Category: Uncategorized

Supply chains and inflation

For the last year plus I have emphasized the role of extraordinary demand in disrupting supply. For example, here and here and here. This angle emerges from a perception that contemporary supply capacity is organized around — essentially emerges from — demand. A sudden shift in demand misaligned with capacity will inevitably disrupt flows. So, I look at the slope of US Personal Consumption Expenditures (including sub-components) since Spring 2021 and see a recurring cause of stock-outs, freight congestion, production gyrations, more hires, price increases, and related.

It is worth emphasizing, this blog focuses on Supply Chain Resilience. I am mostly concerned with how demand influences physical flows.

I confess to often treating even stubbornly constrained supplies as (usually, eventually, really) demand dependent. For example, I trace reduced supply of new vehicles to reduced supply of legacy semiconductors that, I argue, emerged from sharp declines in demand for new vehicles in spring 2020. Vehicle manufacturers slashed orders of semiconductors. Production capacity for semiconductors was shifted to other higher margin categories (suddenly in much higher demand). When demand for new vehicles surged several weeks later there was no longer sufficient production capacity to make and deliver the semiconductors needed.

Is this outcome supply-driven or demand-driven? Both for sure. But for what it’s worth, for me these specific swings in demand seem causal, while the resulting shortages are symptomatic. (To acknowledge supply driven possibilities: reduced wheat supplies resulting from Russia’s invasion of Ukraine are not demand-driven.)

Symptoms cannot be ignored. But I mostly want to understand and focus on causes.

Adam Hale Shapiro at the Federal Reserve Bank of San Francisco is as concerned with causes of inflation as I am concerned with how shifts in demand can cause supply complications. These are distinct, but related angles on our shared reality.

Yesterday Dr. Shapiro authored an Economic Letter which, “highlights that both supply and demand factors are responsible for current elevated inflation levels. Supply factors explain about half of the difference between current 12-month PCE inflation and pre-pandemic inflation levels, and the effects appear to be rising more recently. Demand factors are responsible for about a third of the difference, and those effects appear to be diminishing more recently. The remainder is due to factors that cannot be definitively labeled as supply or demand. The large impact of supply factors implies that inflationary pressures will not completely subside until labor shortages, production constraints, and shipping delays are resolved.”

Below is a visual break-down of how this analysis compares and contrasts the interplay of demand and supply factors on inflation.

Dr. Shapiro’s method is as fine-grained as my approach is superficial. I am not quite sure — yet — if his careful method offers insight on how demand influences physical supply. I need to read and think some more — when not as distracted as right now. If readers see promising connections, please let me know. It is, in any case, a constructive and provocative presentation worth your reading — before I swing in with my supply chain resilience bias

Contributions to annualized monthly changes in inflation

The output gap

From a June 15 commentary by Greg Ip in the Wall Street Journal:

… the evidence suggests high demand and restricted supply are interacting in ways that economists struggle to calibrate. That is a problem, because it suggests inflation may remain unpredictable as the Fed rapidly withdraws stimulus but supply disruptions from Covid and war persist.

Two paragraphs tee-up a crucial difference between an economist’s angle on what has been happening and a supply chain professional’s view of the same behavior.

Economists have treated the supply side—autos, housing, restaurants, energy, healthcare, finance—as homogenous and elastic: When demand for nursing home beds or cars rise, so does their supply, and prices rise only a little, if at all.

But in the last two years, supply hasn’t been homogenous. Some industries like e-commerce have hired easily, while others like nursing homes have lost workers in droves. Food sold to restaurants didn’t substitute easily for food sold in supermarkets. Supply hasn’t been elastic…

The supply side is never homogenous, says this supply chain guy. Supply is never elastic.

It may seem that way to consumers, even B2B consumers (and, apparently economists). Supply chain professionals work hard to make it possible for consumers to get whatever is wanted, when and where it is wanted. (For the last decade this was very often the case in much of the United States.) But inside the network: sources, products, flow, categories, topographies, pull, targets, margins, modalities, and more are profoundly heterogenous. Supply is calibrated to demand. Production capacity and transportation capacity are calibrated to persistent consumption patterns. Push is calibrated to pull.

