Beyond Mathematical Odds - The coming supply shock
How many shortages can we fit in a year ? Lets find out.
This post belongs to the Beyond Mathematical Odds series. Advise you to read this post, and this one, to have a better context on the whole thing, most of the forecasting inside old posts already came to be. The one below is the most recent one.
I want you to bear in mind that, all the ripple effects we have been living, observing, and analyzing for the last 4-5 months were mostly set off by the first city lockdowns in China. The damage and effects of the ones from this year will be worse and take quite long to untangle and fully measure.
China's widening COVID curbs exact mounting economic toll
China's top European business group warned on Wednesday that its "zero-COVID" strategy was harming the attractiveness of Shanghai as a financial hub, echoing analysts voicing caution over the mounting economic toll of the country's coronavirus curbs.
European Trade Group Warns China Lockdowns Disrupting Production
While large manufacturing companies have been able to keep operations going by adopting a so-called closed loop system -- in which employees were kept at factory locations and tested regularly -- that plan hasn’t gone without snags. Even with permission to operate amid restrictions, work can be “very, very difficult,” said Bettina Schoen-Behanzin, the chair of the chamber’s Shanghai chapter.
And smaller firms “may face bankruptcy when they cannot deliver their products to the customer,” said Klaus Zenkel, chair of the group’s South China chapter.
American firms have also reported problems stemming from the outbreak and attempts to contain it in recent days. The virus and lockdowns dented production or disrupted supply chains for more than half of U.S. firms that responded to a survey published last week.
While everybody is aware the Covid 0 policy is harming China, it is harming the West at a much bigger pace, and scale, which should be clear by now if you read my older posts, or are a subscriber for a while. The current lockdown is bleeding small and medium-sized businesses, that are often full of debt because of the 2020 lockdowns, and the continuous supply chain disruptions.
This isn’t just a matter of livelihood or national economy, but for systemic effects, this type of business failing has systemic effects on the supply chain, logistics, and especially for monopoly creation, because an ever lower number of corporations come to control essential parts of the national, and global economy. China has been dealing with this in all parts of its economy, the last one being pig farmers (I covered this a few posts ago).
Supply chains remain in chaos as Shanghai lockdown is extended indefinitely
Supply chain updates from forwarders have largely focused on reduced trucking capacity and the closure of factories and warehouses, which has prompted ocean freight to be diverted – Ningbo, Qingdao and Tianjin topping the list of alternative ports.
However, Crane Worldwide Logistics said: “It continues to be challenging to conduct container drayage. Other cities have become more reluctant to let container trucks from Shanghai enter.”
And, according to Fibs Logistics, most container gate-in times at Shanghai have been delayed and schedules are “unstable”.
Ligentia warned customers that its warehouse in Pudong had suspended operations, with its warehouse under closed management.
And Crane said cargo handling at Shanghai Pudong Airport had become “almost impossible”, noting Delta was the latest airline to announce flight cancellations. The forwarder recommended using Zhengzhou as an alternative gateway for airfreight.
Fibs Logistics added: “Some factories had to cancel bookings due to lockdown in their districts. For consolidation shipments, most warehouses in Pudong are closed until further notice.”
Reuters reported that Tesla’s Shanghai factory would not resume operations today, as planned. Over the weekend, CEO Elon Musk tweeted that the company had seen an “exceptionally difficult quarter, due to supply chain interruptions”.
Amid reports last week of worsening berth congestion and ship queues, Shanghai International Port Group (SIPG) yesterday denied there were “more than 300 ships” waiting to load or unload at the port.
In Shanghai, it said container ports are experiencing “significantly reduced” volumes, with the seven-day average throughput “now down 33% when compared to 12 March”.
Again, the problem with my type of analysis, and especially forecasting, is that I will often repeat myself. I have kept a close eye, and tracking the unfolding of the current lockdowns in China, since January, and this one will have substantial ripple effects. The already constrained container availability will only get tighter, the waiting times bigger, more disruption in many aspects of the supply chain, and the biggest issue of all.
