Both the energy and food markets are experiencing a 'calm before the storm.' The use of oil stockpiles and a pre-emptive surge in fertilizer buying are masking severe underlying supply constraints that are expected to surface within the next year.
The discussion contrasts the headline-grabbing oil market with the more fundamental electricity market. The devastating economic impact of the 2022 crisis was driven by thousand-euro electricity prices, a scenario that has so far been avoided, explaining the different feel of the current situation.
The impending EU Carbon Border Adjustment Mechanism (CBAM) has already distorted markets, causing European farmers to front-load fertilizer purchases by 60-80%. While this created a short-term supply cushion, the regulation is set to increase long-term costs and realign global trade flows.
The food sector is not monolithic; there is a glut of milk and wheat, but a severe shortage of beef. This imbalance is reshaping food production, with cheese becoming a byproduct of the high-demand whey protein market, and points to a future where the price of a burger bun could rival the price of the meat.
Keep pulling the thread on Odd Lots.