Our financial system is crumbling this week.

[Popeye_Card]

I will just briefly comment on energy. The issue right now is not production, it is demand. Crude oil price is of course high, but has been relatively stable since the Ukraine invasion. Globally, there is a rush to fill the energy demand in Europe and elsewhere created by shutting Russia out. Russia is a giant player in both petroleum products and natural gas. US companies are going all out to produce refined products, and the domestic price is going to reflect that they can get a premium price for those products by exporting them.

Not to get political, but the government does have an easy lever to pull if they wanted to curtail US energy prices - place a temporary ban on exports. But that would screw over our closest allies in Europe and we want to ensure that we retain a united front against Russia, so here we are.

[AWvsCBsteeeerike3]

I will just briefly comment on energy. The issue right now is not production, it is demand. Crude oil price is of course high, but has been relatively stable since the Ukraine invasion. Globally, there is a rush to fill the energy demand in Europe and elsewhere created by shutting Russia out. Russia is a giant player in both petroleum products and natural gas. US companies are going all out to produce refined products, and the domestic price is going to reflect that they can get a premium price for those products by exporting them.

Not to get political, but the government does have an easy lever to pull if they wanted to curtail US energy prices - place a temporary ban on exports. But that would screw over our closest allies in Europe and we want to ensure that we retain a united front against Russia, so here we are.

I was under the impression supply (oil at least) was below where it was pre-covid.

https://ycharts.com/indicators/world_cr ... production

I thought nat gas was similar but can't find a good chart.

[ghostrunner]

The thing I've noticed most in just shopping for food over the past six months is there is no 7% inflation. There has been a rather sudden, overall increase in food prices by 30-50%. I think future's contracts for the supply chain have been pricing in an awkward crop season since Ukraine - even though prices should have fallen as we emerged from a pandemic economy. There's also a lot of fuel problems pricing in what it might take to bail Europe out of a Russian gas shutoff in the winter. In some ways the immediate recession should be encouraging a post-pandemic return to work rather than the great retirements of the pandemic - so at least there's that.

It's all dependent on how long it takes the energy situation in the world to stabilize and how rough it gets. I don't know what you mean when you say "fuel prices will hit the farm world hard." Without taking steps to curtail your variable expenditures for the year over what is normally spent, and factoring in an increase in harvest market prices, what sort of profit reduction do you think you're currently looking at percentage wise versus last year?

Also the stupid decade-long drug of near 0% fed interest rates is at least finally over. Our financial system shouldn't have seen those rates as financially healthy. In some ways you can tie what we're going through back to finally getting a correction to the financial measures taken after 2008. It's just not possible to sustain a high debt while giving out free loans indefinitely.

I wonder how regional this is. As all this inflation talk has been going around I've been kind of surprised to see people posting large increases like you cite above, because it strikes me that grocery food in particular hasn't gone up that much. So I just went to go look at my spending to see if I've just been oblivious.

We do almost all spending by debit card, and I started categorizing the items on my bank site pretty rigorously a couple years ago, so it's easy to track. Anything from Kroger, Meijer, Costco and other groceries we use gets logged as Groceries. Restaurants have another category. Very possible there are some missed items in there but groceries espeically should be marginal. I just checked and from Jan 1 to Jun 10th both years my total grocery expenses have gone up about 14%. A good bit but so far it's been pretty manageable. Restaurant spending has gone up about 28%. We typically have always eaten out about twice a week for dinner so the amount likely hasn't changed. Might be once or 3x some weeks, but usually 2x.

[Popeye_Card]

I will just briefly comment on energy. The issue right now is not production, it is demand. Crude oil price is of course high, but has been relatively stable since the Ukraine invasion. Globally, there is a rush to fill the energy demand in Europe and elsewhere created by shutting Russia out. Russia is a giant player in both petroleum products and natural gas. US companies are going all out to produce refined products, and the domestic price is going to reflect that they can get a premium price for those products by exporting them.

Not to get political, but the government does have an easy lever to pull if they wanted to curtail US energy prices - place a temporary ban on exports. But that would screw over our closest allies in Europe and we want to ensure that we retain a united front against Russia, so here we are.

I was under the impression supply (oil at least) was below where it was pre-covid.

https://ycharts.com/indicators/world_cr ... production

I thought nat gas was similar but can't find a good chart.