When all those ships come to the US and EU, it is even feasible Europe might see some level of disruption given the fact they are hellbent on sanctioning Russia, at the cost of their economies, and their population wellbeing.
This is also causing a major rift between the Chinese population in Shanghai, and the government, still not enough food, no animal protein whatsoever, and plenty of suicides. The government workers are sometimes found fighting between themselves, and there are a few dozen videos of the population attacking them. As I said, the CCP will have to choose very carefully their next steps.
Hybrid war is a marvelous strategy to the point you don’t collapse your own government via miscalculation, and hubris.
Deutsche Bank CEO Sees German Recession If Russian Gas Cut Off
Deutsche Bank AG Chief Executive Officer Christian Sewing added himself to a growing list of German executives and politicians warning of dire economic consequences if Russian energy supplies are cut off.
Already grappling with soaring inflation, Europe’s biggest economy would face “a further deterioration of the situation if there’s a stop to imports or deliveries of Russian oil and natural gas,” Sewing told a press briefing Monday where he spoke in his role as head of a German banking lobby.
“A clear recession in Germany would presumably be inevitable,” he said.
“If it was to come to an import embargo, and you have to keep this in mind, then we could be talking about inflation that’s at least temporarily, is temporarily in the double digits,” Sewing said. “But we’ll permanently have a phenomenon that we all haven’t seen in the last 30 years and that’s longer-term inflation.”
Germany is already in a recession, and it’s no surprise, in my last post-Weimar Vibes, I share the news, that one of the biggest German chains was raising the prices of hundreds of products by up to 50%. So what they are truly saying is the following, that Germany will send itself, and the rest of the EU into a depression.
Worth to note, there is a major rift in public statements between ministers of EU countries, and EU politicians. EU politicians are hellbent on “standing” to Russia, and implementing insane sanctions that will not only affect Europe, but nearby regions (MENA), set off the biggest human migration in history, and send the entire continent into disarray at best.
Well, at least some countries are actually thinking about the well-being and economic stability, minimizing the chances of civil unrest.
Breaking ranks with EU, Hungary says ready to pay for Russian gas in roubles
This is insane. I don’t need to forecast, give any sort of opinion, or analyze this.
Followed by more insanity, with probable touch of corruption.
The UK government gives the ok for China to take over one of the few fabs there. A very odd move by a country, inside a continent, rushing to achieve semi/chip sovereignty. Things are starting to make NO sense anymore…
A nice graph on the incentives each country offers, and how much money they grant this specific industry. This leads me to the next piece of news.
A big producer in the semiconductor coolant business decided to shut down its factory in Belgium, effectively shutting down 80% of the global production in an instant. As if the semiconductor business has not been experiencing enough disruptions as it is. Now I leave the reader with a question, every disruption is faced with the same comment by fabs, and analysts in the field. “They have 2, 3-4 months of supplies”, these are often referred to as buffers.
How many disruptions of 3-4 months the industry can withstand before things get terrible ? This is the second big one in one month, the first one being the gases from Ukraine and Russia.
Again, sometimes instinct/autism will tell you something, that data will show you later. I have said many times that the semiconductor business would face continuous, growing disruption for a myriad of reasons.
Peru Deploys Army to Control Violent Protests Disrupting Exports
Bus drivers follow truckers, farmers on strike, fueling chaos
Castillo raised the minimum wage, and cut taxes to appease protesters
In my last post, I asked the reader to pay attention to the dynamics in Sir Lanka, because they would play out elsewhere, I didn’t expect it to be this fast. I would like you to pay attention to both countries because I stick to my analysis. I found it interesting that they protested because of an average increase in prices that was relatively high, but not high as other countries in South America. Furthermore, I guess economical tipping points will vastly vary between countries.
