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Severe Food Shortages Are Near
Food Shortages despite High Commodity Prices
Wheat commodity prices have skyrocketed since the Ukraine war.
Ukraine is a top producer of sunflower oil, wheat, corn and other foods. The loss of those crop yields due to the invasion and war with Russia will cause food prices to rise. Without sunflower oil, the demand for all other vegetable oils will increase along with price. Panic buying may cause supermarkets to run out of all vegetable oil. And the food production system cannot compensate by producing more — both because the amount of cropland is not even enough to meet the world’s need (800 million persons are in a state of endemic hunger) and because the costs of growing crops may soon increase beyond the higher price for the crop’s selling price.
Already, uncertainties in agricultural commodity prices and supply have led to a steep jump in prices. Wheat one year ago was $225.00 USD and now it is $375.00 USD per ton. Yet despite higher prices, farmers might decide not to plant wheat, as fuel prices (to run the planting and harvesting machinery) and fertilizer prices have also jumped higher. The higher commodity price does not make up for the increased costs of production. Without fertilizer, yields would fall so low that no crop could be grown to a yield sufficient to make a profit, and so farmers will not plant. If fertilizer is available, but arrives late, farmers cannot plant, as a late or early planting date can cause yields to be particularly low. And if the fertilizer and fuel are available but costly, farmers can anticipate a loss on the crop, so they will not plant at all.
Another problem is seed costs. To plant wheat, a farmer needs (on average in the U.S.) a large amount of wheat seed per acre. But higher wheat prices mean the seed for planting is more costly. As each “input” into a crop rises in price (seed, fertilizer, herbicides, pesticides, fuel, labor), the commodity price must be higher to allow the farmer to plant without a financial loss. Right now, the cost of inputs is probably too high for most farmers, despite higher commodity prices. This will cause wheat prices and food prices to rise, eventually providing a commodity price for wheat that is higher than the input costs. But before that happens, supply will fall dramatically and prices at the grocery store for wheat foods will jump much higher.
Corn prices have also jumped higher. Corn is between $7.25 and $7.50 USD per bushel (a bu. of shelled corn is 56 lbs.). A year ago, corn was about $5.50/bu. The same problem arises with corn as with wheat. Higher commodity prices are not high enough to offset high input prices (especially fuel and fertilizer). So it is questionable whether farmers will plant corn this coming spring/summer. Current commodity prices here.
When there is a shortfall of any grain, whether wheat or corn or other, people eat more of other grains and other foods. This causes a pressure on the supply of other grains and foods, causing those prices to rise. But the U.S. and generally the world agricultural system is a “just in time” system, with very little extra capacity or stored supply. When there is a shortfall of any major food staple, there is not enough extra food (or land) to make up for that shortfall. If wheat becomes unavailable, all other foods could be wiped out from grocery store shelves. People will start to panic buy, and will purchase all kinds of foods they do not usually buy, because wheat flour, bread, and pasta become unavailable. There is never enough supply in the food supply chain to support panic buying. The food production and distribution system only produces enough for the usual demand. Any sharp increase in demand wipes out supplies, causes prices to jump, and then increases demand on all other foods — beyond the ability of the system to compensate and produce more food in the short term.
Two-thirds of the world’s supply of Ammonium Nitrate (AN), the most common source of nitrogen for artificial fertilizers, comes from Russian exports. But Russia is no longer exporting AN, in order to keep sufficient amounts for its farmers. The isolation of Russia and sanctions against Russia will perhaps cause the nation to decide to cease exporting AN. And even if they wanted to export AN, they might be unable as the means for buyers to pay for that product have been stopped by sanctions. As with the supply of crops, fertilizer is not produced in great excess, but only in the amounts usually needed by the supply chain. A sudden loss of AN from Russia means that fertilizer prices will jump, and supplies will drop precipitously. Without AN, fertilizer cannot be made, and without fertilizer, crop yields could fall by 50% or more. Modern high yields for major crops are based upon high availability of inexpensive artificial fertilizer. This problem with fertilizer could cause farmers to cease from planting most staple crops: corn, wheat, rice, barley, soybeans, etc. The result would be a severe food shortage worldwide.
The Corn-Soy-Vegetable Oil connection
Corn and soybeans are two of the top crops grown in the U.S. and other nations. The soybeans are crushed and then the soybean oil is extracted and sold. Two-thirds of the vegetable oil produced in the U.S. is soybean oil. Then the leftover from oil pressing, called soybean meal (or presscake) is sold to be added to livestock feed. Corn and soybean meal together form the majority of the ingredients in livestock feed. The corn provides carbs and some protein; the soybean meal provides more protein and some oil.
But soybeans are expensive to grow. The seeding rate is high, so seeds are costly. And much fertilizer and irrigation is need to get the best yields. Prices for soybeans are based on the dual use of the crop: oil and livestock feed. If there is not enough corn for livestock feed, then the soybean meal is not needed, and the value of the soybean crop would fall below what is needed to fund the inputs for the next soybean crop. If livestock feed is unavailable or too expensive, producers will cull their herds, greatly reducing the future need for livestock feed and therefore for soybean meal. Any disruption to the corn or soybean crops means that a large percentage of the vegetable oil supply will not be grown. This puts pressure on the supply of all other vegetable oils, skyrocketing prices and selling out supplies. Supermarkets will not have vegetable oil.
Then products which need oil to be manufactured — potato chips, tortilla chips, fried foods, snack foods, pastries, etc. — cannot be made. This increases demand for all other foods, the supermarkets will sell out of all foods, and the nations will go hungry.
Another problem is that the seed supply for wheat and other crops might not be planted, as farmers cannot afford to grow these crops. That seed supply might then be sold for food — which would be a severe disaster for the food supply. Billions of pounds of seed for wheat, for corn, and for other major crops, are needed each year to plant the usual amount of each crop. If the seed is lost because it is sold for food, it will take many years to rebuild the supply of seed, especially of wheat seed.
Winter wheat can only be planted once a year. Spring wheat is a different plant, and can only be planted once a year. To rebuild a lost seed supply, each crop cycle increases the amount of seed by about 30-fold or less for wheat. It could take five to eight years to rebuild the usual amount of seed supply for wheat as billions of pounds of wheat seed are needed by farmers every year. If the seed supply is wiped out, there will not be wheat for at least several years, perhaps longer.
We are living on the edge of a knife. The war in Ukraine and the sanctions on Russia are about to disrupt the food production and distribution system beyond short term repair. These food shortages could last for years.
Videos on this topic:
* COST OF FARMING AFTER SANCTIONS IN 2022 | Grain Prices and Sanctions in 2022
* Victory Gardens for 2022?
* American Fertilizer Shortage | Food Prices Will Skyrocket
Ronald L. Conte Jr.