NO BULL---- The Blur
09/15/2022
THE BLUR
This week has been a blur. Monday, we had a shocker report, Tuesday, a CPI surprise and yesterday was nothing but news related to the impending rail shutdown. Plus, if you are in the field (or getting ready for it) - you are living one big blur anyway.
Nonetheless, let's kick this week off with a few classics to lighten the mood:
Crisis Averted
Not sure if you heard, but there has been a little drama between US rail corporations and 150,000-member-strong labor unions this week.
It has been hard to miss the headlines and America has suddenly been made aware of the fact that a rail stoppage would create widespread chaos from coast to coast.
While railroad strike was a mover-n-shaker in the world of internet searches this week, it wasn't even a blip on the radar compared with Queen Elizabeth.
It seems as if the crisis has been averted, but before we dive into the details, here is a little US Rail 101:
The US rail network is the largest in the world with nearly 140,000 route miles.
Rail is important - responsible for 27% of US freight movement.
Each American requires the movement of 54 tons of freight every year.
52% of rail freight car loads consist of bulk commodities like grain and energy products, while the remaining 48% is intermodal traffic consisting of consumer goods and other products (aka it is in a container).
Rail freight moves on a variety of cars depending on the goods being transported. 34% of North America's 1.6 million railcars are covered hoppers (the kind that move grain).
The US rail network is comprised of seven Class I railroads, 22 regional railroads, and 584 local or short lines.
Unlike roadways, railroads are privately owned and maintained. The nearly $80-billion freight rail industry puts an estimated 19% of revenues back into maintenance and improvement projects each year.
Rail transportation is efficient. Freight railroads account for 40% of U.S. long-distance freight volume, but just 0.5% of total U.S. greenhouse gas emissions.
On average, railroads are three to four times more fuel-efficient than trucks.
In fact according to the Association of American Railroads, in 2021 alone, U.S. freight railroads consumed 790 million fewer gallons of fuel and emitted nearly nine million fewer tons of carbon dioxide than they would have it their fuel efficiency had remained constant since 2000.
Speaking of toxic…
Of all the headlines this week related to US rail and a strike… this one takes the cake as shippers and end users everywhere were feeling the Bern!
Alright - after 20 straight hours of negotiations, a tentative agreement was reached early this morning, averting a shutdown. President Biden confirmed the agreement this afternoon saying it would benefit both workers and companies, alike.
There are no words to describe just how devastating a strike of this magnitude would have been to US agriculture.
Imagine the soy crush plant that can't crush soybeans because it doesn't have a place to put the meal or a feed mill that can't make feed for millions of chickens because it no longer has corn to grind. Or what about the ethanol plant who can't transport ethanol and the oil refiner who needs that ethanol to blend with gasoline to stay in compliance with the Renewable Fuel Standard.
It is a very big deal and thankfully it seems to be behind us (for now).
Magic Seeds
I hate to take something out of context, but Bill Gates left the door wide open:
Yes, "magic seeds."
Now, before I come off as being terribly insensitive, I applaud Bill Gates for his contributions to humanitarian projects around the world.
What I do not applaud is his do as I say, not as I do mantra (i.e. the jets, his 66,000 square foot home, and the fact he barges in sand from St. Lucia each year so his whopper house can have a nice beach on the shores of Lake Washington).
While I am not taking up for Bill, it is clear he is speaking of developing new drought-resistant crops for regions like Africa, that are dependent upon feedgrain imports. For example - Africa imports more than 70% of its wheat needs each year.
I find this quote from the Gates Foundation's 2022 Report refreshing:
The Gates Foundation should look into hiring an opinionated brunette from middle America to assist before they let Bill start talking about magic seeds.
Here in the United States, we have had access to magic seeds for quite some time. The adaptation of genetically engineered crops grew exponentially from the late-1990s into the mid-2000s.
Today, 93% of corn, 95% of cotton and 95% of soybeans grown in the US are genetically engineered.
Thanks to this early adoption of technology, US farmers have been growing more with less for decades.
This is one of my all-time favorites from a 2016 op-ed in The New York Times written by Dr. Jayson Lusk, a food and agricultural economist, entitled, Why Industrial Farms Are Good for the Environment:
Love it.
Before we close the book on Bill, did you know his Cascade Investment company owns nearly 10% of Canadian National Railway Co.? That is AFTER Cascade unloaded $940 million of CN shares back in May!
A Magical Report
USDA gave us an update on the status of the 2022 (magic seed) crop here in the US.
We won't get into the details this week (because I am not sure they really matter at this point, anyway), but corn yield dropped by nearly 3 bpa to 172.5 bpa - right in line with pre-report estimates, while area was also reduced in a handful of states.
Soybeans were the surprise of the day, closing up nearly 80 cents as yield came in a full bushel below pre-report estimates.
The 50.5 bpa yield in combination with a big, fat reduction in acreage were a shocker to say the least. Even after tempering demand, ending stocks were cut by 20% in one fell swoop.
With 2022/23 ending stocks of 200 million bushels, the US is sitting at what is considered the bare minimum with 12 months remaining in the marketing year.
The Wrecking Ball
I saw a Reuter's report earlier today where the author referred to the US dollar as a "wrecking ball" and he couldn't be more accurate. The dollar is up 15% against a basket of currencies so far in 2022, leaving a path of destruction behind.
Why is the dollar continuing its trek higher while it looks like the economy is teetering on the edge?
The dollar remains the best house on a bad street, or as my friend Darin Newsom would say, "the best looking mutt at an ugly dog show."
I will be using that one again!
I listened to a Wall Street Journal podcast earlier this week that made some excellent points about the dollar:
1. Emerging markets price their debt in US dollars, therefore a stronger dollar means their debt becomes more expensive to manage.
2. We are exporting inflation. A stronger dollar makes our goods and services more expensive to buyers around the world. Yes - CORN and SOYBEANS, included!
3. The domino effect. Climbing import prices mean inflation which means central banks in other countries may be forced to raise rates. If that country's economy cannot handle it... they are pushed into a recession.
Interesting to think about Europe here, especially as they are no longer importing Euro-based Russian energies... they are forced to buy dollarized LNG for instance, which is anything but cheap considering the dollar has gained 12% on the euro since the start of the year.
If you were wondering, the traditional inverse relationship between the dollar and commodities is still all out of whack (as the dollar remains a safe haven and the most crowded long trade of any market, currently).
FINAL THOUGHTS
The Blur
Last meme for this week:
This one is REALLY funny only because it is SO true... which is also sad.
Clearly it is an exaggeration, but I see producers make this mistake time and time again.
Don't wait to bring the next generation in.
Remember the 5 Ps - prior planning prevents (piss) poor performance.
You are not doing anyone any favors (including yourself) by waiting.
Wondering how? Get them on this list, for starters.