Long time no see. I apologize, but the next two weeks won’t be much better (I’m very sorry to say). Still, here’s a quick try at updating some flow indicators to which I have given regular attention for the last six months or so.
Southern Hemisphere Agricultural Production: Brazil’s soybean harvest is close to complete and could exceed any previous year (more). Meanwhile Argentina’s drought has decimated output. “We are facing an unprecedented climatic event,” Julio Calzada, head of economic research the Rosario exchange, told Reuters, adding farmers were facing losses of $14 billion and 50 million tonnes less of grain output across soy, corn and wheat.” (More) Australia’s wheat harvest has been very strong.
On March 18 there was an agreement to continue agricultural exports from Ukraine’s ports through the Black Sea. The United Nations explains, “The Black Sea Grain Initiative, signed in Istanbul on 22 July 2022, has been extended. The Initiative allows for the facilitation of the safe navigation for the exports of grain and related foodstuffs and fertilizers, including ammonia, from designated Ukrainian seaports. During the first two terms, some 25 million metric tonnes of grain and foodstuffs have been moved to 45 countries, helping to bring down global food prices and stabilizing the markets.” But this agreement is scheduled to sunset after 60 days rather than the 120 days of prior agreements. There is also increasing concern regarding constrained crop production for the upcoming harvest (here and here and here) regardless of available discharge routes. Still front-month Wheat futures are down more than one-third over the last year — much more than one-third from price spikes over the last twelve months.
Global Diesel Demand, Production, and Price: US diesel inventories continue to slowly increase, two-steps forward then one-step back. Export opportunities are increasing US diesel production — but not storage (related). Still, prices are down an average of almost 95 cents per gallon over the last year. The benchmark European future price for diesel has fallen more than 15 percent since mid-January and is down more than the one-fifth from highs last summer. Labor actions at French refineries have recently constrained EU diesel production and supported prices, but overall European inventories remain elevated as result of January-February stockpiling and reduced demand. Slower economic activity and lower natural gas prices have reduced EU diesel consumption (related). Reuters describes current diesel inventories in Asia as a “supply glut.”
Covid Hospitalizations (and mutations): Hospitalizations are down from early January peaks in North America, Western Europe, and much of East Asia. Worst case expectations regarding the China reopening did not happen.
China’s Export Volumes and Value: Previously reported 2022 declines in China’s exports continued in January and February (more and more). Bloomberg explains, “Global demand for Chinese goods started falling in late 2022 as soaring inflation in the rest of the world and higher interest rates took a toll on consumer spending.” While the declines are significant (even equal to 20 percent, depending on the metric) current flows are roughly equivalent to pre-pandemic patterns. China’s domestic consumer spending is gradually recovering (more).
North American Electricity Supply and Demand: As previously noted, there have been serious problems over the winter. Last week the Federal Energy Regulatory Commission took a sustained look at capacity constraints. According to Utility Dive, “Two commissioners of the Federal Energy Regulatory Commission said… they see major reliability challenges across parts of the United States. “The capacity markets are not all right,” Commissioner Mark Christie said during the agency’s monthly meeting. “There are fundamental problems specifically in the multi-state capacity markets – ISO New England, [the Midcontinent Independent System Operator] and [the] PJM [Interconnection] – that are directly leading to serious reliability problems.” (More)
My diagnosis: There are some troubling (non)outputs, but current supplies are mostly sufficient to fulfill current demand for flows being monitored above. Capacity is tight. Global supply matches global demand, but just barely. Increased prices reflect the tight capacity (plus other factors). In some places, these prices effectively exclude consumers on the physical or functional peripheries of demand/supply networks. There is real cause for concern that our capacity to make and move food, fuel, and electric power can be agile enough to meet future demand, especially if capacity or outputs are further constrained or cut by war, natural disasters, or other extreme events.
March 27 Update: Nice summary from S&P Global of the set up for several agricultural markets in Asia. Bloomberg reports on mixed March results for China’s economy, which are reinforced by comments by the CEO of Maersk in an interview with the Financial Times. Vincent Clerc told the FT, “When we started the year, there was this hope that as China reopens after Covid we would see a really strong rebound… we’ve not seen it yet . . . The Chinese consumer is a bit more stunned by what’s happened and is not in a splurging mood right now.”
March 29 Update: The Financial Times reports on unintended consequences emerging from EU flow facilitation for Ukraine’s grain shipments. “Ukraine’s tariff-free access to the EU has caused a grain glut in neighbouring countries, tanking the regional agricultural sector and leading to complaints that Brussels is paying farmers too little compensation.” Grain farmers in Romania and Poland have especially suffered collateral damage.