So Brazil dominates feed exports... and my numbers shows that margins for pig farmers are negative at the moment, so if they limit exports its going to be meat that becomes a problem.
US could raise exports a bit - and maybe argentina..
Hi Russell, thanks for the update. I understand your reasoning that where food prices go wages go, but does that have to be an immediate correlation? Couldn't one argue that 1) in the US and the EU where growth is slowing workers lack the bargaining power right now to get wage increases (as far as I'm aware real incomes are still falling) and 2) given declining M2 in US and the EU, the additional money that would have to go toward food if prices spike would come from other pockets, e.g. discretionary spending? And if that's the case, a spike in food prices (or commodities more broadly) would actually squeeze the economy even more in the short to medium term (i.e. until CBs start easing again and the monetary base goes back to expansion mode) and increase the risk of recession? Isn't that what happened to some extent in 2007-08?
Ture there is no particular reason to believe there is an immediate correlation between food prices and wages, but looking at the experience of Japan, US and Europe there does not seem to be too much of a lag. Also very hard to tease out causation here... do wages rise because food prices go up, or does higher food prices drive wages?
1) low unemployment seems to be the key to wages, and that seems to be the case in EU and US. Once unions prove they can win pay increases, do they reverse the decline they have been in? No idea.
2) M2 does not have much effect on food prices I think - but on asset prices yes. Thats why I think assets prices do badly while food prices rise.
My thinking is that 2007/8 government still thought of recessions as "good". Clearing out unproductive capital. Now policy is all about keeping workers in jobs, and protecting everyone from the worse of things. Very different policy environment.
Thanks. Yeah I still broadly agree on different policy environment. That doesn't prevent a "mistake" if policymakers misjudge the situation but I think the liquidationists are fooling themselves and if mistake (from the perspective of policymakers) there is the policies will be adjusted very quickly.
That Chinese Current Account surplus (ATH) won't help domestic pricing in Brazil (other EMs) either, as China starts another pro-cyclical wave of commodity purchases.
Wrote a little article on China in my Substack if interested. (not a plugging/spamming with a link). Hope you're feeling better.
Great presentation, Russell! This agrees very well with my own thinking/observations. Food is key and current situation is pretty precarious - we have not even come to deal with consequences of reduced fertiliser use after a spike last year and yet it seems markets are totally relaxed about food abundance.
Major issues with rice in China (floods and droughts decimated the last couple of crops) and pretty absurd short wheat position by speculators combine to create potential explosion upwards in these 2 key commodities. Ukraine grain stocks are depleted and new planting is much reduced. If there is substantial damage from winter kill in the US/Russia, situation can get pretty dire.
So Brazil dominates feed exports... and my numbers shows that margins for pig farmers are negative at the moment, so if they limit exports its going to be meat that becomes a problem.
US could raise exports a bit - and maybe argentina..
Hi Russell, thanks for the update. I understand your reasoning that where food prices go wages go, but does that have to be an immediate correlation? Couldn't one argue that 1) in the US and the EU where growth is slowing workers lack the bargaining power right now to get wage increases (as far as I'm aware real incomes are still falling) and 2) given declining M2 in US and the EU, the additional money that would have to go toward food if prices spike would come from other pockets, e.g. discretionary spending? And if that's the case, a spike in food prices (or commodities more broadly) would actually squeeze the economy even more in the short to medium term (i.e. until CBs start easing again and the monetary base goes back to expansion mode) and increase the risk of recession? Isn't that what happened to some extent in 2007-08?
Hi Cyril,
Ture there is no particular reason to believe there is an immediate correlation between food prices and wages, but looking at the experience of Japan, US and Europe there does not seem to be too much of a lag. Also very hard to tease out causation here... do wages rise because food prices go up, or does higher food prices drive wages?
1) low unemployment seems to be the key to wages, and that seems to be the case in EU and US. Once unions prove they can win pay increases, do they reverse the decline they have been in? No idea.
2) M2 does not have much effect on food prices I think - but on asset prices yes. Thats why I think assets prices do badly while food prices rise.
My thinking is that 2007/8 government still thought of recessions as "good". Clearing out unproductive capital. Now policy is all about keeping workers in jobs, and protecting everyone from the worse of things. Very different policy environment.
Thanks. Yeah I still broadly agree on different policy environment. That doesn't prevent a "mistake" if policymakers misjudge the situation but I think the liquidationists are fooling themselves and if mistake (from the perspective of policymakers) there is the policies will be adjusted very quickly.
If Brazil restrict exports, who is the swing exporter?
My guess is the US or Canada, which is a geopolitical problem for China.
There are no major China aligned exporters of oilseeds and coarse grains, that's China's dilemma.
That Chinese Current Account surplus (ATH) won't help domestic pricing in Brazil (other EMs) either, as China starts another pro-cyclical wave of commodity purchases.
Wrote a little article on China in my Substack if interested. (not a plugging/spamming with a link). Hope you're feeling better.
Great presentation, Russell! This agrees very well with my own thinking/observations. Food is key and current situation is pretty precarious - we have not even come to deal with consequences of reduced fertiliser use after a spike last year and yet it seems markets are totally relaxed about food abundance.
Major issues with rice in China (floods and droughts decimated the last couple of crops) and pretty absurd short wheat position by speculators combine to create potential explosion upwards in these 2 key commodities. Ukraine grain stocks are depleted and new planting is much reduced. If there is substantial damage from winter kill in the US/Russia, situation can get pretty dire.