Oil is not the Only U.S. Commodity in Trouble

Guest Piece by Nathan Kaspar

A good deal of this audience follows DBDailyUpdate for updates on the oil market. Much beyond Shale Oil, the broader commodity market is very sick. No, not with COVID-19, but from the ongoing lock-down of the national economy. President Trump took action yesterday to address meat packing plants staying open, but food production is much more complex than simply slaughtering animals and packaging the meat to go to the grocery store.

The Oil and Food industries were forever linked in 2005 with the passage of the Renewable Fuel Standards. This mandated certain blending levels of ethanol into our gasoline. While support of this is key if you are running for president and want to win the Iowa Caucus, turning half of the nation’s corn crop into fuel is dubious even if the government weren’t largely subsidizing it. Over the last 15 years though, the food markets have largely stabilized and reached “new normal” for how, how much, and what crops we farm to support the ethanol, human food, and animal feed industries.

The problem with this food and fuel link means that when there is a problem on the 90% side of the gasoline equation, the 10% side (Ethanol) is going to get cracked like a whip. Just like our nation’s oil producers are stuck with a surplus of oil with nowhere to put it, Ethanol producers also have no place to store additional production. As “stay at home” orders went from 2 weeks to months, Ethanol producers have had to change from slow-down, to shut-down, to extended furloughs. This is having a dramatic impact on food commodity prices, and it isn’t for the better.

Those prices can be found at the chart linked at the bottom of this piece.

The connection between ethanol and commodity prices is through distiller’s grains (both wet and dry). The byproduct of ethanol production is extremely high in protein and fat, and is sold in it’s wet form to feed lots or dried and sold to feed producers and dealers. These animals can’t simply eat whole corn in their diet as a substitute, so the result is that any commodity with protein in it is trading MUCH higher than last year.

The numbers for DDGS on the linked USDA chart are not valid. While there may be some long term flex contracts being fulfilled, most traders are simply listing (NQ) for DDGS. Most feed companies have been told that they can’t even think about taking delivery of DDGS until the 1st week in June at the earliest.

Some examples from the USDA chart of note:

Cottonseed Meal. $320/ton now vs $260 a year ago.

Bone meal is $335/ton vs $230 last year.

Corn Gluten Meal (byproduct from making corn syrup) is $582 vs $400 last year.

Wheat Mids, $140 vs $95 last year.

Corn prices, however, are terrible (trading at $102 vs $128 last year). This is only going to get worse as the ethanol shutdown continues. With half the nation’s corn crop going to ethanol every year, take 2 months out of that production and that’s 1/12th of the nation’s corn that is going to sit in a silo. Commodity prices are only starting to reflect it, and the cost of feeding animals is going to get much, much worse before the situation resolves itself.

This could very likely have long-term ripple effects through the harvest season in fall through November. Just in time for the election.

COVID-19 will likely be gone by the summer, but the shock-wave from the (largely unjustified IMHO) economic shutdown of the entire country is going to be felt for years.

If you have freezer space, put some steaks in it now. The people who are feeding the animals you hope to eat in 3 or 4 months are looking at the feed prices and trying to decide to sell off now, or allow their animals to be malnourished. Feed Lots with captive animals are having to pay exorbitant prices for their feed, and aren’t going to be able to pay ranchers enough at market to justify putting the cows on the trailer.

The time to completely re-open markets was 3 weeks ago. If you have the ear of a politician who supports the lock down, you might want to let them know how they are killing the food supply.

https://www.ams.usda.gov/mnreports/ms_gr852.txt

Nathan Kaspar

 

 

 

 

 

 

That is all.

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

14 thoughts on “Oil is not the Only U.S. Commodity in Trouble

  1. Jimmy MacAfee - April 29, 2020

    Also the problem of a cool, wet spring, with ground temperatures below normal and hay not setting. Not good.

    Some people think: well, I’ll just hunt. Sure. All the deer in the cornfields are going to be starving, and in areas where deer depend upon a solid mast crop, that remains to be seen. Fact is, deer aren’t cattle, and they’re overpopulated in neighborhoods with lawns and shrubs, but not as easy to come by in areas with tall hardwood or pine. My advice to hunters: get your bow out early, and if you live in an area with an urban archery program, take advantage of it.

    Last year with all the rain didn’t help. Tough year in a lot of areas. Central Virginia had decent hay, but the midsummer drought slowed things down. Timber isn’t bringing in much right now, according to a guy my wife and I spoke with this morning. Not worth cutting, though you’d think that paper products being in such high demand would create some increased prices. TP and all that.

    Better stock up on beans (not soy) and can some meat (and freeze some) ahead of time. Lentils and black beans have a good nutritional profile, better than most. Waiting to see what peanuts will do. Good nutrition, for people and animals.

    Had a history prof who once said: “All the great depressions started on the farm.” This is serious, and in the long run, China is going to regret what they’ve done – even more than us.

  2. Jimmy MacAfee - April 29, 2020

    I agree with the author: “turning half of the nation’s corn crop into fuel is dubious even if the government weren’t largely subsidizing it.” The crap ruins small engines (and big engines.) And now, with a glut of oil we also have a glut of ethanol? Not something most people imagined.

