The second half of 2024 has opened with moderating pull and sustainable push for food, energy, and most aspects of crucial freight. The Red Sea (Suez Canal) pinch point continues to prompt higher prices and some Asia-Europe port congestion. But current — and prospective — flows are mostly well-calibrated with fundamental demand.
Food Flows
Once a month I try to track yield projections and anticipated prices for wheat, rice, corn, and beans as rough upstream indicators and compare this upstream capacity with close-to-actual downstream demand. My purpose is to discern the match or mis-match of upstream push to downstream pull. The global market often reflects price functions (greed, fear, surprise, etc.) that I don’t follow close enough to have a well-informed judgment (many readers will have a much better sense of these factors). But if prices are stable or declining or slowly increasing, that is usually a dependable signal that supply is reasonably calibrated for most effectual demand. Based mostly on outcomes during the second half of June, the USDA’s World Agricultural Supply and Demand Estimates reports:
This month’s 2024/25 U.S. corn outlook is for larger supplies, greater domestic use and exports, and slightly lower ending stocks. Corn beginning stocks are lowered 145 million bushels, mostly reflecting a greater use forecast for 2023/24. Exports are raised 75 million bushels based on current outstanding sales and shipments to date. Feed and residual use is up 75 million bushels based on indicated disappearance in the June Grain Stocks report. Corn production for 2024/25 is forecast up 240 million bushels on greater planted and harvested area from the June Acreage report. The yield is unchanged at 181.0 bushels per acre. Total use is raised 100 million bushels with increases to both feed and residual use and exports based on larger supplies and lower expected prices. With use rising slightly more than supply, ending stocks are down 5 million bushels. The season-average farm price received by producers is lowered 10 cents to $4.30 per bushel.
The same USDA report says, US “Soybean production is projected at 4.4 billion bushels, down 15 million on lower harvested area. Harvested area, forecast at 85.3 million acres in the June Acreage report, is down 0.3 million from last month. The soybean yield forecast is unchanged at 52.0 bushels per acre. With slightly lower beginning stocks, reduced production, and unchanged use, ending stocks for 2024/25 are projected at 435 million bushels, down 20 million from last month. The U.S. season-average soybean price for 2024/25 is forecast at $11.10 per bushel, down $0.10 from last month.” Both wheat and rice yields — and overall supplies — are expected to increase slightly.
Recent global crop conditions are better than the last couple of years in most places. (Here’s a helpful map.) La Nina’s return could impact the northern hemisphere’s harvest season. These El Nino to La Nina transitions have often reduced actual yields below forecast by five to ten percent (with related price increases). But I consider it too early to confidently project where, when, or how this climate transition might impact the second-half’s balance of food demand and supply.
Energy Flows
The Energy Information Administration reports:
U.S. power plant operators generated 6.9 million megawatthours (MWh) of electricity from natural gas on a daily basis in the Lower 48 states on July 9, 2024, probably the most in history and certainly since at least January 1, 2019, when we [EIA] began to collect hourly data about natural gas generation. The spike in natural gas-fired generation on July 9 was because of both high temperatures across most of the country and a steep drop in wind generation. According to the National Weather Service, most of the United States experienced temperatures well above average on July 9, 2024. Temperatures were particularly high on the West Coast and East Coast. Wind generation in the Lower 48 states totaled 0.3 million MWh on July 9, 2024, much lower than the 1.3 million MWh daily average in June 2024.
Despite this demand spike, US natural gas prices have remained comparatively low. Natural gas stocks in Europe are well above long-time seasonal averages. East Asian natural gas demand in 2024 has increased but unevenly and more modestly than many expected (more and more).
Crude oil prices have been remarkably calm (see chart below), especially given so many geopolitical uncertainties. Yesterday CNBC reported, “U.S. crude fell more than 1% on Friday, posting a third weekly decline as worries about demand in China outweigh strong economic growth in the U.S. West Texas Intermediate oil fell 3.7% this week, while Brent dropped 1.8%. The U.S. economy grew at a 2.8% pace in the second quarter, much stronger than expected. But oil imports to China were down 10.7% year over year in June, and refined product imports fell 32% during the same period, according to customs data. China is the world’s largest crude importer.”
Despite various efforts to reduce supply and increase oil prices, the global market for refined petroleum products has — for the moment — achieved a rough equilibrium that can supply energy at an affordable price for most needs. The New York Times recently commented, “That the price and demand for oil have been so strong suggests that the shift to renewable energy and electric vehicles will take longer and be more bumpy than some climate activists and world leaders once hoped.”
