The Sidekick #002

Herds Shrink, Farmers Rage

Kris Lance

Kris Lance

VP & General Manager, Una

February 27, 2024

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Image: www.dw.com

Intro

Welcome to Issue #002 of The Sidekick! I had a ball putting the first one together and the response so far has been fantastic.

In this issue, I check out the EU’s war on its own farmers to understand the friction caused by overregulation and rapid decarbonization. Could it happen here in the US or has it already started? You may have read that the US cattle herd is in decline – is this a consequence of drought conditions and market forces, or is the industry prepping itself for the policies and Executive Orders that have already been rolled out?

Meanwhile, things are looking grim in the Middle East. We’re yet to experience any significant disruption in terms of oil price shocks, but the whole situation is like a house of cards. Find out below what this may mean in terms of gas prices and food security.

And that’s not all. Scroll down to check out curated highlights from social media, a book review, technology news, people to follow, and much more.

Let’s dive in. 

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The American Supply Scene: Raising the Steaks

Europe’s farmers are angry. Highways are being blocked in Spain and farmers are preventing EU ministers from holding an industry summit in Belgium. These people mean business! Not long ago, angry Dutch dairy farmers burned bales of hay in the streets of The Hague and brought traffic to a halt nationwide over the so-called “nitrogen crisis.”

But lawmakers and regulators are serious, too. It’s a fight that had to happen, with the EU’s aggressive carbon reduction targets detailed in the European Green Deal and the Industrial Emissions Directive forcing a collision with the agricultural sector.

But the intensity of farmer backlash – or Greenlash – has put lawmakers on the back foot, forcing backdowns including the withdrawal of a bill to halve the use of chemical pesticides by 2030.

Although beef is by far the highest-emitting in the agricultural sector, measuring carbon dioxide only tells part of the story. While large amounts of methane are produced by cows they are really responsible for massive water consumption and play a role in nitrogen levels (which kicked off the Dutch showdown).

Personally, while the below data is interesting, I’d like to see a chart showing cows’ impact on the environment against the Private Jet emissions from those who traveled to Davos for the World Economic Forum… but I digress.

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But how the industry tackles this challenge is the question. The bare facts are that citizens in the EU are being told to consume less meat and European cattle farmers have been instructed to either cull their herds or sign up for voluntary buy-outs.

Beefcentral.com explores the “ideological battle” between Europe and the US when it comes to agriculture and climate strategies:

“Europe is taking the clunky and legislative route, where they are banning certain activities and trying to prevent other countries from doing them … The US is saying they can reduce livestock emissions while producing more food and are going to do it through technology and innovation.” 

Maybe that’s why we’re seeing chest-beating headlines from The Federation of American Scientists such as “Climate-Smart Cattle: US Research and Development Will Improve Animal Productivity, Address Greenhouse Gases, And Hasten Additional Market Solutions.” 

Which approach do you think will make the most impact? Climate-smart cattle or blunt, regulatory action? Trade deals are the fastest way to influence other countries, which is why we can expect to see an EU carbon border adjustment (taxing imports of emissions-intensive products) extended to agricultural imports one day soon.

Which brings us to the decline in the US cattle herd. There were 87.2 million head of cattle and calves on US farms as of January 1st, according to the Cattle report published by the National Agricultural Statistics Service. The US cattle inventory is now the smallest it has been in 73 years, and any rebuilding of the cow herd is unlikely to begin until 2025 at the earliest. Beef exports are down, accounting for 11.3% of production in 2023 and projected to drop to 10.6% in 2024.

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A smaller calf crop and fewer replacement heifers are likely to lead to record prices for consumers. At present, domestic consumer demand for beef has remained strong, but consumers’ ability and willingness to withstand higher price levels in 2024 may dampen the average American’s love of steak.

