A never-ending deluge of headlines touting the developed world’s worsening cost of living crisis belies a tentatively favorable development: The trajectory of real-time prices for some of the offending commodities points to relief, however fleeting.
Crude just notched a second weekly decline (the fourth in five), for example, while copper fell the most in a year. The Bloomberg Commodity Spot Index has fallen seven weeks in a row.
Recession fears, warranted or not, are rampant and the dollar ascendant. That conjuncture nods in the direction of additional declines for raw materials. Long-end bond yields are off their 2022 highs and some measures of longer run inflation expectations have receded.
Relatedly, it’s possible to make the case that so-called “war inflation” is abating. BofA’s Michael Hartnett made a chart showing an equal weighted basket of Brent, European natural gas and wheat to illustrate the point (figure below).
I’m not convinced that’s the best way to visualize the situation. European natural gas will fluctuate wildly for the foreseeable future.
In the event Vladimir Putin decides to curtail all gas flows to Germany following maintenance to the Nord Stream this month, any “index” that includes European spot benchmarks will be distorted beyond recognition. Hartnett said it “makes little sense for Russia to close Nord Stream 1 indefinitely.” That may be true, but it’s small comfort to panicked Germans.
Most notable, perhaps, is the decline in wheat, which this week returned to pre-war levels (figure below), down almost 50% from peaks hit following Russia’s full-scale invasion of its neighbor.
That may spell relief. In addition to the read-through for strained consumers in rich nations, it could also lessen the threat of social unrest in food insecure locales.
Unfortunately, some of the price decline might be related (at least tangentially) to a fiftyfold increase in shipments of food from Crimea. According to Geneva-based AgFlow, more than 450,000 tons of grains, oilseeds, vegetable oils and other goods have departed Sevastopol since March. That’s up from 8,000 tons last year. The increase is anomalous enough to render visualization meaningless. A bar chart of the data just shows a giant skyscraper towering over hovels.
In the simplest terms: Russia is looting Ukraine. It’s blatant to the point of abject absurdity. Sevastopol is sanctioned by the West. When Bloomberg attempted to ask the Kremlin about the wholly inexplicable surge in exports from Crimea, a spokesman for Putin said he “doubted the data were accurate,” but offered no supporting evidence for that contention. In the same July 15 piece, Aine Quinn noted that over the past two months “at least five ships have vanished from ship-tracking systems while in the Black Sea,” despite mandates requiring “most cargo ships to ping their locations while sailing.”
Late last month, the Financial Times established that Russia is, in fact, smuggling Ukrainian grain to global markets via Sevastopol. An analysis of satellite imagery and port records suggested Russia exported the equivalent of 6% of its own grain exports from the Sevastopol terminal. “Given that Russia is one of the world’s biggest food exporters, that represents a substantial volume of grain being shipped out of a port that is under international sanctions,” Chris Cook, Polina Ivanova and Laura Pitel wrote, on the way to flagging “a significant and unseasonal increase in declared exports” from Port Kavkaz, which industry executives called “a key location for enabling the smuggling of goods from the region.”
Turkey is in the process of negotiating for the legal export of Ukraine’s trapped grain, but the point is, the country’s exports are getting to world markets anyway. Putin is profiting from his army’s pillaging, just as soaring oil and gas prices tied to the invasion helped bolster Russia’s current account — so much so, in fact, that when taken in conjunction with plunging imports, the ruble strengthened too much for the Kremlin’s liking, an ironic outcome considering Western efforts to engineer a currency collapse.
Russia isn’t the only producer with full coffers. The supermajors of the world are likewise flush, and the windfall from soaring prices and sky high refining margins may catalyze a wave of renewable acquisitions, according to some industry players. At the same time, the crisis has accelerated Europe’s planning vis-à-vis an eventual transition away from fossil fuels.
Everywhere you turn, there’s irony. Irony atop irony atop more irony. Relief from soaring food prices catalyzed in part by Russian aggression is brought to you by Russian smuggling. An acceleration in the pace of the global energy transition is funded by a historic surge in fossil fuel prices. Germany’s efforts to bridge the temporal gap between now and a cleaner future entail shipping coal, the dirtiest of dirty fuels, up a waterway which, in places, is too shallow to facilitate transport thanks to the very same climate change the country is trying to combat. America’s environmental push hit another roadblock this week when Joe Manchin, a coal baron, cited inflation driven by surging commodity prices in refusing to back climate legislation championed by Joe Biden, who demonstrated his own commitment to the climate cause this week by traveling halfway around the world to ask Mohammed Bin Salman for more oil, which the Saudis say won’t help because climate initiatives have led to underinvestment in refining capacity. And on, and on.