Over the last two years — even the last two months — demand has swerved, surged, and swayed dramatically. The aggregate Personal Consumption Expenditure (PCE) graph — and its slope — is worth a long stare and longer thought (see chart below). Contemplation of volatile PCE sub-components can cultivate humility.

In April 2018 total PCE was $13,809 billion. In April 2019 total PCE was $14,309 billion, reflecting healthy, historically happy year-over-year economic growth with low inflation. April 2020 PCE crashed ($12,021 billion), but by April 2021, total PCE was $15,601 billion. This April total PCE was $17,059 billion!

There are laws of physics, wads of regulations, financial management principles, and quite reasonable uncertainties that conspire to frustrate quick recalibration of push capacity to this extraordinary acceleration in pull.

Yet, since 2020 in the United States, unfulfilled demand has usually not been because of reduced supply. It has been because much more supply has still not been enough to satisfy demand. There has been a reduced supply of new automobiles. But grocery manufacturing, for example, is producing more than ever before. Durable goods manufacturing (other than cars) has grown by over ten percent since Spring 2019. US manufacturing of clothing and footwear is up 18 percent over 2019. US imports from China increased across all of 2021 and remain above pre-pandemic seasonal levels. Supply can be said to be “restricted” by various factors. It is not easy or automatic to grow this much so quickly, but growth in capacity and flow has been robust.

From March 2020 until March 2021, Personal Consumption Expenditures were restrained. Many Americans — especially high-earners — did not spend nearly as much as usual (saving more). Since April 2021 spending has, however, made up for lost time. For US personal consumption expenditures to increase over 8 percent inside twelve months is just about unprecedented.

It is not surprising that a much faster rate of increase for the Consumer Price Index began about the same time as this sustained demand surge. The CPI has also experienced a proportional increase that closely mirrors growth in personal consumption expenditures.

From when this buying surge began until at least January 2022 — even until now, depending on where and how you look — many supply chains have been challenged to keep up and grow with the increased demand. But both global and domestic flows have mostly kept up (here and here). Given the swift, significant surge in demand: any supposed elasticity was not nearly enough. Flows needed to be supplemented with substantive capacity expansion. This has happened in terms of new investments in technology, space, and labor. For example, in April 2021 there were 1.64 million US warehouse and storage employees. In April 2022 there were 1.78 million employees serving this sector.

Now, since January there is (finally) evidence of some reduced demand across several categories (for example, food). I suspect this slowdown will become more pronounced — especially under pressure from increased fuel costs. Given increased capacity (US and worldwide) built out over the last two years and some softening demand, we will soon be back to where elastic and homogeneous supply will feel real (even when it is not). In any case, barring some extreme event (not implausible), disequilibrium between demand and supply in the United States will be much less than 2021 — and contribute less to inflationary tendencies.

Unfortunately, since February 24 the disequilibrium between demand and supply outside the United States — especially in regard to fuel and food has widened, deepened, and become very complicated. One source of inflation has been mostly absolved, another potentially worse has emerged.

United States Personal Consumption Expenditures: April 2018 to April 2022

Flows push and pull

[June 16 update far below]

According to the International Energy Administration, in May Russia’s oil export volume was down 3 percent. The total dollar value returned was, however, up 11 percent (despite considerable price discounting per going global rates) (more). Outbound flows to China, Turkey, and India have picked up as other flows have declined (despite China’s much lower crude oil demand). Total inbound cash-flow matches pre-March (pre-sanctions) on reduced product outflow. So far, pull is effectively overcoming earnest efforts to impede push.

Given inescapable impediments caused by counter-pandemic policies, many have been surprised that China’s customs data for May exports were up almost 17 percent in value year-over-year (and 2021 was also up YOY) (more and more ). Volumes were also up. According to the South China Morning Post, “container throughput for foreign trade at eight major ports in China increased by 13 per cent year on year in May.” Inbound flows have been much more constrained. There have been earnest efforts to maximize outbound push, despite near grid-lock conditions for domestic flows.

