No Food Shortage in the U.S.
Teucrium | March 25, 2022
Jake Hanley, Managing Director, Sr. Portfolio Strategist March 25, 2022
Food Shortages Are “Real”
Per the United Nations:
[A] food shortage occurs when food supplies within a bounded region do not provide the energy and nutrients needed by that region's population.[1]
In no way does this describe the position of the United States in 2022. Food shortages are not real in the US. Suggesting otherwise risks inducing panic.
Plenty or Enough
Governments across the world subsidize food production. Farmers get paid to plant. In a typical year, combined corn, wheat, and soybean production exceeds consumption. Ending stocks grow and storage bins take in the excess supply.
Yet, there are years when production fails to keep pace with consumption. Supplies are then drawn down from storage to help cover the deficit. In such years one cannot say that there is plenty of grain, but there is enough.
The combined global inventory of corn, wheat, and soybeans is at a 5-year low. Today's relatively high prices reflect tighter supply conditions. Global grain production has taken a hit over the last two years. Blame unfavorable weather which includes back-to-back years of a La Nina climate pattern.
Prices are also reflecting higher input costs. Fertilizer prices rose nearly 170% between January and November 2021.[2] High fuel prices are partly to blame as fertilizer production is energy-intensive. Additionally, high fuel prices, make it more expensive to operate tractors and transport crops.
These dynamics were all in play well before Russia invaded Ukraine. In fact, grain prices hit 8-year highs during the summer of 2021. The war is only making matters worse.
The result: the world has gone from having plenty of grain to having enough. The world is not going to run out of food.
The US Has Enough
The United States is a net exporter of corn, wheat, and soybeans.
Typically, between 10 – 20% of US corn production is sold overseas. For wheat and soybeans that number is closer to 50%. If policymakers were truly concerned about domestic food shortages, we would be hearing of potential limits on exports. No one is talking about limiting US exports.
Furthermore, for the crop year ending August 2022, the USDA is projecting a 17% increase US corn supplies an 11% increase in US soybean supplies. When comparing those supplies to expected usage the balance sheet is still tight, but nowhere near a shortage.
The USDA is projecting a 23% year-over-year reduction in wheat supplies. Yet, comparing wheat supply to demand reveals that the US is in better shape 2022 than it was back in 2013. The US did not have a food shortage in 2013, and we will not have one in 2022.
Panic and Protest
While there is no risk of food shortages in the US, the risk of panic is very real.
If fear grips the minds of the masses, we may see a "run" on food. This would be like the "run" we saw on toilet paper at the beginning of the COVID lockdowns.
Furthermore, high food and energy prices are common ingredients for social unrest. One can imagine a mob setting fire to a local fast-food restaurant in protest of high food prices.
The only way America gets to the point of panic and protest is if people are made to believe that there is a food shortage. There is not.
To suggest otherwise is grossly irresponsible.
[2] Source: Bloomberg Finance L.P. Green Markets North American Fertilizer Price Index January 1, 2021 – November 26, 2021.