So, if we do indeed see relief on the inflation front thanks to a pullback in commodity prices, enjoy it while it lasts. Because it won’t. Last, I mean. It’s far too early to declare the worst energy shock since the 70s “over,” and there’s a very real sense in which it’s just a preview of our future in climatic oblivion. The same goes for the global food crisis, which took center stage this week at a meeting of G20 finance chiefs in Indonesia.
It’s important (to put it mildly) that we recognize the stark reality facing our species: We’re doomed. We’re going to run out of energy and food unless we change tack. That isn’t a debate. Anyone who tells you it is is lying. The Malthusian trap is real. Technology can push our reckoning further into the future, but there’s no “breaking out of it,” unless “breaking out” means interstellar travel. Something tells me a species unwilling to eschew theft, murder and suicidal myopia, will ever be capable of traversing the stars.
Sometimes I wonder if I’m the only one who’s accepted the inevitability of all this. If I am, that’d be one more irony: I have no kids, which, by definition, means none of my grandchildren will be around to starve and suffocate.
I think Mr h needs a happy pill
We spend our entire lives pretending life is something other than it is, mostly because we’re scared of acknowledging the absence of any hereafter. So we imbue the meaningless with meaning and busy ourselves with wars and politics and religion and ideology — and wars fought over religion and political battles inspired by ideology. The ultimate irony, which is what I was driving at, is that if we’d give up on all of that and admit there’s nothing to any of it, we’d be compelled to immediately refocus all of our energy on pursuing immortality, space exploration and other ventures which would make our lives actually meaningful. We have the technology to pursue some of these things. Not all of them, of course, but we know enough to get started on most of them. What do we do instead? We fight over fiction (e.g., national pride) and call what’s real (e.g., technological innovation with the capacity to save us) science fiction.
Nietzsche couldn’t have said it better himself…
The odds that a majority of the human race will pursue a painful and humbling journey to a greater level of collective consciousness amidst plutocrats setting off attention fireworks is mighty low..
This reminds me of conservative economist Julian Simon’s ’80s-era bet with “population bomber” Paul Erlich — a bet Erlich lost. Personally, I incline more to the view articulated in the podcast transcript linked below: progress inevitably creates problems, but in the West (and elsewhere), over the last five hundred years or so, we’ve become pretty good at developing solutions to problems of our own making. It’s a contrarian view, perhaps, but, temperamentally speaking, it seems to suit me. Speaking of which, over the last week or so I’ve put about 10% of my cash back to work in a 60/40 (equities/bond) allocation. It might be a very short-term trade (your move, Mr. Powell), but equity investors seem to think consumers are more resilient than we thought while the bond market remains unconvinced, setting up a nice situation where the two asset classes are showing signs of positive correlation.
https://fasterplease.substack.com/p/-faster-please-the-podcast-2
Here is some good news:
The UN recently published an update to global population- which states that global population is growing at the lowest rate since the 1950’s.
Population is expected to be 8.0B by November, 2022, 8.5B by 2030 and peak at 10.4B in the 2080’s- staying at that level through 2100.
Lower fertility rates, expected to persist, are the primary reason behind these lowered projections.
When Malthus devised his theory, he did not anticipate the wide spread availability of inexpensive birth control.
It is absolutely a race against time and the faster we can get access to birth control to all people, the higher our chances for survival of the human species/Earth.
Supremely important effort, H…and I trust you know that you are not alone in recognizing the dire planetary future barring a miraculous change in human understanding, relating, cooperative planning, and acting for the greater / greatest good…
H
Your last two paragraphs are dead on, as is your comment above. The problem humans as a species share is that they are mind-numbingly selfish and have always fought and even died for meaningless principles. A great deal of settled research has shown that when the stake in a disagreement is an abstract principle or religious belief, there will never be an agreement. And people who think any of our problems will be solved by leaving earth is sadly deluded. Even if every rocket leaving held 50 people, ferrying 8 billion away would be clearly impossible. Now that some of the western US is beginning to appreciate the reality of water insecurity, they want to take it from the rest of us so they can waste that, too. When I was in fourth grade one of the things we did in English class was read the collected fables by Mr. Aesop of ancient Greece. The one that influenced me most was the Ant and the Grasshopper. Way too many humans are Grasshoppers and too few are Ants.
