Jenny Craig diet). This is all based just on the wheat problem.
The other big reason that we are facing a massive global food shortage is due to a shortage of fertilizer. What fertilizer actually does is replenishes the soil with nutrients so without fertilizer we would grow a lot less crops.
All fertilizer is made up of nitrogen, potassium, and phosphorous.
Nitrogen is made from natural gas, as you know the price of natural gas 4x in the recent year. As a result, the price of nitrogen based fertilizer has gone from $200/ton to $1,000/ton. This means that it is costing farmers 5x to buy basic nitrogen fertilizer.
Around 25% of the world supply of potassium and phosphorous come from Russia. However, Russia has banned all exports of potassium/phosphorous around the world causing the price of potassium/phosphorous fertilizer to SOAR.
In Matt Allen terms: It is becoming so expensive to grow a crop that a plethora of farmers around the world are pulling acres out of production. This means that they will grow less this year than they normally would.
Unfortunately, the food supply will go down causing the food demand to go up. This will cause the cost of food to absolutely soar even more.
In conclusion, I believe that you should budget for an increase of food costs in the coming months.
I do believe that the United States will not face as big of crisis as some of our friends around the world will.
In my premium newsletter, we will talk about ways that you can make money on the commodity crisis.
If you have any questions, feedback, or just wanna say hey, email me at firstname.lastname@example.org
Stay Hungry, Stay Long