They are also facing an increasing disruption in their rice crops. This will heavily affect Brazil. And on the food security note, Egypt has enough wheat for 2 and a half months.
Because of the fertilizer disruption, and skyrocketing prices, they will face further food security problems. In case the reader is unaware, rice is even more of a global staple than wheat, most of the world actually survives on rice, and beans alone. Most Brazilians, and South Americans, eat a rice-based diet. This can send entire continents into utter unrest.
(FYI I fucking hate rice, just wanted to share… never offer me damn rice to eat)
Plains Drought to Curb U.S. Wheat Harvest, Adding to Global Supply Worries
The news above is a couple of weeks old, and so is this map, the current map has a minor improvement, but overall conditions are not getting better. The drought conditions are among the worst in a few decades, which is already influencing the wheat quality and yield as I previously outlined, and forecasted. Nothing much to add besides the huge amount of things I already wrote before.
The current drought is severely impacting the cotton market.
Empty canals, dead cotton fields: Arizona farmers are getting slammed by water cuts in the West
On the drought-stricken land where Pinal County farmers have irrigated crops for thousands of years, Nancy Caywood stopped her pickup truck along an empty canal and pointed to a field of dead alfalfa.
“It’s heart wrenching,” said Caywood, a third-generation farmer who manages 247 acres an hour outside of Phoenix.
An intensifying drought and declining reservoir levels across the Western U.S. prompted the first-ever cuts to Arizona farmers’ water supply from the Colorado River.
This will impact (already is) global cotton prices, and supply, and there is this argument that India produces enough cotton for the entire world, but their cotton is of inferior quality, and…
Container shortage throttles cotton market
EXPORTERS are bracing for the impact of a container shortage and difficulties in securing ocean freight to target markets as ginning of Australia’s second-largest cotton crop gets under way.
“We are hearing reports that some of the shipping lines are shipping empty containers back to China because if they fill them up full of cotton or any other commodity in Australia, it then takes 14 days to get that container back,” Mr Grellman said.
“Some of the merchants now are saying they are not going to buy any more (cotton) until we feel like we execute the bales to the destination.
“As a merchant, any bales you buy now might be the last you deliver.”
Per my last two (non-virus) posts, the container shortage will get quite bad, which will send a shockwave in the brittle supply chain. Brace for impact.
Talking about drought. Which leads us to another problem…
USDA to provide payments to livestock producers impacted by drought or wildfire
“Producers of grazing livestock experienced catastrophic losses of available forage as well as higher costs for supplemental feed in 2021. Unfortunately, the conditions driving these losses have not improved for many and have even worsened for some, as drought spreads across the U.S.,”
Current weather conditions are also affecting grazing livestock, and given all the current conditions (high feed price, higher vitamin, supplementation prices, etc), this is a welcome help to the ranchers, but it won’t help the prices in the market. Which are not solely caused by this, but this is adding fuel to that higher meat prices fire. Also, fewer cattle leads to less manure…
No poop for you: Manure supplies run short as fertilizer prices soar
Now, facing a global shortage of commercial fertilizers made worse by Russia's invasion of Ukraine, more U.S. growers are knocking on his door. Sandquist says they're clamoring to get their hands on something Old MacDonald would swear by: old-fashioned animal manure.
"I wish we had more to sell," said Sandquist, founder of Natural Fertilizer Services Inc, a nutrient management firm based in the U.S. state of Iowa. "But there's not enough to meet the demand."
Some livestock and dairy farmers, including those who previously paid to have their animals' waste removed, have found a fertile side business selling it to grain growers. Equipment firms that make manure spreading equipment known as "honeywagons" are also benefiting.
Not only are more U.S. farmers hunting manure supplies for this spring planting season, some cattle feeders that sell waste are sold out through the end of the year, according to industry consultant Allen Kampschnieder.
"Manure is absolutely a hot commodity," said Kampschnieder, who works for Nebraska-based Nutrient Advisors. "We've got waiting lists."
