Mid-June Vitals

[Several updates through July 1 continue after the charts] Below are five very broad indictors that I revisit every four to five weeks. Consider these outcomes in the context of other more comprehensive and detailed measures, such as the Supply Chain Stability Index, the Logistics Managers Index (see first chart below), and the Global Supply Chain Pressure Index.

North American Agricultural Production: I have been worried by early signals of sustained drought across much of the mid-continent. But so far, USDA and others are encouraging (at least in terms of volumes, if not prices). The World Agricultural Supply and Demand Estimates (WASDE) continue to anticipate good harvests. According to the June 9 update, “The outlook for 2023/24 U.S. wheat this month is for larger supplies, unchanged domestic use and exports, and higher stocks. Supplies are raised as all wheat production is projected at 1,665 million bushels, up 6 million from last month…” Corn projections also look good. US livestock and dairy production is mostly fluctuating in response to demand. Fresh produce prices have fallen and supplies are abundant (more). Global food prices are also softened. A wide range of indicators suggest, however, that SNAP beneficiaries are struggling to adapt to the loss of pandemic supplements (here and here and here).

Global Natural Gas Demand and Supply: US natural gas inventories are comfortably within the five-year average range (more). EU natural gas storage facilities are over seventy percent full. Natural Gas prices have returned to pre-war levels and are toward the low end of pre-pandemic prices. According to Bloomberg, “Futures for December 2023 (EU benchmarks) are trading at a discount of about 8% to December 2024, according to ICE Endex data. That’s a reversal from January, when the nearest winter contract traded at a premium. The shift indicates Europe is relatively well-prepared for the coming heating season following a mild winter that allowed it to build up inventories with an influx of liquefied natural gas. But the coming years are more uncertain, as the region adjusts to a new reality with scant help from former top supplier Russia.” Asian demand for LNG has been insufficient to push up global prices.

China Export Volumes and Value: According to a June 7 report by Reuters, “China’s exports shrank much faster than expected in May while imports extended declines with a grim outlook for global demand, especially from developed markets, raising doubts about the fragile economic recovery.” As the domestic economies of several customers of China slow-down, orders for China’s manufactured goods have also declined (see chart below). Without this external stimulus, China’s domestic consumption has been flat. Recent action by China’s Central Bank confirms the domestic slowdown and efforts to turn this around (more). It is worth noting that volumes (and value) continue to be above pre-pandemic levels and trend-lines. This is not a collapse. So far, it is much more of a correction that reflects more sustainable demand velocity.

North American Grid Capacity: As previously noted by this blog, current capacity should probably be okay this summer unless there is a surprising spike in demand (probably due to a “surprise” extreme weather event). US electricity generating capacity is growing, especially in those regions with increased demand (more and more). On June 12, the New York Times published a long piece titled Why the US Electric Grid is not Ready for the Energy Transition. This (and other) reports focus on the increasing mis-match between generating capacity and transmission capacity. According to the NYT, “In recent decades, the country has hardly built any major high-voltage power lines that connect different grid regions. While utilities and grid operators now spend roughly $25 billion per year on transmission, much of that consists of local upgrades instead of long-distance lines that could import cheaper, cleaner power from farther away.”

US Personal Consumption Expenditures: Yesterday’s May Consumer Price Index (more) suggests that expenditures by US consumers are gradually decelerating — even with continued strength in the labor market. Slower pull is unfolding into slower (and less expensive) push (more). Flows remain huge. But current flows are flat or even receding, especially compared to late-pandemic bounce-backs. This is not a drought. But compared to flooding during the first half of 2022, consumers are less thirsty. As a result, suppliers don’t need to sweat as much (which is not always good news if sweating is part of what you sell).


June 15 Update: The Financial Times headlines, “Chinese economic data fuels gloom over recovery.” Bloomberg piles on with, “An undershoot in [China] retail sales showed the consumption recovery lost more momentum. A sharper-than-expected slowdown in fixed asset investment showed sinking private spending, particularly in the property sector, is overwhelming government stimulus in the form of outlays on big projects.” (More and more.) But… the energy market was much more positive regarding new data showing “China’s oil refinery throughput rose 15.4% in May from a year earlier, hitting its second highest total on record.” Please choose your preferred retrospective leading indicator.

