The combination of high fuel costs, food shortages, and increased fertilizer costs is a triple threat.
I call these the 3Fs, as you’ll know if you read last Thursday’s Inside Wall Street.
Yet a lot of people don’t know how closely these three are related.
First, energy prices and crises impact almost every part of our lives.
Going to work, visiting friends, bringing our kids to school, caring for the elderly, eating meals, staying warm, wearing clothes, drinking beer. You name it, and there’s an energy need – and cost – attached to it.
Second, the cost of energy is particularly critical when it comes to food production and transportation. If food supply is limited to begin with, this extra cost makes matters worse.
Third, rising energy costs make it more difficult and costly to produce fertilizer. Commercial fertilizer is a critical component in producing 40-60% of the world’s food.
About 70% of the cost of fertilizer production relates to the price of natural gas. As the price of energy soars, the cost of fertilizer production rises, too.
If there’s not enough fertilizer, for the most part, you can’t scale food production to help solve some of the lack of supply. That impacts the price and availability of food.
Meanwhile, governments and central banks around the world are frantically trying to curb inflation on all fronts.
Yet, there’s nothing – and I mean nothing – the government, the Federal Reserve, or any other central bank, for that matter, can do about the global food crisis.
Spotlight on the Fertilizer Crisis
Now, natural gas, food, and fertilizer prices were all rising before Russia’s invasion of Ukraine.
But that invasion has intensified uncertainty in food supply chains, fertilizer supply chains, and energy supply chains. And prices have gone up, as you can see in this chart…
And it’s about to get even worse…
Earlier this year, the European Union said it will cut gas imports from Russia by two-thirds within a year.
More recently, it proposed a price cap on Russian gas.
This is in addition to its proposed bans on seaborne imports of Russian crude oil from December 5 and on petroleum product imports starting on February 5 next year.
If and when these price caps and bans are implemented, they will have a knock-on effect on all energy prices across the globe.
And the grain supply is once again under threat. In July, Russia allowed Ukrainian grain exports to recommence. But it is now threatening to withdraw from the agreement.
But even if the truce holds, there’s already too big a hole in the world’s food supply to alleviate our planet’s food shortages. And energy costs remain too high and fertilizer supply too low.
And as the global population continues to increase, the demand for commodities such as wheat, corn, soybeans, rice, and cotton will continue to rise.
That’s why the food crisis is, sadly, set to continue.
But as grim as this is, there are companies using science and technology to make limited supply chains stretch further. They will be busier – and more profitable – in the year to come.
Last month, I recommended one such company in my Distortion Report advisory.
Now, out of respect for my paid-up subscribers, I can’t give the name away here. But there are other ways to get broad exposure to the agriculture and food markets right now.
One name to consider is the iShares MSCI Global Agriculture Producers ETF (VEGI). This exchange-traded fund (ETF) gives investors broad exposure to international companies engaged in agribusiness.
It’s a straightforward investment you can access in a regular brokerage account.
Like most commodity-related plays, VEGI has taken a hit in recent market volatility. At writing, the fund is down more than 20% from its April high.
The retreat makes for an excellent buying opportunity.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. As I mentioned, I recommended my top fertilizer company in a recent issue of my paid subscription, Distortion Report. To learn more about how to access that issue, click here.