H I know your larger point is that we are helplessly ridiculous and we’re all gonna die, but since we are still currently living and trying to make money on markets, do you think this commodity deflation can last long enough for the fed to pause is that unknowable since there are too many unwieldy variables to predict anything with confidence?
*or is that unknowable
I don’t understand whY we’ve moved away from old fashioned pork. If manchin won’t support green energy offer him a boat load of coal money/support that would directly benefit himself snd his constituents. Over investment in energy right now seems like a good idea even if some of it is dirty.
Let him explain to his constituents a vote against investments in West Virginia just because it also has green energy attached fo it.
Dear Mr H, you are certainly not the only one to accept the inevitability of our demise as a species. I stopped answering questions about why I remained childless at social gatherings when people (particularly breeders) started getting really upset at my honest answer: I do not want my offspring to be food for cannibals in the post apocalyptic future, why bring life into a world destined for famine, violence and death? We humans rarely realize we are not the pinnacle of evolution but a mere link on the chain, our best hope and our goal should be to create artificial intelligence before we become extinct, that is our only possible legacy.
You are not the only one.
There is an entire movement around it, called Deep Adaptation. Some ideas on how to live when facing the literal end of civilization. Not sure I’ve bought into their mantra but they are trying.
And we won’t have to wait that long. It’s already begun. It will be us, along with our kids and grandkids that will be facing starvation.
In my humble opinion the negative effects of the climate’s rate of change on human behavior is not explored or appreciated well enough much less publicized. In my opinion those few who are more in the know are probably less likely to conserve, and more likely to act like it is last call.
Does everyone now know that sarin poison fallout from demolition of Saddam’s chemical weapons depot is the cause of gulf war illness. Bush and stormin norman knew the risk to their own troops and took it, most likely because some of the Sarin was inconveniently made in America. Who blows up chemical weapons with their own troops down wind? Talk about maladroit. Who uses all methods of subterfuge to protect such vanity, and subsequently deny health benefits at a 90% clip for those suffering from the exposure over the following 30 years?
Tip of the iceberg is what we are being shown with anthropogenic climate change as far as i am concerned.
“Soylent Green is people!” You’re not alone in your beliefs.
This discussion explains the current seller’s bull market for hopium.
One lesson of Adam and Eve besides the obvious, “Be wary of naked women offering sensual temptation,” is that Adam was the first, worst, trader. He gave away the Garden of Eden for a transient illusion of pleasure and sent pre-historic man (as cast out by God) from the hunter-gatherer life style into the agricultural business and all of its fall out (ownership, money, a multitude of abstractions and fabrications, overpopulation, pollution, etc.). Important to know that best assessment of pre-historic man is that he/she spent at most 3-4 hrs a day mostly gathering w/ a little hunting thrown in, and the rest of the time having sex; napping; talking with their friends and neighbors; (kind of like island life) as well as musing about local politics, the forces of good and evil, and the stars (real, not made up ones) . Lots to go around for everyone and not doing too much damage to the earth, the biome, or even each other. If they lived past infancy they did pretty well and had little of the “modern diseases” of aging – diabetes type 2, coronary artery disease, etc. (although they probably had bad teeth) that stem from our “modern” diet. Not saying they were all Kumbaya (say Putin were in your little tribe and he got too annoying he’d get kicked off the island or smacked with a club) but mostly sensible.
Interesting and enjoyable Nobody. I had a professor who assigned a paper where we where to challenge something that he got wrong during the semester “biology”. My thesis as best as i can remember was that he got it wrong on describing the conditions of Paleo society as extremely violent and desperate etc. Population dynamics has a lot to do with this topic and there is no doubt prehistoric non ag people fought over resources and their bodies suffered all manner of injury securing sustenance, but i agree there was plenty to go around for the most part, and when a resource waned you just travelled to a new one. In fact there is ample evidence at some locations showing that Paleo people gathered in large numbers at times with unrelated clans coming together perhaps annually in impressive numbers for extended amounts of time where the getting of meat and and by extension the securing of mates was good.