In 2023 a bit more than one-fifth of electricity consumed in the United States was generated by renewables. Electric power consumption is growing fast in many places. The US proportion delivered by renewables is steadily growing, though fast-enough remains an open question. About half of the European Union’s grid output depends on renewables. Global deployment of renewables — outside China — is proceeding at a pace that some consider inadequate to avoid even more extreme climate consequences.
Freight Flows
Earlier this year constrained capacity at the Panama and Suez canals caused delays, congestion, and increased costs worldwide. Better rains have since increased throughput at Panama. Houthi attacks continue to slash Suez sailings. But maritime flows have successfully shifted to other routes. This shift has reduced — and complicated — velocity with a predictable months-long impact on volumes (and prices). But in the last couple of weeks spot market prices indicate the higher pressure flows are beginning to even-out. On July 26 Loadstar reported, “Drewry’s World Container Index (WCI) Shanghai-Los Angeles declined 5% week on week, to yesterday’s level of $6,934 per 40ft, while Xeneta’s transpacific XSI saw a 6% drop, to $7,322 per 40ft, and the Freightos FBX dropped 4%, to $7,738 per 40ft. Meanwhile, pricing on the Asia-North Europe route was either flat or saw slight declines: the WCI and XSI were flat, at $8,260 and $8,474 per 40ft respectively; while the FBX dropped 2% week on week, to finish at $8,420 per 40ft.”
US freight flows reflect sustained — if moderated — consumer demand. The frontloading of holiday imports is requiring more trucking capacity than can often be the case later in the summer. Traditional rail and truck shipment metrics continue what seems to be a slow, systemic decline. But Todd Davis at FreightWaves comments, “June was possibly the best month for freight in nearly two years from a service provider perspective. Tender volumes hit their highest monthly values since August 2022, and rejection rates breached 6% for the first time since the same month. While neither of these values broke any records, both are signs of a healthier freight market.”
For the last two years, by late July Mississippi River levels have gotten iffy for barge movements. But this year — so far — river levels (here) are one-third higher or better along much of the Lower Mississippi.
As of the end of June the New York Fed’s Global Supply Chain Pressure Index was about as close to its historic average as it gets.
Push Reflects Pull
Global flows are huge, but without much pent-up demand. China’s economy is growing, but not as fast as pre-pandemic. Japan’s GDP prospects are for no-growth or worse. The Eurozone’s economy has improved, but is not expected to grow much better than Japan’s (more). Among the biggest economies, only the US has recently shown the ability to surprise to the upside. Real (inflation adjusted) US Personal Consumption Expenditures (see second chart below) are mostly maintaining their post-pandemic levels — with modest rates of growth.
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July 28 Update: About 12 hours after I posted the above, the Financial Times published a lead story headlined, “US consumers show signs of flagging.” The second and third sentences read, “This week’s shaky start to the corporate earnings season has fuelled concerns that consumer strength has peaked, despite data on Thursday showing stronger than expected GDP growth in the second quarter, thanks in part to consumption spending. Kathy Bostjancic, chief economist at Nationwide Mutual, said she expected “consumers to rein in their spending as we head through the second half of this year” because “pandemic savings [are] depleted, lower income households increasingly maxed-out on credit and . . . employment growth will continue to cool”.
Cooling, slowing, walking not running are all consistent with what I also perceive for US demand pull. This means less pressure on supply chain volumes and velocity, more opportunity to invest in resilience, efficiency, and serving what is still very strong demand.
Last week McKinsey reported, “The decline in postpandemic logistics funding continues. After reaching an unprecedented $25.6 billion in 2021, venture funding for logistics start-ups fell to just $2.9 billion in 2023—a two-year plunge of nearly 90 percent, and the lowest level of funding since 2015.”
The consultancy offers several credible explanations for the decline. I will offer another: between 2020 and 2021 VC funding for logistics doubled from about $13 billion to almost $26 billion. Many of those investments have not paid off. Many of those investments were poorly conceived. Too many of those investments were misspent in the maelstrom of pandemic volatility. Manic demand was often prompting schizoid supply. Investors are pausing to assess lessons-learned.
There is absolutely the need (and opportunity) for VC and other supply chain investments that anticipate increased uncertainty, consumer volatility, technological change, persistent stress, and recurring systemic shocks. Today’s flows of pull and push are a much more promising context for conceiving, refining, and scaling innovations with a sustainable Return-On-Investment than the fast floods and deep droughts of 2021 to 2022.