Ukraine’s grain flows through Black Sea ports are blocked by defensive mines, military attacks, Russia’s blockade, and the full friction of war (more and more). Before the war up to 90 percent of Ukraine’s grain exports moved through Black Sea ports. In 2021 just four ports, Odesa, Chernomorsk, Pivdennyi, and Mykolayiv handled 6 million tons per month.  Since the war began on February 24, a rough average of one million tons of grain per month have been exported using every available means (see chart below). Most years Ukraine is among the top five grain exporters. Pull is persistent, even intensifying. Grain and related prices are mostly increasing. Push is cutting new channels (more and more and more and more). But, so far, push has not found a way to compensate for suddenly losing 90 percent of preexisting capacity.

While only three examples, to compare and contrast suggests that pull can be very persuasive as long as push capacity persists. Strong pull can motivate overcoming considerable friction in flows and even loss of usual demand. But if a significant proportion of upstream capacity is blocked or destroyed, no amount of pull will restart push in the short-term. Large scale capacity is the result of large-scale and typically long-time investments.

Some readers may wonder: why give so much space to explaining what is obvious. It is increasingly my experience that capacity issues — and especially capacity-crashing issues — are not obvious to many otherwise wise and experienced folks.

Ukraine’s grain exports per month 2021 and 2022 through May

SourceState Customs Service of Ukraine, accessed June 7, 2022.

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June 16 Updates: Good detail on Russia oil flows from S&P, including: “Russia’s oil export resilience to Western boycotts and sanctions so far has surprised most market watchers. After plunging 930,000 b/d in April, Russian total oil production in May actually rose by 130,000 b/d to 10.55 million b/d…” Report includes break-down by old and new pull. New shipping spot market index (more)shows price for China to US containers well below highs (if still double pre-pandemic averages). Interesting angle on reshaping Ukrainian grain channels by constructing new — supposedly temporary — distribution nodes where stocks could be concentrated to size, scope, scale and optimize non-traditional flows. See Reuters report on temporary silos (more and more).

Less comforting food

[June 15 update far below]

Americans are big eaters.

According to IRI (see chart below) grocery demand has recently been up five to almost ten percent, depending on product category, compared to 2021… which was higher than than 2020 which was about one-fifth higher than 2019.

Comfort food has — understandably — been in high demand.

According to the Federal Reserve in April 2022 compared to April 2017 the US produced 12 percent more “sugar and confectionary product,” and about 16 percent more meat (seasonally adjusted). The overall food production increase was just about five percent. (The US population increased by about 2.2 percent over this period).

We are now eating out about as much — or much more — than pre-pandemic (see chart below). According to the Fed in April 2019 Americans spent $63,137 million at Food Services and Drinking Places. This April we spent $83,741 million. That’s about one-tenth above a generous extension of pre-pandemic growth trends.

Many expected (I expected) grocery demand to gradually soften as eating-out returned. Instead for most of the last year-plus, dollars spent have increased for both Food-At-Home and Food-Away-From-Home. In April 2022, according to the Bureau of Economic Analysis, Americans spent about one-quarter more on food than in April 2019 (see chart below). American consumers also continue to spend well above pre-pandemic trends on durable goods… and much more.

Given these aggressive new spending habits, I am less skeptical regarding the reality of “retail therapy.”

As expected with a demand surge, food prices have increased. This reflects pull exceeding existing push capacity. When adjusted for inflation, the growth in “real” demand has moderated, especially this year (see final chart below). But this real demand remains at least 8 percent above April 2019. (Please mind the gap: while overall food production has increased about five percent, overall food demand has increased yet three points more over the same period.)

In its May Consumer Price Index released Friday (more), the Bureau of Labor Statistics reported:

The food at home index rose 11.9 percent over the last 12 months, the largest 12-month increase since the period ending April 1979. All six major grocery store food group indexes increased over the span, with five of the six rising more than 10 percent. The index for meats, poultry, fish, and eggs increased the most, rising 14.2 percent, with the index for eggs increasing 32.2 percent. The remaining groups saw increases ranging from 8.2 percent (fruits and vegetables) to 12.6 percent (other food at home).  The index for food away from home rose 7.4 percent over the last year, the largest 12-month change since the period ending November 1981. The index for full service meals rose 9.0 percent over the last 12 months, and the index for limited service meals rose 7.3 percent over the last year.

