The Pending Food Crisis
The ClarksvillianDon’t underestimate this fertilizer / agriculturefiasco. It is going to be far more severe andprolonged than what the vast majority has ledthemselves to believe.
As Europe’s farmers prepare to spread fertilizerson fields after winter, sky-high nutrient prices areleaving them little choice but to use less and try topass on the cost down the food chain.
For growers of staples like corn and wheat, it’s thefirst time they’ve really been exposed to a fertilizercrisis fueled by an energy crunch, export curbsand trade sanctions. It now costs much more tobuy chemicals needed for winter crops coming outof dormancy, and the extra expense could promptsmaller spring plantings that make up a third ofEuropean grain.
Europe has been hardest hit by fertilizer-plantcutbacks on soaring costs of natural gas used torun them — and nutrient prices there remain at arecord even as the pressure eased in NorthAmerica. Europe could face a deficit of about 9%of its annual nitrogen-fertilizer needs in the firsthalf, VTB Capital estimates. Food may get evenpricier if harvests suffer or crop prices rise.
Who would have ever thought that the closing ofthe Dutch Groningen gas field would lead to afertilizer, agricultural production, food, andinflationary crisis? Well, we did, but never mindthat. It wasn’t critical to our analysis. Rather, ourthinking was along the traditional energy lines.Simple rising costs of all energy componentsbecause of insufficient capex spend in the fossilfuel industry.
The thing is, there were multiple reasons (or moving parts) here, and we only needed one or two of them to rear their inevitable and ugly head for profits in this space to come. It’s not always about being right but about running the probabilities and positioning oneself to get lucky.
So, we positioned ourselves to get luckyasymmetrically. And what do you know, the “Godsof Chance” looked kindly upon us. We mention thisbecause a few subscribers have been thanking usfor “our bullish call” on SDF, having bought it in mid2020. Well, consider yourselves lucky!
If you think being up 250% is time to “take profits,”we are thinking the upside is just getting into gear.
Here, look at the long-term chart on this bad boy.Perspective is everything.
Now, here is something to consider. What if you had bought SDF 2 years ago, before the Corona hit (we were bullish on SDF back then)? Some 6 months later you would have been down 40%. Now, you are up about 120%. Were we wrong when you were down 40%? Equally, are we right now that you are up 120%?
Be gentle with yourself, ensure your position sizingallows you to weather this sort of thing and bepatient.
RISING COST OF MCDONALD’S: A GOODTHING You may be thinking that the rising cost ofyour Big Mac, soda, and French fries is a terriblething… Portion sizes shrinking: If you believe inmean reversion, then there are significant pricerises in agricultural products (grains, meats, oils)to come. Now, here is a thought… are risingobesity levels correlated with falling bond yields(remember bond yields have been in a bear marketsince 1980)? Certainly, I think it valid to say thatthe ease of buying junk food and the lack of self-discipline in financial markets and householdbudgets correlates highly with the lack of self-discipline in healthcare.