Beef market analysts tell us that the sharp decline in inventory is a direct consequence of drought and economic drivers such as high input costs (the cost of feed) and interest rates. But maybe there are other factors at play. Unwilling to risk a war on farmers, the Biden administration chose to incentivize rather than force the beef industry to reduce emissions as part of the COP26 Climate Summit’s pledge to cut methane gas by 30% by 2030.

This will be critical to watch, going forward, even if you’re not primarily in the food industry; as if the 2024 election didn’t have enough at steak… Ha!

Then there’s the sense that our trade partners will slowly but surely close the door on American beef if it comes to be seen as climate-unfriendly while other beef-producing nations reduce their carbon/methane footprints.

What’s clear is our beef industry needs to find a way to stay competitive internationally. It’s unlikely to be on price. At present, we’re lagging on climate action. What about quality? Industry cheerleaders will of course tell us that our beef is the best in the world, but consumers overseas don’t like American practices such as feedlots and injections of hormones and antibiotics.

And have you tried Argentinian Ribeye or Japanese Wagyu?

With US herd numbers down and prices on the way up, perhaps premium beef from across the globe won’t seem so expensive after all.

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International Spotlight: Three Oil Shock Disruption Scenarios in the Middle East

A flurry of diplomatic activity is taking place as the IDF continues its grinding progress southward through Gaza. Antony Blinken has flown to the Middle East so many times since October that he must be confused about what timezone he’s in. Regional Arab powers (Qatar in particular) have stepped up to lead fraught negotiations. The mission is to keep the powder keg from blowing and preventing direct involvement from Iran.

All eyes are on the Houthis. Recently, the Yemen-based rebels claimed responsibility for a missile attack on a Panamanian-flagged oil tanker bound for India. Taking a page from the Ukrainian playbook, they are deploying unmanned underwater vessels (UUV drones), unmanned surface vessels, and anti-ship cruise missiles. They are threatening to cut crucial undersea communication cables (including internet cables) in the Red Sea. Is it possible that this could become the Black Swan Event that even Mainstream news outlets are covering?

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Western internet cables in the Red Sea under threat (Image: @PhilipCMead)

The Houthis initially announced that they would focus on attacking ships associated with Israel. However, they soon broadened their scope to include ships from the UK and US. Major shipping companies are choosing longer routes around Africa, costs have gone up, and global inflation is once again rearing its ugly head (as if it ever really cooled down though…)

The Red Sea isn’t the only trouble spot. Iran and Pakistan are launching drones and missiles at each other. The fighting between Israel and Hezbollah (Lebanon) is at its heaviest since 2006. People are getting killed in the West Bank.

The key concern from a shipping and commodity point of view is – you guessed it – oil. The World Bank published an article outlining three different scenarios and their potential impacts on global oil supply and prices:

In the “small disruption” scenario, global oil supply would be reduced by 500,000 to 2 million barrels per day, similar to the reduction seen during the Libyan civil war in 2011. Oil prices would initially increase by 3% to 13%, with a range of $93 to $102 a barrel.

In the “medium disruption” scenario, equivalent to the 2003 Iraq war, global oil supply would be curtailed by 3 million to 5 million barrels per day. This would drive oil prices up by 21% to 35% initially, ranging from $109 to $121 a barrel.

In the “large disruption” scenario, comparable to the Arab oil embargo in 1973, global oil supply would shrink by 6 million to 8 million barrels per day. This would result in a significant price increase, with oil prices rising by 56% to 75%, reaching a range of $140 to $157 a barrel.

Image: S&P Global

How will this affect the Average Joe in the US? Well, higher oil prices inevitably lead to higher prices on everything! Where most will really see it is outside the false inflation numbers we keep seeing (I say false numbers as those metrics don’t include food, energy or housing/shelter). This means food price inflation – which has already caused a major headache – will be pushed up even further. Food insecurity will be intensified across the world.