Even on an inflation-adjusted basis, Americans are spending more on every category tracked. We are spending savings accumulated early in the pandemic. We are spending more (saving less) of current wages.

Disequilibrium of demand and supply prompts price increases. Disequilibrium results from less supply or more demand. Because of avian flu there has recently been a reduced supply of eggs — even while there has been increased demand. Hence, the nearly one-third price increase. In other food products we have mostly had more supply, but we have had even more demand.

There is evidence that real US demand for food peaked around Thanksgiving 2021… and consumer willingness (ability?) to pay increasing food costs is subsiding. As fuel and other household costs continue to increase, I expect to see a decline in inflation-adjusted spending on food until supply and demand are better balanced. Given increased energy costs and global disequilibrium in food-related demand and supply, what the United States may then experience is incremental demand-destruction for food as discretionary expenditures narrow. We will not see a June PCE for another six weeks; that will provide retrospective evidence for what is happening right now.

IRI Demand Index through May 29, 2022

Federal Reserve Sales at Food Services and Drinking Places, April 2019 to April 2022

Federal Reserve Personal Consumption Expenditures (Food-At-Home)

Federal Reserve Real Consumption Expenditures on Food (inflation adjusted 2012 chained dollars)

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June 15 Update: While not as meaningful as the June report on Personal Consumption Expenditures (or even the May PCE scheduled for June 30), the retail sales report for May (released June 15) does reinforce the sense of an incremental softening in consumer demand for food. The chart below shows grocery sales not adjusted for inflation. Overall retail sales were at least as flat and arguably lower. The overall retail inventory to sales ratio is still below par, but continuing to improve. Some retailers, though, are having painful encounters with inventory bullwhips.

Apologies

Real-world Supply Chain Resilience issues have claimed most waking hours. I look forward to soon being back and digging deeper into PCE behavior patterns and much more.

Demand: self-restrained strength?

The report on April Personal Consumption Expenditures requires much more time than I can give it this morning. As the chart below indicates, American consumers continued to spend at unprecedented levels. And at least in April… the rate of increase seems to soften while what we buy continues to shift. Rebalancing? Reuters reported:

Goods spending increased a solid 0.8%, driven by new motor vehicles, clothing, footwear, recreational goods as well as furnishings and household equipment. Demand for goods remains strong even as spending on services is picking up. Services outlays rose 0.9% as consumers frequently dined out and traveled. There was also increased spending on housing and utilities, and recreation services… Personal income rose 0.4%, with wages accounting for the bulk of the increase. The saving rate dropped to 4.4%, the lowest since September 2008, from 5.0% in March. That suggests households have been tapping into the more than $2 trillion in excess savings accumulated during the COVID-19 pandemic. The reduction in savings could mean slower consumer spending down the road, especially given the rising borrowing costs.

Without the time to dig deeper into the data, I will offer a story — perhaps an analogy, suggesting a very imprecise hypothesis that will guide my eventual data review. As a junior in high school my football locker was next to one of the biggest, toughest tackles on the team. We were each changing after practice when the freshman quarterback appeared. Just his scrawny presence trespassed on varsity territory. Then, with pathological glee, this thin tiny boy-child purposefully goaded the 200 pound-plus offensive tackle to my right. I was not targeted, still the gratuitous harassment prompted my own bio-chemical reactions. The 6 foot something boy-man totally ignored the interruption.

But once the twerp had disappeared, my neighbor said to me: “I wish he weighed twenty pounds more so I could have smashed him to the floor.” Even at seventeen he understood the need for — and value of — symmetrical response. Given all the treacherous tensions impacting global flows of essential supplies (and the sometimes adolescent volatility of US demand patterns) it is easy to assume the worst and act accordingly. But I wonder if — hope that — there is a chance for some surprisingly mature self-restraint on spending that threads us through this explosive scrimmage between pull and push, demand and supply, inflation and recession.

This will seem a naïve or simply strange narrative for many readers. But in self-defense, it is possible to hear something similar emerging from the most recent CBO economic projections.

Next time: less narrative, more data… I promise.