June 16 Update: S&P Global delivers a very helpful round-up of anticipated Southern Hemisphere Agricultural Production given historical El Nino effects.

June 19 Update: I am not the only one worried about Midwest precipitation and lack thereof. According to S&P Global, “The prolonged dry weather across the key regions of the US — especially in the eastern Corn Belt and northern parts of the Midwest — has stoked fears of drought for the corn and soybeans farmers.” Talking with locals over the weekend, yields could still be okay if rain arrives “soon” (as in the next five days). But this is not what the forecast currently projects for most of this morning’s dry places. There is some possibility of precipitation-on-target inside the next seven days — for some places. Just in Time?


Too much is happening for me to feel confident that I am tracking even general directions. So, here is a quick effort to recalibrate (or at least confirm or clarify).

North American Agricultural Production: Rain in the Upper Mississippi River basin has helped temporarily recover water levels for navigation (see mid-Mississippi too). But the drought at the heart of corn and soybean country has persisted. Commodity prices have been reflecting worry, but are not yet signaling deeply discounted yields (more and more). A great deal depends on rain that is expected over the next few days (July 1-3) and later in July. Fresh fruits and vegetables are mostly abundant. Produce prices were up an average of 1.3 percent in May. Since then, according to industry sources, prices (and demand) have been “steady”… especially in contrast with late 2022 price hikes (here and here).

Global Natural Gas Demand and Supply: With the recent — current in some places — heat wave, US demand for natural gas has far exceeded multi-year averages. There has also been significant demand for US LNG exports. Prices have, however, not surged given sustained production/distribution flows and competition from other energy sources. Below please see an S&P Global Infographic with a good overview of the natural gas context in Europe. Slow economic growth in Asia combined with comparative high prices (and given the war, less demand urgency than Europe) has reduced LNG flows to Asia.

China Export Volumes and Values: Recent reports on China’s economic performance continue to emphasize slow to negative outcomes. Bloomberg reports, “It was meant to be the year China’s economy, unshackled from the world’s strictest Covid-19 controls, roared back to help power global growth. Instead, halfway through 2023, it’s facing a confluence of problems: Sluggish consumer spending, a crisis-ridden property market, flagging exports, record youth unemployment and towering local government debt. The impact of these strains is starting to reverberate around the globe, impacting everything from commodity prices to equity markets.” (More and more.) China has the capacity to export more and wants to export more, but especially as North American and European central banks try to depress demand to moderate inflation, existing pull is not motivating anything close to maximum push.

North American Grid Capacity: Texas has been providing a constructive use case playing out in real-time. Here is this blog’s recent coverage (be sure to see updates below the graphics). Here is a blurb that I have inserted in many recent emails: There are systemic, structural issues of grid transformation that increase the likelihood of grid failures — and these factors will almost certainly NOT be resolved in the next decade. There are specific issues of increasing demand (e.g., EV and other electrification, especially in high-growth regions), transmission/distribution (e.g., paucity of long-distance high capacity confident connections), and generation (e.g., changing mix of sources) that conflate to amplify risk. So, given this higher risk of long-term, wide-area grid failure, it is especially important that we (meaning private-public collaboratives) have the ability to facilitate flows of water, food, fuel, and other crucial freight when and where the grid is gone for an extended time over a wide area.

US Personal Consumption Expenditures: This blog tends to give particular attention to food PCE (both nominal and real). This was updated yesterday here.

Soooo… many aspects of demand have moderated and demand/supply equilibrium has been (is being) reestablished. Where and when demand has increased, there has — so far — usually been sufficient push capacity to fulfill pull capacity. There are upstream factors that threaten to constrain some push capacity. There are risks of sudden spikes in demand. There is probably enough buffer capacity to handle short-term and tightly targeted spikes. If demand spikes evolve into longer-term surges there is an increasing risk of demand/supply disequilibrium amplified by any lags in distribution capacity or loss of production capacity… especially as disequilibrium expands over time and space.