But at least we have the strategic petroleum reserve, right? Wrong! Due to other more recent US policies oil and gas prices already skyrocketed but rather than own the error and reverse course, the US has dumped reserves to combat price increases. In 2022, the US and its allies released 60 million barrels from their reserves; which are now at the lowest levels since the 1980’s. So what does this mean? What should we consider?

Well, we can manage – for a short time – if the Middle East goes haywire. But the trouble is that fires, once started, tend to spread. Russia is increasingly friendly with Tehran, its allies, and proxies including Hamas, Hezbollah, Yemeni Houthis, and Iraqi and Syrian militias. The conflict is funneling attention and funding away from Ukraine, which recently lost a frontline city to Russia. And there’s always the chance that China could choose this moment to make its move on Taiwan. Stay Frosty!

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Image: Metpost.io

Technology and Futurism News

What’s going on in the world of technology? Plenty. Here’s some news that caught my attention:

People are wearing Apple Vision Pros while driving Teslas: Did you catch the videos on social media of people driving cars while wearing VR headsets? Crazy. Apple itself writes that the device should not be used when operating a moving vehicle, but inevitably there’s always going to be some clown who pushes the boundaries. It’s important to note that the wearer isn’t necessarily “blind” when wearing the headset – most likely they were blending virtual content (like apps) into their natural surroundings.

But what amazes me is the “blind” trust in self-driving technology. There are six levels of driving automation, ranging from zero (no automation) to five (full automation). At present, most “self-driving” cars are at level two (partial automation where a human must monitor the vehicle at all times), with a huge gulf to be crossed before we reach level three.

Sierra Space Corp. is getting ready to go public and considering acquisitions as it gears up to launch its cargo spaceplane. The CEO, Tom Vice, revealed in an interview that they’re internally preparing for an IPO and will go ahead when the market conditions are favorable. The company’s valuation currently stands at over $5 billion after a successful fundraising round. The autonomous cargo spaceplane, which is designed to use the world’s commercial runways rather than plunging into the ocean, is expected to make its debut in the summer.

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Work/Life and Career Tips:

Check out Quiet” by Susan Cain: The brilliant Susan Cain first came to the attention of many in the procurement and supply chain world when she wowed the audience with her keynote speech at ISM2016. Her book, Quiet, is all about how our schools, workplaces, and other institutions are set up to benefit extroverts at the expense of introverts who are less likely to speak up. But the truth is that there’s simply no correlation between being the best talker and having the best ideas.

Cain argues that introverts make better leaders because they are generally more careful and more willing to let employees do their own thing without attempting to command and control.

Optimistic mindsets have been linked to poor decision making: Excessive optimism can lead to poor financial decision-making, according to a study by the University of Bath. The research found that people with lower cognitive function tend to be more optimistic and make unwise financial choices. On the other hand, individuals with higher cognitive abilities are more likely to be realists when it comes to financial planning.

Optimism bias, which causes people to expect unrealistically positive outcomes, affects about 80% of the population. While optimism has positive effects on health, it can hinder financial decision-making by overlooking potential risks. Striking a balance between optimism and realism is important for making wise financial choices. I’m going to share this article with anyone who asks me why I always look at the worst-case scenario!

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People to Follow

“Just a dude with a brohawk and dream,” Economic Ninja Travis B. is a brilliant source of knowledge on the global economy and other topics. He’s one of my go-tos for understanding what’s real and relevant in financial news.

He’s not particularly chatty on LinkedIn, so you might want to follow his #NinjaNation channel on YouTube here:  http://www.youtube.com/@EconomicNinja

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Wisdom of the Week

Mark 3:25 – “If a house is divided against itself, that house cannot stand.”

This quote/verse seems pretty timely with the current polarization of politics and opinions here in the US. 

The Best of Social Media

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I Love Feedback!

I want to touch on topics that get you thinking and I’m still new to this, so I’m wide open to feedback. I would love to know what you’d like to see included in future editions of The Sidekick.

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See you next time!

– Kris

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