Persistent but perhaps diversifying pull

I am focused on flows that fulfill demand. When persuasive (my preferred term is effectual) pull signals are received, I want push to deliver what is wanted, when and where it is wanted.

For too long these targets have not been consistently achieved. Flows have been enormous. Delivery has usually happened. But too often demand has not been fulfilled in a timely way. In some cases, demand remains unfulfilled.

Each failure has its own story, but this plot’s principal antagonist is well-above typical demand. Below is our recent run-of-show ala Personal Consumption Expenditures. The new April numbers will be out on Friday, but I will be flying then and may be off-line for a few days.

As previously outlined (here and here), I perceived some easing of supply chain stress in December through late February. But data and chatter have been less clear since Russia invaded Ukraine and Beijing shut-down Shanghai. Now some data-informed observations seem to confirm increasing supply chain stress (here and here).

Does this additional stress reflect increased supply-side problems? There are plenty such problems, even more since late February. But for US-focused flows most of the evidence still implicates demand as most influential.

On Monday, CNBC interviewed Brian Moynihan. The Bank of America CEO tells us this about his customers:

[Their] balances continue to be stable and continue to grow year over year for the broad base of consumers. More importantly, the spending levels in May for the first few weeks are up 10 percent last May, and that is not as high as it would otherwise be because last May people paid taxes, so it actually — it’s a bigger base to grow from. So year to date, they’re up 17 percent fairly standard. In May they’re up 17 percent. The consumers continue to spend. In the balances of our customers, they have more money in April. Their balances were up in March and they grew over all way back to mid last year. So the notion that people are spending the stimulus down isn’t happening yet. It may happen but it hasn’t happened yet.

Significantly higher food prices have not (yet) reduced overall demand for groceries or eating out. The even sharper increase in gasoline prices has (so far) not noticeably impacted demand (though what I see as flat, others perceive as seasonally softer than usual) (plus more and more). Walmart, Target, and other retailers recently reported considerably increased consumption. During the first quarter consumers spent about three percent more at Walmart and the company expects 3.5 percent more in the current quarter. Demand for air travel has increased in May and Deloitte predicts a strong summer travel season.

Since at least October (here), I have expected some sustained softening of pull. This has not happened. American consumers have mostly continued to increase spending (one exception here). Push capacity is often more symmetrical than one year ago because pull is less concentrated. But otherwise demand continues to exceed production and/or transportation capacity for several products and even product categories (e.g. new cars).

Given other indicators, I will be surprised if Friday’s PCE totals do not continue recent upward angles. But it is important to see what is being consumed: the proportional mix of expenditures. Moreover, how much of any nominal increase is obviated by inflation? Are US consumers really pulling more or mostly pulling close-to-the-same at higher prices? For demand and supply to be better balanced, pull needs to be more diversified than over the last two years. Pull also needs to be more consistent with push capacity that accurately reflects fundamental demand, rather than a fun-house mirror of volatility.

Faltering Flows

[Updates Below] Flows of fossil fuels — especially diesel — are much more viscous than usual. Sources of many manufactured products in China have been cut-off or slowed. Disequilibrium has deepened (again) between demand and supply for semiconductors. Flows of easy credit are being purposefully curbed. The specialty formula debacle has unnerved many who are not involved in feeding infants. Food and related — such as wheat, fertilizer, sunflower and palm oil — are stuck behind enemy lines or maritime blockades or defensive walls of export controls.

In each of these cases the cause is not a loss of core capacity or even — yet — lack of abundant supply. Rather, government actions intended to mitigate plague, war, inflation, or hunger are complicating or curtailing flows from going where they would often otherwise go.

In most cases, the policy intentions are unimpeachable (Putin’s excepted). Execution is innately complicated and too often can be clumsy, contradictory, and even self-subverting (Putin’s Ukraine policy is a fair example). Recent outcomes are prompting concern or alarm or, in some places, panic. For many of these flows, current risks have been amplified by a long series of choices — both public and private — that have concentrated supply or demand or both, pooling risk in fewer places and players. The resulting structure tends to amplify both good and bad. Just now, bad seems ascendant.