    Too much reliance on too few crops like corn, soy; not enough diversity. (Diversity is only a bad word when it’s connected to social engineering.) Pellagra isn’t an exercise machine, and corn isn’t a great staple.

  3. Gregg - April 29, 2020

    Regarding Jimmy’s comment on China is going to regret what they have done in the long run:

    I agree. They need our food much more than we need the crap – even medicines – they produce, since we can and should begin to make everything here.

    But regret their virus war? I don’t know; here’s why:

    Xi and China may feel they don’t really need our food as it wouldn’t matter to any of the communists who run China if they were to lose 10% (130,000,000) of their (selected) population to famine, especially if they could blame it on the US and Trump. There may be resulting riots in China, but losing another 10% in such a crackdown of a revolt wouldn’t bother them much either when historically communist/fascist regimes care little about the individual or human life in general.

    Stalin caused a famine that killed off 10% of his undesirable population in the 1920s, at least five percent more in his party and the military purges in the thirties, 10-15% more fighting Hitler in the early forties, and perhaps millions more in gulags until the 1980s when Gorbachev brought some kind of modest reforms.

    Russia has a population of about 145 million today, and it is by far the largest country in the world.

    The USSR under Stalin had about the same during the his reign. And I understand that the USSR split up so it is not exactly an apples to apples comparison, but still, the populations in virtually every other country in Asia and other countries that do not have their own abortion holocausts have dramatically risen in the last thirty years since the USSR split.

    In essence, Stalin’s communist USSR was killing off his population growth. Does anyone think Xi would concern himself much if he could get China’s population back down to a billion people as long as he stays in power, especially if he were to gain land from his neighbors? Remember the one child policy of previous regimes? And because of that China now has an unbalanced male/female population which can only cause major social problems in the future. It also creates a near endless pool of military age males to be used as cannon fodder to further whatever his aims are.

    All I see in Xi and the other Chinese dictators is a “kindler gentler” Stalin, who, like Stalin and the other USSR leaders, duped FDR and most every other Democratic and some Republican presidents for the last 100 years to our great detriment. I have no doubt Xi is hell bent on world domination and he has not one NYT Walter Durante helping with his Potemkin propaganda but virtually the entire US and free world’s press and academia helping him in his quest.

    1. Jimmy MacAfee - April 30, 2020

      Glad you mentioned the 10%. I had stated in this column (back in February?) that China could lose 10% of its workforce to the virus, and they’d survive, but if we lost 10% we’d be in real trouble.

      Well, we’re losing 10%, not from the disease, but from the rules the Autocrats have made in response to the disease. China doesn’t give a rip about 10%

      When you look at how NY ordered COVID patients to be treated in nursing homes – thus exposing the normal residents there unnecessarily – you can see that this is a purge of what people like the tech oligarchs would call “useless eaters.” Whomever made that rule should be made to clean floors and linens in a COVID ward, without any protective gear whatsoever.

      The fact that several hospital systems were caught denying their nurses and other direct care staff (other than doctors, of course) the use of masks (even if they brought their own from home) shows how deep this conspiracy is. It’s not incompetence: it’s a takeover.

      Next “pandemic,” and we won’t listen to the governors nor the mayors nor the judges.

  4. Gregg - April 30, 2020

    About ethanol:

    It never made any sense to burn food as fuel.

    Anything that needs to be permanently subsidized is not worth subsidizing. I don’t know the exact subsidy numbers, but in TN you can buy regular gas at about $0.40 – $0.50 cents more per gallon. If the ethanol subsidies were to be eliminated, the cost ratio would probably be reversed; certainly regular gas would be cheaper vis-à-vis ethanol blended gas.

    I could be wrong, but I remember hearing it takes about fifty gallons of water and a whole lot of energy to produce one gallon of ethanol which can only be blended to a 10-15% ratio with ‘normal’ gasoline. The always bitching envirowackos then complained about that high water usage causing another alleged impact to the plain’s aquafer and environment.

    It is not a particularly efficient fuel, in essence it is an expensive and poor additive, and it does cause damage to engines not designed to use it. Engines designed to use it had to cost more and that cost was added to the cost of the vehicle – in effect another mandated government tax to the cost of a new car.

    Ethanol blended gasoline degrades (goes stale) if it is not used within a month or so, which does cause corrosion in the fuel system unless treated with another product that adds cost.

    I seem to remember VP Algore had to cast the 50-50 tie breaking vote on ethanol subsidies to build the plants and mandate its use in the senate, meaning even some Dem senators voted against it.

    To conclude,

    Whenever there is a major policy change promulgated by government(s), it creates a ripple effect that often reeks havoc throughout the economy. These are always called the “unintended consequences” of the legislation, court decision, or Executive Order etc. As with the FBI FISA fraud, if these “unintended consequences” occasionally benefitted America or Americans it would be believable, however, since they almost always are detrimental, one must draw the conclusion that they are not at all “unintended”.

    1. Jimmy MacAfee - April 30, 2020

      There are no mistakes in Washington DC: only malign intent. (Same with Richmond, now.)