This isn’t news, sort of. Ever since the spike in prices of inputs to produce fertilizer last year, the demand for manure kept growing, and in the last 3 months, it spiked even further. Manure is not as good as other fertilizers after a certain scale, it doesn’t give you the yield other types of fertilizer do.
Why I am sharing this ? Two reasons. One, if you use manure, as every other single commodity I covered, you should find, and close in contracts because demand won’t go down soon. Second, this will affect yield, therefore the long term, more inflationary pressure on food. As with everything else.
Other producers of fertilizer can’t come online fast enough, and the reality, demand is higher than the supply right now, given the current global dynamics.
Indian state cancels Adani bids to supply imported coal
India has asked utilities to step up coal imports to address a domestic shortfall. However, expensive imports could add to the financial woes of state government-owned, debt-laden power distributors, which have overdue payments of nearly $15 billion to power generators.
India has cut supplies to the non-power sector as it faced two of its worst power shortages in recent years in October and March, despite record production by state-run near-monopoly Coal India Ltd (COAL.NS).
"We have not been able to build up stocks. Even though coal is available locally because of more mining, transportation is an issue," Sreedhar told Reuters.
I have covered the India coal issues before, and the current disruptions are still impacting the country, and it is cascading into every other industry, as it did in China multiple times in the last 9 months, as in Europe. India faces the danger of experiencing power outages in the coming summer.
Vietnam is also about to experience severe coal shortages and energy disruption.
And now that the EU wants to impose further sanctions on Russia, including coal (the third major exporter in the world), you can expect further prices increase in *check notes
The fuel source most sought-right now, after gas. Oh…
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Automotive shop in the town of 85K where I work had no engine oil on the shelf. I did find some in the town of 3.5K where I live. The clerks in both shops admitted it was scarce. Long grain white rice, FWIW, is still relatively inexpensive in the USA as a bulk, storable food product, if you are prepping. Oats and corn, too. Some stores have been short on wheat products, like dry pasta. Though I will note that on your drought map, most of the Durum wheat in the USA is grown in and around the Red River Valley, which is not having drought conditions. That region also produces beet sugar, potatoes and sunflowers. The price of eggs is crazy. Normally less than a dollar per dozen, now closer to three dollars locally, and it's close to Easter, when food retailers often give them away as a loss leader. I spent $32 on two bags of charcoal, and rather regretted it later. That's as bad as $3 for a dozen eggs.
It is also notable that the severe, perhaps unprecedented shortage of ammunition has eased substantially. It's not cheap, for sure, but 18 months ago, some calibers and loads were not available at any price without diligently searching for a source. This is probably more related to domestic politics than international, but in times of shortage, Russian made ammunition would sometimes be available when American was not.
Shale binge has spoiled US reserves, top investor warns Financial Times.
Preface. Conventional crude oil production may have already peaked in 2008 at 69.5 million barrels per day (mb/d) according to Europe’s International Energy Agency (IEA 2018 p45). The U.S. Energy Information Agency shows global peak crude oil production at a later date in 2018 at 82.9 mb/d (EIA 2020) because they included tight oil, oil sands, and deep-sea oil. Though it will take several years of lower oil production to be sure the peak occurred. Regardless, world production has been on a plateau since 2005.
What’s saved the world from oil decline was unconventional tight “fracked” oil, which accounted for 63% of total U.S. crude oil production in 2019 and 83% of global oil growth from 2009 to 2019. So it’s a big deal if we’ve reached the peak of fracked oil, because that is also the peak of both conventional and unconventional oil and the decline of all oil in the future.
Some key points from this Financial Times article: https://energyskeptic.com/2021/the-end-of-fracked-shale-oil/
Shale boss says US has passed peak oil | Financial Times https://www.ft.com/content/320d09cb-8f51-4103-87d7-0dd164e1fd25