Time, space, and cost constraints are fundamental in each of these flows. Some of these flows — ultimately, all of these flows — are interdependent. Taking on one problem can cause two more. As always, there is a risk of the urgent obscuring or fatally delaying opportunities to engage what is most important.

The time-dimension of growing food pushes me to give food flows strategic priority.

For the highest volume global food producers, agriculture is seasonal. Crops must be planted in different places encompassing enough space within a particular time-frame or yields will suffer. Sufficient water and fertilizer must be applied in a timely way or yields will suffer. Harvesting must be completed within narrow seasonal constraints or yields will suffer.

Once the harvest is gathered other time-and-space factors accumulate, but these tend to be much less austere than the planting-to-harvest temporal “bottleneck”. There is cause to perceive that China’s manufacturing capacity will be reengaged whenever policymakers decide to get out of the way. Carbon extraction and fossil fuel production are not seasonal. Meanwhile, wheat or corn or barley is produced this season — or not.

Too much food — especially too much wheat and sunflower oil — is currently trapped in Ukraine (more). There are roughly 22 million tons of last year’s harvest still in storage across Ukraine. With Odesa, Kherson, and other major Black Sea ports blocked, these stocks are seeking other routes. For example, the Romanian port of Constanta is less than 300 miles south of Odesa and familiar to Black Sea carriers (more). These innovative flows have near-term implications for feeding millions in the Middle East, Horn of Africa, and South Asia. As of mid-May Ukraine’s grain exports are only about one-third of last May’s volume.

Moving last-year’s harvest is also necessary to make room for this year’s harvest. In early May it was estimated that even in the midst of war Ukraine’s farmers may be able to plant about 11 1/2 million hectares — about one-fifth to one-quarter less than usual. In recent years Ukraine’s proportion of global grain exports has been a bit more than ten percent overall, but well over half for specific markets such as Egypt, Indonesia, and Pakistan (more). The United Nations World Food Program has also purchased significant amounts of Ukraine’s grain for emergency food assistance. Depending on yields and flows from other grain producers, losing two percent or marginally more of international grain exports ought not be catastrophic.

But as of mid-May only about one-third of Ukraine’s lower-than-usual number of hectares had actually been planted. Fuel and fertilizer shortages in Ukraine are complicating planting (more). It is reasonable to assign a risk premium for harvesting whatever is finally planted. As a result, Ukraine’s reduced food output is causing a price surge in several food commodities, especially wheat. There are other risks: Russia is usually a major grain exporter too, but its exports are complicated by sanctions. Due to drought, this year’s US winter wheat yields were well below normal. Heavy rains decimated China’s winter wheat harvest. Below is a chart that provides one angle on wheat futures contracts since the beginning of the year. (More.)

Even with price controls, in Egypt bread costs at least one-quarter more than one year ago. It is getting more difficult to find bread to buy in Lebanon. (More and more and more). Many countries do not have sufficient dollar reserves to buy enough higher priced grain to fulfill local demand.

Some key food supplies are tighter than typical just now. Given what is not happening now, supplies could be even tighter next Spring. In some places that typically depend on food flows from Ukraine and Russia, delays and uncertainty are prompting pull signals (price increases) to fill the gap between demand and supply with flows from other places. While this stronger pull is motivating the emergence of new push channels, some downstream prices now exceed the local ability to pay. Demand persists, but an increasing proportion of demand cannot be effectually expressed and is essentially being excluded from pull and push (see Yemen, Somalia, Sri Lanka, etc.).

As the links above and this week’s UN Security Council special meeting demonstrate, the problem with food flows is well-recognized. It is not, however, claiming the priority required to make practical progress. Disrupted Ukrainian food flow is a problem that will get worse without sustained, significant action starting now. Key steps should include:

  1. Maximize and optimize the Constanta Corridor for discharge of Ukraine’s food exports.
  2. Increase deliveries of fuel, fertilizer, and other key inputs to Ukraine’s farmers.
  3. Reinforce effectual food demand for people in places where pull signals have encountered the most interference due to currency gyrations and physical disruption of preexisting supplies.