      Where are the Schiff notes? Now we see that the FBI deliberately set out to either prosecute or fire Flynn. Where are the consequences?

      The governor of Virginia signed an order (or ordure) that mandates the use of renewables for energy companies by a certain date in the future. Chaos.

      Wonder what they’ll do to our farmers in VA?

    2. brian - April 30, 2020

      Ethanal like you mentioned Gregg is not energy efficient which burns cooler and slower than gasoline. So blending ethanal into gasoline is like watering down the gas which means petroleum companies will make more money on a gallon than pre-ethanal fuel. I’m not bashing petroleum companies because the govt basically mandated them to do this… taxes, subsidies and control… oh my!!!

      To comment on the article I think most people don’t realize the danger within the food production processes at all. The real danger with food production was when corporations saw an opportunity and like what corporations do, exploited that opportunity. In came factory farming and out went smaller family farming.

      With factory farming producing product in large scale operations, economies of scale, becomes cheaper and greater profits are made. Sounds great, cheaper food. There are many negatives about factory farming as harmful effects are ignored or patched over so as to not call attention to the real problems.

      One problem is whats being seen today. Factory farms raising hogs, beef, chickens, eggs, milk etc etc experience a pause or stoppage in supplies or deliveries can result in huge numbers of animals euthanized or product dumped or tilled under. Downstream consumers soon see the shortages and prices of available supplies goes up as scarcity increases.

      Samller family farms didn’t present as much of a danger to supply chains and can better weather market conditions than factory farming can. IMO, the smaller farms produce much better quality food than the factory farms do. The need to grow product and get to market in as little time as possible means quality takes a hit.

      Bottom line… If supply chains go down there are not enough small family type farms left to fill the gap. When shortages happen they will be evidenced in cities first of course, people will fan out looking for food. Welcome to Venezuela.

      1. Jimmy MacAfee - April 30, 2020

        One egg producer – worked for a larger company – watched as they came in and slaughtered every one of his tens of thousands of laying hens, supposedly due to a lax market for eggs. (The chickens would be made into pet food, but this “shortage” is being manipulated.)

        A few weeks ago, you could not find a dozen eggs at Walmart and Food Lion. Empty – none – not even the most expensive eggs. NEVER seen that before. And they supposedly can’t find a market for eggs, because restaurants and institutional buyers aren’t buying? People still eat eggs, just at home.

        This was effing rigged. A sham. A scam.

        (Raising your own chickens for eggs will he harder, too, because of the increased cost in grains.)

        1. brian - April 30, 2020

          Chickens are the easiest critters to raise, you don’t need grain. To get eggs from layers you just need protein in their diet. So layer pellet or other sources will do. Other than that you can free range the birds which gives MUCH better meat and eggs. Chicken tastes like chicken and not tasteless mush and eggs are awesome, bright orange yolks and very tasty.

          Many communities and smaller townships etc allow for up to four birds. Four birds will give you 3 – 4 eggs a day. At 6 – 8 months you get replacement birds and when they start laying you butcher the old birds which are fantastic roasters and stew birds. Better than anything you can buy in the store… Grew up on a farm and had a small acreage when kids growing up… miss dearly the home grown product.

          1. Jimmy MacAfee - April 30, 2020

            I’ve got 4 chickens – on city property. Somewhat free range – but they eat everything that’s green and edible, and thus laying mash is important. And out-of-date bread. I did have to pull (kick) one large pit off one of our chickens when our fence wasn’t solid. I regrettably used my battle-language, but I got the job done. The dog was unharmed; the chicken lived. Fence is solid now. Hawk got one late this winter.

            In the county, dogs, foxes, bobcats, hawks and coyotes are the enemy. Free range, as in the city, means a large fenced in area. Our fields are not big, and they’re bordered by hardwood and hillside. Prime predator territory.

          2. Jimmy MacAfee - April 30, 2020

            We wouldn’t butcher our gals, in any case. As food sources go, they’re “pets with benefits.” (Pets which make food, but aren’t food.)

            If the s hits the fan, we’d be shooting the neighbors when they come to steal in the night, and so we might as well eat the chickens then. Not now.

          3. Jimmy MacAfee - April 30, 2020

            PS: the American Chestnut Foundation is doing something about the blight, inserting a wheat gene in American Chestnuts.

            Fact is, though, there are a lot of dispersed survivors of the blight, which still produce nuts. These are being used for the development and eventual return of these great and majestic trees.

            I’ve got some hybrids (Dunstan) but they’ll never replace the American-only. Only a few years old right now.

            The Ash trees face a different kind of enemy, which is insect predation. Without a prey, the predator dies. This is how the White Ash will come back. If some Ash are more acidic, they will be less edible for the emerald ash beetle, or at least less attractive.

            And I have several elms in my yard in the city, a fast grower and some smaller ones on the way.

  5. Gregg - April 30, 2020

    I’ll repeat this in the future for the new DB Updates readers when appropriate:

    FDR: “In politics, nothing happens by accident; if it happens you can bet is was planned”

    1. Jimmy MacAfee - April 30, 2020

      I was piggybacking on your FDR quote, but with a twist.

Comments are closed.

Scroll to top
%d bloggers like this: