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Macro Voices

MacroVoices #381 Leigh Goehring: Global Food Crisis Update

Thu Jun 22 2023


00:08 - 08:23

  • MacroVoices is a free weekly financial podcast targeting professional finance, high net worth individuals, family offices and other sophisticated investors.
  • The show features the brightest minds in the world of finance and macroeconomics telling it like it is.
  • This week's feature interview guest is Lee Garing, co-founder of Garing and Rosenswag.
  • The topic of discussion is an update on the global food crisis resulting from more people eating meat all over the world, putting even more demand on grain.
  • The macro scoreboard for the week ending June 21st shows that S&P 500 was down 20 basis points to 44.09, US Dollar index down 88 basis points to 102.09 consolidating along its 52 week lows, August WTI crude oil contract up 595 basis points to 72.53 bouncing higher from oversold levels, gold down 122 basis points to 1945 remaining in consolidation, copper up 103 basis points closing at $3.91 crawling its way higher week over week in uranium down 131 basis points to $56.65 price stalling after several strong months and the ten-year Treasury yield down eight basis points closing at .372 percent.
  • Key news to watch this week includes European and US PMIs while next week has consumer sentiment, GDP numbers and core PCE index.

Global Grain Consumption and Weather Patterns

07:53 - 16:28

  • Global grain consumption has grown by 6% since 2019.
  • Strong global grain demand trends are continuing.
  • The world is experiencing adverse weather conditions due to global cooling cycle.
  • Sunspot cycles have a loose relationship with weather patterns.
  • Climbing sunspot cycles have often been associated with periods of global cooling, which disrupts weather patterns in global grain-producing regions.
  • This decade will experience multiple crises due to strong global grain demand and adverse weather patterns.
  • We are only in the second or third inning of this agricultural crisis baseball game.
  • El Nino and La Nina phenomena affect ocean temperature and drive switching from one to another, causing general precipitation trends that grip the agricultural world when we switch from one knee to El Nino and then back again.
  • Dust bowl conditions may return due to the Gleisberg cycle's impact on the weather into 2023-2024.
  • Central and eastern parts of the US are experiencing extremely dry conditions, potentially due to the Gleisberg effect on North American weather.
  • The transition from La Nina to El Nino is happening while the negative-pacific decadal oscillation is taking place, which historically has produced drought conditions in North America.
  • A combination of these effects could potentially cause severe drought conditions in North America this growing season.

Impact on Grain Markets

15:58 - 24:20

  • Global grain consumption has grown by 6% since 2019 due to people switching over to a protein-based diet, creating strong underlying demand for grain that is colliding with supply problems.
  • All markets will be affected by price spikes, but cocoa, sugar, coffee, corn and soybeans are expected to undergo severe upward price pressure if drought conditions emerge.
  • If there is a drought condition in the US this summer, corn and soybeans would be primarily affected and undergo severe upward price pressure.
  • If corn acres drop by 5 million and yield goes back to 175, corn carry out levels will be near record lows, leading to upward pressure on price.
  • Cocoa prices are high due to increased demand from countries like China and weather-related supply problems in West Africa.
  • Food price inflation has already occurred in high-income countries, but severe hunger is gripping areas far from our field of vision.
  • Food nationalism is being used to protect indigenous populations from super high prices, tightening up the food chain in other parts of the world.
  • Predicting weather patterns is difficult, but near drought conditions across large swaths of the US could lead to agricultural market crises by year-end.
  • Russia's invasion of Ukraine severely affects global grain markets as Ukraine is a huge wheat exporter.
  • Ukraine's wheat and corn exports have decreased significantly from their peak levels, which will lead to a series of agricultural crises in the coming years.
  • The switch from a unipolar to a multipolar world and the fragmentation of globalization will negatively impact global agricultural markets and result in higher prices.

Investment Opportunities

31:23 - 39:09

  • Investing in high-quality fertilizer producers such as Mosaic (MOS) and Nutri (NTR) is recommended due to the disruption caused by Russia's invasion of Ukraine.
  • Fertilizer prices are still 50-60% higher than they were back in 2018-2020, offering potential investors high levels of value.
  • Cattle prices will be higher by the end of this decade, but investing directly in commodities is not recommended due to its complexity.
  • Farmland rates traded on the New York Stock Exchange could be potential investments for those interested in owning farmland.
  • There are publicly traded farmland rates to trade on the New York Stock Exchange for those interested in owning farmland.
  • Lee believes that US natural gas is a good short-term investment due to changes in supply dynamics and the potential for prices to converge with international gas prices.
  • Uranium is another commodity that Lee is bullish on, as it has been in a bull market and there may be a chaotic uranium market developing in the next six months.
  • The Sprott Uranium Trust is a way for retail investors to participate in the spot uranium price.
  • Caring and Rosen Swag manages a mutual fund, the Garing and Rosen Swag Resources Fund (GRG-HIX), which is open to everyone with a minimal investment of $3,000.
  • The firm uses research as the basis for their investment process and combines it with confidence that their research can pick out trends most investors miss.

Market Analysis

52:39 - 1:00:15

  • Crude oil prices are expected to go up when supply constraints are challenged, but the market is currently focused on demand weakness.
  • The neutral zone for oil is between $75 and $80, and the bulls need to break the downtrend in order to turn the chart higher.
  • Despite warnings that the bottom is not yet in for this bear market, S&P broke out above its 61.8% Fibonacci retracement level and remains well above it.
  • There's a call wall above at 4500 and a put wall below at 4000 for SPX with an implied move of 115 points for July 21st op-x.
  • The QQQs have a call wall above at 370 and a put wall below at 350 with an implied move of plus minus 15 points for July 21st op-x.
  • Some tech names like NVIDIA and Tesla are pretty frothy right now.
  • Q's spot price is 362 with a call wall above at 370 and a put wall below at 350.
  • Implied move for July 21st of X is plus minus 15 points, with upper expected move at 377 and lower expected move at 347.
  • Key resistance is above at 372, which is also the high from March of 2022. Key support is at 335.
  • Some tech names are frothy right now, namely NVIDIA and Tesla. If they roll over or stagnate, it's probable we'll see testing of recent lows around the 350-340 levels.
  • VIX has hit new multi-year lows despite market decline. Option premiums on volatility are still being priced with extra premium, suggesting some volatility may be coming.
  • US dollar index remains in wide consolidation zone. Divergence exists between Asian currencies versus Western world currencies.
  • Gold is poised for deeper correction than seen so far due to Fed continuing to hike rates to fight inflation. Downside target is $1860.
  • Wheat prices have experienced legitimate bull breakout in four days wiping out several months of price action on downside and decisively advertising potential new bull breakout.

Additional Information

59:48 - 1:03:59

  • Agricultural stocks have been in a bear market and haven't started to bull trend yet.
  • The question is whether agricultural stocks will start trending like the futures are currently.
  • Patrick's chart decks can be obtained every day of the week with a free trial of big picture trading.
  • The research roundup includes the transcript for today's interview, the chartbook discussed in the post-game, and links to interesting articles.
  • MacroVoices is presented for informational and entertainment purposes only. The information presented on MacroVoices should not be construed as investment advice.