WEBVTT - A Historic Disruption To The World's Wheat Supply 0:00:05.800 --> 0:00:10.240 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:10.280 --> 0:00:14.080 I'm Joey Isn't and I'm Tracy Alloway. Tracy, I feel 0:00:14.160 --> 0:00:16.480 like one of the things that we do is just 0:00:17.079 --> 0:00:21.600 keep revisiting old themes and sort of on this permanent rotation. 0:00:21.920 --> 0:00:25.239 And I literally think it was like, basically a year ago. 0:00:25.600 --> 0:00:27.560 I think it was exactly a year ago, we did 0:00:27.600 --> 0:00:32.320 an episode on the rising price of grains, particularly corn, 0:00:32.520 --> 0:00:36.839 wheat and soy, and since then, let's just say, we 0:00:36.880 --> 0:00:39.559 have to revisit that now. Yeah, well we were just 0:00:39.600 --> 0:00:41.600 talking about this, but I think a year ago, you know, 0:00:41.800 --> 0:00:45.280 the theme was the weather hasn't been that good, crops 0:00:45.320 --> 0:00:48.680 haven't been that good. Food prices are rising, China is 0:00:48.720 --> 0:00:52.040 buying a lot, and that's adding additional pressure on supply, 0:00:52.720 --> 0:00:55.680 and now we have to throw Russia Ukraine into the mix, 0:00:55.960 --> 0:00:59.279 and it just seems like a pretty bad situation has 0:00:59.320 --> 0:01:02.520 possibly gone a whole lot worse, right, And so when 0:01:02.600 --> 0:01:06.959 people think about the commodity effects of that of the war, 0:01:07.160 --> 0:01:12.319 of that conflict, I think predominantly people think about oil 0:01:12.360 --> 0:01:14.959 and gas, and of course we have seen upward pressure 0:01:15.040 --> 0:01:20.520 on both, but Ukraine is also a massive export of wheat. Belarus, 0:01:20.600 --> 0:01:23.760 which has also come under sanctions, is a big exporter 0:01:24.080 --> 0:01:28.000 of fertilizer. And so we have had this already tight 0:01:28.120 --> 0:01:32.160 market for commodities for grains for some of the conditions mentioned, 0:01:32.440 --> 0:01:34.839 and they've just gotten a lot tighter. Yeah. And of course, 0:01:34.959 --> 0:01:37.200 the one thing that I'm sure all lots listeners know 0:01:37.319 --> 0:01:40.199 about the commodities market by now is that everything tends 0:01:40.240 --> 0:01:43.720 to be interconnected. So if you get a rise in 0:01:43.760 --> 0:01:46.880 the price of natural gas, for instance, that can end 0:01:46.920 --> 0:01:49.640 up feeding through into the price of fertilizers. I saw 0:01:49.720 --> 0:01:52.400 one news story right before we came on saying that 0:01:52.520 --> 0:01:55.840 um Yarra, which is one of the big fertilizer producers 0:01:55.840 --> 0:02:01.640 in Norway, is curtailing its production of fertilizer because of 0:02:01.680 --> 0:02:04.800 the nat gas price surge. And then you have things 0:02:04.840 --> 0:02:08.000 that happen in the commodities market that feed through into 0:02:08.120 --> 0:02:12.040 other commodities. So again another example here, the price of 0:02:12.040 --> 0:02:16.160 wheat is expected to increase production of pork because of 0:02:16.200 --> 0:02:19.640 course a lot of pigs in Europe in particular eat 0:02:19.639 --> 0:02:23.640 wheat as their food grains. So everything is interconnected and 0:02:23.680 --> 0:02:26.600 it becomes really difficult to predict and track A lot 0:02:26.680 --> 0:02:29.800 of these movements and impacts exactly right. Well, you know, 0:02:29.840 --> 0:02:32.320 we mentioned that we talked about this year ago, and 0:02:32.320 --> 0:02:35.280 so we're going to bring back the guests we spoke 0:02:35.360 --> 0:02:38.880 to before and try to wrap our heads around what 0:02:39.080 --> 0:02:42.280 is going around now, because the one other difference is 0:02:42.320 --> 0:02:46.240 that anxiety about inflation overall much higher today than it 0:02:46.320 --> 0:02:49.240 wasn't early one, even as we started to see these 0:02:49.280 --> 0:02:53.960 prices rise. So complicated time, complicated situation. I'm very excited 0:02:54.040 --> 0:02:57.520 to bring back Scott Irwin. He's an agriculture economist at 0:02:57.520 --> 0:03:01.040 the University of Illinois. So Scott, thank you so much 0:03:01.080 --> 0:03:04.399 for coming back on odd Lots. My pleasure, really look 0:03:04.520 --> 0:03:07.200 forward to it. Absolutely great to have you back. Let's 0:03:07.240 --> 0:03:12.200 start with actually right before the invasion, just talk a 0:03:12.200 --> 0:03:15.720 little bit about how tight or how would you characterize 0:03:15.720 --> 0:03:18.720 the conditions in the grain markets. You know, sort of 0:03:18.840 --> 0:03:27.639 early February, we were kind of scraping along. Prices were 0:03:27.639 --> 0:03:33.760 certainly elevated relative to historical averages. UH. The latest thing 0:03:33.800 --> 0:03:36.920 that the markets that are preserved was a less than 0:03:37.360 --> 0:03:41.600 stellar growing season for South American soybeans. But we were 0:03:42.280 --> 0:03:49.000 getting along anticipating a pretty good spring and big plantings 0:03:49.160 --> 0:03:54.240 of UH corn and soybeans here in the United States. 0:03:54.280 --> 0:03:57.120 That would probably help smooth that out. We're going to 0:03:57.280 --> 0:04:01.080 have some volatility, may be related to summer weather here 0:04:01.120 --> 0:04:04.120 in the US, but I wouldn't say that, you know, 0:04:04.760 --> 0:04:08.200 we thought that anything was way out of bounds historically. 0:04:08.960 --> 0:04:12.760 So how big a deal is Russia invading Ukraine from 0:04:13.000 --> 0:04:17.640 a grains or agricultural perspective, because on the one hand, 0:04:18.240 --> 0:04:21.240 you hear a lot that the Ukraine in particular is 0:04:21.279 --> 0:04:23.560 you know, known as the bread basket of Europe. There's 0:04:23.600 --> 0:04:26.119 a lot of production there. But on the other hand, 0:04:26.720 --> 0:04:32.040 farming is an industry that is familiar with supply shocks. 0:04:32.120 --> 0:04:35.040 You know, things happen, there's, um, I guess, bad weather 0:04:35.160 --> 0:04:39.520 and pestilence as well. So how big a deal is this? Um? 0:04:39.600 --> 0:04:43.120 Couch it in historical terms? Sure, This is the way 0:04:43.120 --> 0:04:46.919 that I try to communicate just how big of a 0:04:47.040 --> 0:04:52.960 whole this war is blowing in the global grain markets. 0:04:53.560 --> 0:04:58.800 The Ukraine in recent years has planted about fifty nine 0:04:58.920 --> 0:05:04.520 million acres of their top six crops wheat, sunflowers, soybeans, corn, barley, 0:05:04.600 --> 0:05:08.480 and what they call rape scene. Um, So how big 0:05:08.560 --> 0:05:12.080 is that? And that's what's under threat of potentially not 0:05:12.120 --> 0:05:15.440 being planted at all, uh this spring due to the war. 0:05:16.240 --> 0:05:21.240 That's almost exactly equal to the total planted area of 0:05:21.360 --> 0:05:27.640 crops in Illinois and Iowa. So you're just blowing that right, 0:05:27.800 --> 0:05:32.080 potentially out of the global markets. Imagine that now they're 0:05:32.160 --> 0:05:35.200 they're not as productive if those acres don't grow as 0:05:35.320 --> 0:05:39.560 much as Iowa and Illinois do. But you know that 0:05:39.839 --> 0:05:43.520 right there is about four billion bushels of production that 0:05:43.880 --> 0:05:47.800 potentially if it doesn't get planted, or the vast majority 0:05:47.880 --> 0:05:51.919 doesn't get planted. Uh, you're just taking that off. Uh 0:05:51.960 --> 0:05:56.240 you know. So that's just the immediate war impact then 0:05:56.279 --> 0:05:59.360 they have. On the other side, Russia, they're not going 0:05:59.400 --> 0:06:03.680 to but have you know, any problems growing their crops 0:06:03.760 --> 0:06:07.760 this year? The question is how much of it will 0:06:07.800 --> 0:06:12.200 be available to the world markets. Russia is the world's 0:06:12.480 --> 0:06:16.880 largest exporter of wheat. And again, the way I try 0:06:16.880 --> 0:06:21.080 to put that into perspective, well, you know, with US production, 0:06:21.680 --> 0:06:26.839 what um would it take for US wheat production to 0:06:27.080 --> 0:06:32.240 replace what's lost potentially for Russia. Well, Kansas is our 0:06:32.279 --> 0:06:36.279 biggest uh winter wheat producer here in the United States, 0:06:36.440 --> 0:06:40.960 and it would take four million Kansas is to replace 0:06:41.080 --> 0:06:45.320 what was lost Wow, that's a that's quite a striking 0:06:45.520 --> 0:06:47.840 way to put it. You know, we're recording this in 0:06:47.880 --> 0:06:50.960 the middle of March. Actually recording data is out March fourteen. 0:06:51.440 --> 0:06:54.480 Where are we in the cycle? And so you talked 0:06:54.480 --> 0:06:58.880 about plantings in Ukraine right now? What needs to happen, like, 0:06:58.920 --> 0:07:01.400 are we talking about in the couple of weeks where 0:07:01.440 --> 0:07:05.200 exactly as the timing of this. In the Ukraine and Russia, 0:07:05.279 --> 0:07:09.680 their biggest wheat crop is winter wheat, which was planted 0:07:09.760 --> 0:07:13.800 last fall. It basically goes into hibernation in the winter 0:07:14.200 --> 0:07:17.239 and then it's plant and it's harvested in the early summer. 0:07:17.400 --> 0:07:20.760 That that's already growing in both countries. Uh, then the 0:07:20.840 --> 0:07:24.200 question is how much of it will be available to 0:07:24.240 --> 0:07:28.360 be harvested and moved into international markets in the Ukraine. 0:07:28.680 --> 0:07:33.400 But the really big danger is the number one crop 0:07:33.520 --> 0:07:36.080 in terms of volume in the Ukraine is actually corn, 0:07:36.320 --> 0:07:40.800 which the vast majority of it is exported uh internationally. 0:07:41.560 --> 0:07:45.640 Ukraine exports now over a billion bushels of corn every year. 0:07:46.320 --> 0:07:51.400 And the planting window in Ukraine for their spring crops 0:07:51.520 --> 0:07:53.880 it's almost the same as the United States. It's not 0:07:54.000 --> 0:07:57.320 really very much different. They will be planting in April 0:07:57.320 --> 0:08:02.440 and early May, so they're really literally just a couple 0:08:02.440 --> 0:08:06.400 of weeks from going back, or they would intend normally 0:08:06.480 --> 0:08:10.400 to go back to the fields UH in a couple 0:08:10.400 --> 0:08:13.880 of weeks. So we've seen the price of wheat shoot 0:08:14.000 --> 0:08:16.840 up really dramatically, and the price of corn has gone 0:08:16.880 --> 0:08:20.240 up to but not as much as wheat. What exactly 0:08:20.240 --> 0:08:27.760 accounts for the discrepancy there? Well, because combined the Ukraine 0:08:27.960 --> 0:08:35.200 and Russia is a significant component of the total exports 0:08:35.320 --> 0:08:40.280 of wheat in the world. UH number one, Russia's number one, 0:08:41.040 --> 0:08:44.040 and Ukraine. Off the top of my head, I think 0:08:44.120 --> 0:08:47.200 their second. When we think about we where does it go? 0:08:47.640 --> 0:08:50.400 What is the end destination of wheat look like? And 0:08:50.480 --> 0:08:54.319 Tracy mentioned something that in Europe the pigsy wheat and 0:08:54.480 --> 0:08:57.480 how much is bread, how much is pasta, how much 0:08:57.600 --> 0:09:00.839 is feed? What is the ultimate distribute and what kind 0:09:00.880 --> 0:09:05.400 of substitute ability is there between grains such that if 0:09:05.400 --> 0:09:07.920 the price of wheat sores, then the end bire can 0:09:07.920 --> 0:09:13.160 maybe switched to a cheaper commodity for feeding animals, for 0:09:13.280 --> 0:09:17.120 livestock feeding, there's a great deal of substitution. Basically, there's 0:09:17.160 --> 0:09:20.439 the potential for a substitution if you have those supplies. 0:09:20.960 --> 0:09:25.080 Where there's real concerns is you know, the vast bulk 0:09:25.600 --> 0:09:33.079 of wheat is actually used for human consumption, bread, pasta, crackers, 0:09:33.720 --> 0:09:38.760 things like that. This is potentially huge problems for lower 0:09:38.800 --> 0:09:42.679 to middle income countries in North Africa and throughout the 0:09:42.760 --> 0:09:47.400 Middle East that have relied very heavily on the imports 0:09:47.440 --> 0:09:50.200 of wheat from this area and that's almost all for 0:09:50.280 --> 0:09:55.320 human consumption. Egypt is kind of the prime example. You know, 0:09:55.640 --> 0:10:01.400 Joe mentioned the substitution effect, the idea of people, you know, 0:10:01.960 --> 0:10:04.880 maybe instead of we you use something else to feed 0:10:04.920 --> 0:10:08.600 your pigs. But could you walk us through exactly what 0:10:08.800 --> 0:10:13.080 happens when you get a price shock like this, Like 0:10:13.280 --> 0:10:17.320 how does it filter through the broader market? So prices increase, 0:10:18.040 --> 0:10:24.000 and then do pig farmers immediately start deciding to feed 0:10:24.120 --> 0:10:28.240 their herds something else? Do farmers respond to the price 0:10:28.320 --> 0:10:32.360 increase immediately by altering their planned crops? Like what exactly 0:10:32.440 --> 0:10:36.120 is the sequence of events that happens. Well, all of 0:10:36.160 --> 0:10:39.560 this is really going on at the same time, and 0:10:40.080 --> 0:10:42.640 this is one of the reasons why in this kind 0:10:42.640 --> 0:10:48.000 of circumstance you see just such incredible volatility or spiking 0:10:48.200 --> 0:10:54.319 of prices in week because of the nature what I 0:10:54.360 --> 0:10:59.920 would say is the natural inflexibility built into the consumptions 0:11:00.040 --> 0:11:03.040 side of commodities like wheat, corn, and soybeans in a 0:11:03.280 --> 0:11:08.000 very very short run. On the animal side, yes, there's 0:11:08.080 --> 0:11:12.440 some short run a substitution in terms of feeding, but 0:11:12.679 --> 0:11:17.240 that takes some time and you know, the animals that 0:11:17.280 --> 0:11:21.040 are there have to be fed something. So this is 0:11:21.080 --> 0:11:24.400 the heart and soul of the source of what economists 0:11:24.400 --> 0:11:30.840 called the short run in elasticity of demand for agricultural commodities. 0:11:31.200 --> 0:11:34.520 So on the animal side, the animals have to be fed, 0:11:34.960 --> 0:11:39.559 and there's limited substantutability. You know, you have to get 0:11:39.880 --> 0:11:43.920 different suppliers, commodities have to be moved around in terms 0:11:43.920 --> 0:11:48.480 of this substitution. It will happen, but it just takes time. 0:11:49.000 --> 0:11:54.200 And then that's even harder on the human side, when 0:11:54.679 --> 0:11:58.960 as we know, diets are relatively fixed, and you know, 0:11:59.000 --> 0:12:02.560 countries like Egypt will do everything they can to probably 0:12:02.600 --> 0:12:06.560 try to increase subsidies and insulate their population from these 0:12:06.559 --> 0:12:10.640 price increases. But if wheat is simply not available in 0:12:10.640 --> 0:12:13.800 a place like that, that's a huge problem. There's there's 0:12:14.320 --> 0:12:20.439 really besides aid from other countries Uh, it's very difficult 0:12:20.440 --> 0:12:25.160 to change that diet in a matter of a few weeks. Okay, 0:12:25.160 --> 0:12:27.160 so you walk through, we get this price surge, what 0:12:27.280 --> 0:12:32.160 happens on the consumption side, what happens on the supply side? 0:12:32.760 --> 0:12:36.760 What are a is there's still time for farmers in 0:12:36.800 --> 0:12:39.880 the US or anywhere else to change their choice of 0:12:39.960 --> 0:12:43.959 crops or to reallocate acreage. And is there anything anyone, 0:12:44.080 --> 0:12:47.640 whether in the US or elsewhere, can do to increase 0:12:47.679 --> 0:12:51.600 supply overall in a short to medium period of time. 0:12:52.040 --> 0:12:55.199 What is the opportunity to replace the lost the lost? 0:12:55.200 --> 0:13:01.880 Weeat A great question. Uh. In wheat unfortunately kind of 0:13:01.920 --> 0:13:08.280 in a devilishly tight situation here because the biggest wheat 0:13:08.280 --> 0:13:11.480 crop in the world, as I mentioned before, is winter wheat, 0:13:12.000 --> 0:13:15.760 and for the Northern hemisphere that was already planted and 0:13:15.800 --> 0:13:18.840 there's just nothing you can do now in terms of 0:13:19.200 --> 0:13:23.400 increasing the winter wheats supply in the northern hemisphere of 0:13:23.480 --> 0:13:27.720 the world because that planting window was last fall. Now, 0:13:27.760 --> 0:13:32.120 the southern hemisphere can uh, you know, begin planting winter 0:13:32.120 --> 0:13:35.960 wheat right now. Uh. And there are some large producers 0:13:35.960 --> 0:13:39.800 like Australia, but the Southern hemisphere doesn't tend to be 0:13:40.280 --> 0:13:42.480 you know, that large of a wheat producer, so maybe 0:13:42.520 --> 0:13:44.640 we'll get some more out of that, but you know 0:13:44.760 --> 0:13:48.520 that's you know, six eight months down the line. So 0:13:48.600 --> 0:13:51.520 the short run on the wheat supply is all going 0:13:51.600 --> 0:13:55.079 to be with spring wheat um and there is some 0:13:55.200 --> 0:13:59.080 scope for the ability to expand production of spring wheat, 0:13:59.400 --> 0:14:03.600 but springwheat tends to be grown in far northern areas 0:14:03.840 --> 0:14:06.840 of the Great Plains of the US and into Canada, 0:14:07.120 --> 0:14:10.720 and uh so there'll be probably some increased production there, 0:14:10.720 --> 0:14:15.160 but it can't show up until at the earliest September. 0:14:15.559 --> 0:14:20.400 So you know, that's the vice that the wheat market 0:14:20.480 --> 0:14:22.800 is in in the world, is that our ability to 0:14:22.880 --> 0:14:29.000 basically really alter availability is through the channel of spring wheat, 0:14:29.320 --> 0:14:35.240 which is a relatively minor crop compared to the major crop, 0:14:35.320 --> 0:14:39.120 of which are wheat, So that makes it hard. You 0:14:39.160 --> 0:14:42.960 mentioned Russian winter wheat at the beginning, and of course 0:14:43.040 --> 0:14:46.680 you know that's expected to still grow and probably be 0:14:47.040 --> 0:14:52.200 largely unimpacted by the events in Ukraine, but no one 0:14:52.280 --> 0:14:54.240 can get to it, or fewer people can get to 0:14:54.240 --> 0:14:56.680 it because of the sanctions in place. What are the 0:14:56.760 --> 0:15:00.360 chances that some of that is able to leak into 0:15:00.400 --> 0:15:04.680 the market. Well, that's going to be the great question 0:15:05.400 --> 0:15:10.520 because we know, first off, there's what economists called trade 0:15:10.560 --> 0:15:14.960 diversion in these kinds of situations. Um, you know, not 0:15:15.080 --> 0:15:18.760 everyone is going to follow the sanctions. For example, we 0:15:18.880 --> 0:15:24.040 expect that um, some of Russia's wheat exports will now 0:15:24.080 --> 0:15:26.520 go to China so that they can use that to 0:15:26.920 --> 0:15:31.960 feed their feed their animals and contribute to their diets. 0:15:32.000 --> 0:15:35.520 So that's trade diversion will happen. The big question in 0:15:35.600 --> 0:15:41.520 my mind is always leakage that you know, um, not 0:15:41.560 --> 0:15:44.360 speaking to the morality of the situation, but we know 0:15:44.920 --> 0:15:52.280 that historically that large international commodity trading firms are experts 0:15:52.960 --> 0:15:57.480 at figuring ways uh semi legally is the way I 0:15:57.480 --> 0:16:00.880 would put it around the sanctions and to move these 0:16:00.920 --> 0:16:05.520 commodities around the world. Yet there's a cost of that. 0:16:05.840 --> 0:16:08.800 You know that they'll only buy the wheat from Russia 0:16:09.000 --> 0:16:12.760 deep discounts. It takes time for these alternative channels and 0:16:13.480 --> 0:16:18.400 legalities to be worked out, and so inevitably, you know, 0:16:19.240 --> 0:16:25.280 trade diversion and leakage can't offset the full effect of 0:16:25.360 --> 0:16:28.560 the sanctions. And what you know, we're all trying to 0:16:28.560 --> 0:16:31.280 figure out, and that's what the market has to assess 0:16:31.280 --> 0:16:33.880 in real times. You know, well, what's that leakage and 0:16:34.320 --> 0:16:38.320 a trade diversion going to look like. So we mentioned 0:16:38.320 --> 0:16:40.800 it at the very beginning in the intro. But when 0:16:40.800 --> 0:16:42.720 we had you on a year ago, I think it 0:16:42.760 --> 0:16:45.080 was about a year ago, the story at the time 0:16:45.400 --> 0:16:51.120 seemed to be about very aggressive Chinese buying and building 0:16:51.200 --> 0:16:53.680 up stocks, building a buffer stocks, and I think I 0:16:53.720 --> 0:16:57.680 saw ustand recently I forget the number. I'm not sure 0:16:57.680 --> 0:17:00.360 how many years worth of week trying to current he has. 0:17:00.680 --> 0:17:03.400 Wait since you mentioned that China is likely to be 0:17:03.480 --> 0:17:07.159 a destination for whatever wheat gets out of that market, 0:17:07.400 --> 0:17:10.159 out of the Russian market, what is the state of 0:17:10.320 --> 0:17:14.000 Chinese buying? Is it still in accumulation mode? Has it 0:17:14.080 --> 0:17:17.119 balanced out the stocks? What kind of deficit or position 0:17:17.200 --> 0:17:20.280 is China in right now? I have to admit that 0:17:20.320 --> 0:17:23.320 we're all looking through the glass darkly in terms of 0:17:23.440 --> 0:17:29.040 China's grain reserves, and that's an official state secret, and 0:17:29.080 --> 0:17:34.440 so everybody just guesses at it. Uh So, my perception 0:17:34.880 --> 0:17:40.600 is that they have done quite a bit of reserve rebuilding, 0:17:41.000 --> 0:17:43.800 but at the same time they're in the phase of 0:17:43.960 --> 0:17:48.600 rapidly rebuilding their animal herds and so in that race 0:17:48.720 --> 0:17:54.640 between increasing consumption from their animal herds versus their rebuilding. Uh, 0:17:54.760 --> 0:17:57.960 nobody really knows, but I do know that they've been 0:17:58.119 --> 0:18:03.560 back in the grain market for US supplies in a 0:18:03.640 --> 0:18:08.119 big way in the last couple of weeks, which everybody's expecting. 0:18:08.720 --> 0:18:13.960 Of what we have seen for two before the Ukrainian 0:18:14.160 --> 0:18:20.639 crisis was that China soybean buying was back to basically 0:18:20.720 --> 0:18:23.720 the trend they were on before our trade war, which 0:18:23.880 --> 0:18:28.159 means it's huge. Uh. They weren't buying as much corn 0:18:28.280 --> 0:18:32.240 in two as they did in UM. It had backed 0:18:32.359 --> 0:18:37.720 off some. Uh that I suspect that they'll be back 0:18:37.840 --> 0:18:43.480 closer now in two now than they had planned because 0:18:43.560 --> 0:18:49.240 the lack of availability of Ukrainian supplies. But that story 0:18:49.359 --> 0:19:00.320 remains to be written. This might be a very basic shan. 0:19:00.600 --> 0:19:05.040 But if supply is constrained, and you know, everyone in 0:19:05.080 --> 0:19:09.200 the world presumably wants to keep wheat prices relatively low 0:19:09.320 --> 0:19:11.760 so that the price of bread doesn't go up too much, 0:19:12.600 --> 0:19:17.719 China is still buying um large amounts. How does existing 0:19:17.840 --> 0:19:22.879 supply get allocated? Could we see a return or even 0:19:22.920 --> 0:19:27.280 more sort of food supply nationalism and the idea that 0:19:27.320 --> 0:19:29.560 people are going to be keeping more of their own 0:19:29.600 --> 0:19:36.080 crops closer to home. This is the great danger in 0:19:36.760 --> 0:19:40.840 global grain markets right now, Tracy. This is what I'm 0:19:40.960 --> 0:19:46.040 most concerned about, which history shows that when you get 0:19:46.080 --> 0:19:51.119 in these huge scary price spikes, particularly for food commodity 0:19:51.320 --> 0:19:55.399 like wheat, that there's a tendency for a bit of 0:19:55.600 --> 0:20:00.720 panic to set in and countries begin shutting off exports 0:20:01.080 --> 0:20:08.800 to uh basically protect domestic supplies and protect domestic consumers, 0:20:09.320 --> 0:20:17.119 and that really leaves importers, particularly importers in the not 0:20:17.359 --> 0:20:22.760 rich countries, out in the cold. And we're already seeing 0:20:23.280 --> 0:20:27.159 that kind of bing bing bing beginning to happen. And 0:20:27.400 --> 0:20:31.520 so if you lock up supplies in some doesn't take 0:20:31.600 --> 0:20:36.240 very many exporting countries, then that really makes prices for 0:20:36.320 --> 0:20:41.960 everybody else explode and puts more of the burden on 0:20:42.280 --> 0:20:47.359 generally poorer importing countries. And that's where things politically get 0:20:48.400 --> 0:20:52.760 really explosive. And so that's that's a real concern that 0:20:52.840 --> 0:20:55.879 I have, because the market is going to do its job. 0:20:56.720 --> 0:21:01.040 The market's job is basically to the price of wheat 0:21:01.240 --> 0:21:09.880 up high enough that you ration current demands enough so 0:21:09.920 --> 0:21:12.639 that the globe has something left over at the end 0:21:12.640 --> 0:21:15.880 of the year the problem, you know, But in order 0:21:15.920 --> 0:21:19.240 for the market to do that job, somebody has to 0:21:19.280 --> 0:21:23.720 get priced out of the global market. And the job 0:21:23.800 --> 0:21:28.399 of trade is for the market to then spread around 0:21:28.440 --> 0:21:35.840 available supplies to um to the highest bidder. And some 0:21:35.880 --> 0:21:38.840 people that as a policy matter, that we probably don't 0:21:38.880 --> 0:21:41.880 want priced out of the market can easily get priced 0:21:41.920 --> 0:21:45.160 out of the market as the market does its job. 0:21:45.480 --> 0:21:48.080 So that's what happens in the very short run. And 0:21:48.119 --> 0:21:51.680 the other side of the market's job is to run 0:21:51.680 --> 0:21:54.840 the price up of wheat high enough that as we 0:21:55.000 --> 0:21:59.800 can expand acreage and production to adjust to this that 0:22:00.160 --> 0:22:05.320 supply response, and it will happen. It always does, but 0:22:05.440 --> 0:22:08.680 it's you know, can take a year or two for 0:22:08.760 --> 0:22:12.159 this kind of shock to fully be absorbed and we 0:22:12.240 --> 0:22:16.040 get the supply response in terms of expanded a creach 0:22:16.119 --> 0:22:19.320 and production around the world. So the shocks from this 0:22:19.359 --> 0:22:22.639 are going to reverberate for some time. Yeah, there's so 0:22:22.680 --> 0:22:25.440 many follow up questions I have to that, you know, 0:22:25.680 --> 0:22:29.040 But the first one when price of oil and also gas. 0:22:29.280 --> 0:22:32.400 But when the praise of oil surges, it immediately becomes 0:22:32.400 --> 0:22:35.760 a political question and people start turning to elected leaders, 0:22:36.040 --> 0:22:37.760 what are you going to do about this? What can 0:22:37.800 --> 0:22:41.040 we do to say, increase exploration or drilling in the 0:22:41.119 --> 0:22:44.560 United States, or what can Germany do to cut off 0:22:44.560 --> 0:22:49.920 its reliance from Russian gas, etcetera. Are there policy levers 0:22:50.160 --> 0:22:53.520 that countries, whether rich or poor, can pull here? But 0:22:53.560 --> 0:22:56.000 I'm thinking in the United States, for example, is there 0:22:56.040 --> 0:22:59.040 something equivalent is this? Is there something for the U 0:22:59.119 --> 0:23:01.359 s d A Or the House to think about doing 0:23:01.920 --> 0:23:05.520 during such a time of high prices and tight supplies. Well, 0:23:05.520 --> 0:23:09.800 there is one that could be considered. In the United States. 0:23:10.760 --> 0:23:14.600 We have something that's called the Conservation Reserve program in 0:23:14.640 --> 0:23:19.360 the United States that currently contains twenty two million acres 0:23:19.400 --> 0:23:22.840 of previously cropped land that has been taken out of 0:23:22.840 --> 0:23:30.000 production presumably because it's most environmentally sensitive in terms of 0:23:30.320 --> 0:23:36.520 wind and water erosion, or it has bio diversity. Really 0:23:36.560 --> 0:23:41.920 a lot of it's for pheasant hunting. Uh, So there's 0:23:42.040 --> 0:23:47.800 that acreage that could be considered for maybe a special 0:23:47.840 --> 0:23:52.560 one time exemption from the current long term contracts that 0:23:53.760 --> 0:23:57.040 are required to place acreage into that reserve. So we 0:23:57.119 --> 0:24:01.399 have an acreage reserved something like the search Egic Petroleum 0:24:01.480 --> 0:24:05.680 Reserve that it's at least could be considered. UH. It's 0:24:05.840 --> 0:24:09.120 very controversial, as I found out when I suggested it 0:24:09.200 --> 0:24:12.040 a couple of weeks ago, But basically my argument is 0:24:12.280 --> 0:24:15.119 pretty straightforward, and you can hear it through the conversation 0:24:15.119 --> 0:24:18.880 with Pad today. I believe this is the largest supply 0:24:19.040 --> 0:24:24.280 shock of my lifetime UH in global grain markets. UH 0:24:24.400 --> 0:24:31.440 if the conflict continues and severely harms planting in the Ukraine, 0:24:31.920 --> 0:24:35.720 and so we need to at least look at extraordinary 0:24:35.760 --> 0:24:39.080 measures like this here in the US that you use. 0:24:39.119 --> 0:24:44.240 Ahead of