Ukraine is an important preexisting node in global food flows. Reassuring markets that these flows are likely to persist will reduce price volatility for everyone. Focusing on preexisting network capacity and players is the most efficacious means for doing this. Providing effective mechanisms for expressing real demand will target flows and reduce misdirection caused by consumer hoarding or market manipulation or dependence on relief programs.

Global networks of demand and supply are morphing in response to Ukraine’s flows and future possibilities. To the extent upstream push can be more confidently anticipated and downstream pull can be better balanced, midstream rapids or portaging can be minimized. And… famine threatening hundreds-of-thousands can be avoided.

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May 24 Update: Bloomberg reports: “Russia has continued to ship its wheat at the now-higher price, finding willing buyers and raking in more revenues per ton. It is also expecting a bumper wheat crop in the next season, suggesting it will continue to profit from the situation. Global wheat prices have risen by more than 50% this year, and the Kremlin has collected $1.9 billion in revenues from wheat export taxes so far this season, according to estimates from agricultural consultant SovEcon.” While this is unwelcome in terms of sanctioning Russia’s invasion of Ukraine, it is good news for flows and fulfilling demand. Bad can sometimes unveil good. The reverse is also possible. The full Bloomberg report is helpful to read.

May 25 Update: Reuters reports: “Russia is ready to provide a humanitarian corridor for vessels carrying food to leave Ukraine, in return for the lifting of some sanctions, the Interfax news agency cited Russian Deputy Foreign Minister Andrei Rudenko as saying…” (more and more and more and more). LATE ON WEDNESDAY: Bloomberg reports: “Russia’s Defense Ministry said it’s opening two sea corridors for international shipping from seven Ukrainian ports, after growing international criticism of an unfolding global food crisis triggered by a Russian blockade.” (More)

May 26 Update: Bloomberg reports: “The Netherlands would consider joining an alliance to send warships to escort grain supplies stuck in Ukrainian ports but would need assurances from Russia and, ideally, involvement from Turkey, according to the Dutch defense minister. Estonia and Lithuania have been calling to establish a coalition of the willing to send naval escorts for grain freighters, as European officials decry Russia’s effective blockade of Ukrainian ports that’s left Kyiv struggling to get grain shipments out.” (More)

Above in my original post I focused on the Constanta Corridor — instead of Ukraine’s Black Sea ports — because I considered the prospect of Russia cooperating to be scant. The Constanta Corridor should still receive priority attention. But the last two days suggest a slightly improved possibility of restarting flows from preexisting nodes using preexisting channels… which would certainly be the most effective and expeditious means of reclaiming prior capacity. There is also an urgent need to address the second priority noted in the original post: supplying Ukrainian farmers who are currently planting the fall harvest. Their fuel supplies are very tight and tightening.

May 27 Update: Bloomberg offers a concise update on Black Sea flow options for grain, including the following map. Constanta Romania is about 260 miles by road or rail south of Chornomorsk (more and more). S&P Global also reports on potential social instability related to food price increases. (More channel options in this very helpful May 29 report by Bloomberg. The report includes, “For now, the most realistic solution remains Romania, Constanta and the Sulina Canal that links the Black Sea with the Danube.”) (Related S&P report on sunflower oil.)

May 29 Update: The Financial Times reports on a Saturday phone call: “Putin, Scholz and Macron discussed whether a negotiated solution could be found to open Odesa to allow grain exports to leave Ukraine, according to an Elysée briefing after the call. The French and German leaders “noted the Russian president’s promise to allow ships to access the port to export grain without it being used militarily by Russia — if the port was demined in advance”, according to the briefing. Berlin said the call lasted 80 minutes and was “devoted to Russia’s ongoing war against Ukraine and efforts to end it”. These negotiations with Putin are not supported by all European leaders (more and more).

April US retail sales

US consumers continued to spend more than ever before (see chart below). But there may be some signs of cooling demand. For example, grocery store sales were up 8.6 percent from April 2021, but were slightly down from March 2022: $68,286 million compared to $68,560 million (not adjusted for inflation). Spending at food service places increased from March to April: $86,421 million compared to $84,643 million. Are we finally seeing Food-At-Home better balanced with Food-Away-From-Home? As you may have noticed, answering this question has been a personal preoccupation. (More and more)