us, they're already apparently making plans to make 0:24:44.280 --> 0:24:49.400 their what they call set aside acreage available for production 0:24:49.480 --> 0:24:53.120 this year. And those policy means you might think, oh 0:24:53.160 --> 0:24:55.040 my gosh, you well you can plant this spring, but 0:24:55.160 --> 0:24:58.120 we don't get that until next fall. But the markets 0:24:58.119 --> 0:25:02.760 will react to those move now, because the markets always 0:25:02.880 --> 0:25:07.679 are in an anticipatory mode, and if they see that 0:25:07.720 --> 0:25:10.320 there's going to be somewhat more supply than they would 0:25:10.440 --> 0:25:14.159 normally think, that will have an impact now. And so 0:25:15.080 --> 0:25:19.520 that's UH. In the EU and in here in the US, 0:25:19.600 --> 0:25:22.760 those those are pretty much the only policy levers that 0:25:23.320 --> 0:25:29.440 we have. No one has huge grain stocks piling up 0:25:29.440 --> 0:25:31.720 in warehouses anymore like we used to say in the 0:25:31.760 --> 0:25:34.320 nineteen eighties. Nobody has those, So the only thing we 0:25:34.359 --> 0:25:39.800 really can do is try to juice up acreage this spring. Wait, 0:25:39.840 --> 0:25:42.760 could you walk us through exactly why this is so controversial, 0:25:42.760 --> 0:25:45.440 because I did see some people on Twitter who were 0:25:45.480 --> 0:25:48.160 pushing back. And you know, initially, if someone says, well, 0:25:48.720 --> 0:25:50.680 the price of wheat is going up a lot, there 0:25:50.720 --> 0:25:55.440 might be food shortages. Let's increase acreage. It sounds like 0:25:56.000 --> 0:25:59.400 a very like good thing to do. But I imagine 0:25:59.440 --> 0:26:02.560 there are those environmental concerns and other issues with it. 0:26:02.640 --> 0:26:06.280 So what are those exactly? Well, there's what I would 0:26:06.280 --> 0:26:10.320 call a you know, they're the environmental concerns, and then 0:26:10.359 --> 0:26:15.119 they're the practical pushback on that idea. The environmental is 0:26:15.359 --> 0:26:20.840 these are supposed to be highly erodable acres and less 0:26:20.880 --> 0:26:23.879 productive acres that are put into the conservation reserve. And 0:26:23.920 --> 0:26:28.680 there's no doubt that that is true, and so you're 0:26:28.720 --> 0:26:33.520 not getting your your prime acres motors, productive acres put in. 0:26:33.640 --> 0:26:36.680 And so if you took them out, people say it 0:26:36.720 --> 0:26:39.359 wouldn't be that productive. My counter that that is the U. 0:26:39.520 --> 0:26:42.720 S d A has actually done some great work tracking 0:26:42.760 --> 0:26:46.520 parcel by parcel. What happens to acres in the past 0:26:46.800 --> 0:26:49.359 as they've come out of the conservation reserve, because it 0:26:49.400 --> 0:26:52.159 turns over there's acres going in every year, there's acres 0:26:52.200 --> 0:26:54.800 coming out. Without getting into all the details, but over 0:26:54.840 --> 0:26:59.879 time the acres that come out over go back into 0:27:00.040 --> 0:27:03.480 crop production or some kind of annual crops, so it 0:27:04.720 --> 0:27:09.959 can be used. So that's the one biggest is you know, 0:27:10.040 --> 0:27:14.040 these are supposedly our most environmentally sensitive acres, so why 0:27:14.119 --> 0:27:17.640 would we want to um mess with them? And then 0:27:17.680 --> 0:27:21.600 the other point is you know that those acres have 0:27:22.040 --> 0:27:27.720 biodiversity benefits in particular, as I said, for recreation and 0:27:27.840 --> 0:27:33.760 animal biodiversity, and so those benefits are there. And in 0:27:33.840 --> 0:27:37.600 my mind, probably the bigger concern is the practical It's 0:27:37.800 --> 0:27:42.199 very very late in the calendar to for farmers to 0:27:42.359 --> 0:27:47.040 adjust their plans to try to farm those acres. Um. 0:27:47.080 --> 0:27:49.560 You know, if even if you do try to farm 0:27:49.840 --> 0:27:54.560 the CRP acres, you have to plow up something that 0:27:54.680 --> 0:27:59.920 is in grass, can you get the seed and fertilizer 0:28:00.080 --> 0:28:03.280 that you need even if you want to do this. 0:28:03.800 --> 0:28:07.359