Crude oil supply is indeed down compared to pre-COVID. Some various reasons for that - but that is baked into the pricing of crude oil. Currently in the range of ~$110-120 per barrel, where it has been pretty steadily since March.

What is causing the run-up at the pump since March is continuously expanding refinery margins - the price that they can sell refined products for vs. the cost of crude. That's coming from the demand side, and specifically the export demand. Biden issued a letter to major US refiners this week blasting them for reduced refining capacity vs. pre-COVID. At first glance, the assumption is refiners are deliberately suppressing supply so that they can reap those huge margins.

That's not what is happening though. It is true that US refining capacity is below pre-COVID levels. Several refineries were shuttered in 2020 when demand crashed. The ones that were closed had marginal profitability to start with. They would be profitable *now*, but how long is that window? Re-starting a refinery isn't just flipping a switch and it is on again - you are talking several months at the very least getting permits re-issued, testing equipment, securing supply and distribution (pipelines in and out are likely also decommissioned or re-purposed), etc. In other cases, refining equipment has already been removed and re-purposed at other refineries. In yet other cases, there are a few refineries that are significantly down the road being converted to renewable fuels facilities - nobody wants to reverse that course at this point.

Bottom-line though, refiners are not suppressing their operating plants - if you are making 4-5x as much margin as you normally do, are you really going to leave those dollars on the table? No, you are going to run full throttle.

Additionally, it is a pretty conflicted message in regards to hydrocarbon energy companies. Up to this month, the message has been that they better start preparing themselves for a post-fossil fuel economy. So they start making multi-billion dollar conversion projects. Except now they need to stop, because we need all the fossil fuel capacity we can get!

[Popeye_Card]

The thing I've noticed most in just shopping for food over the past six months is there is no 7% inflation. There has been a rather sudden, overall increase in food prices by 30-50%. I think future's contracts for the supply chain have been pricing in an awkward crop season since Ukraine - even though prices should have fallen as we emerged from a pandemic economy. There's also a lot of fuel problems pricing in what it might take to bail Europe out of a Russian gas shutoff in the winter. In some ways the immediate recession should be encouraging a post-pandemic return to work rather than the great retirements of the pandemic - so at least there's that.

It's all dependent on how long it takes the energy situation in the world to stabilize and how rough it gets. I don't know what you mean when you say "fuel prices will hit the farm world hard." Without taking steps to curtail your variable expenditures for the year over what is normally spent, and factoring in an increase in harvest market prices, what sort of profit reduction do you think you're currently looking at percentage wise versus last year?

Also the stupid decade-long drug of near 0% fed interest rates is at least finally over. Our financial system shouldn't have seen those rates as financially healthy. In some ways you can tie what we're going through back to finally getting a correction to the financial measures taken after 2008. It's just not possible to sustain a high debt while giving out free loans indefinitely.

I wonder how regional this is. As all this inflation talk has been going around I've been kind of surprised to see people posting large increases like you cite above, because it strikes me that grocery food in particular hasn't gone up that much. So I just went to go look at my spending to see if I've just been oblivious.

We do almost all spending by debit card, and I started categorizing the items on my bank site pretty rigorously a couple years ago, so it's easy to track. Anything from Kroger, Meijer, Costco and other groceries we use gets logged as Groceries. Restaurants have another category. Very possible there are some missed items in there but groceries espeically should be marginal. I just checked and from Jan 1 to Jun 10th both years my total grocery expenses have gone up about 14%. A good bit but so far it's been pretty manageable. Restaurant spending has gone up about 28%. We typically have always eaten out about twice a week for dinner so the amount likely hasn't changed. Might be once or 3x some weeks, but usually 2x.

Restaurant pricing is way up. Just stopping at the bakery this morning, price on cinnamon rolls, etc. had jumped from $2.50 up to $3.50 and they tacked on a credit card surcharge as well. They would of course not only have increases in supply cost, but I imagine everyone is having to pay service workers higher wages in order to stay staffed. I completely understand, but there are of course subsequent ripple effects to consumer spending habits.

This correction has been coming for a while. It was insane to see what markets were doing during the pandemic, and for the fed rate to stay so low for so long. I do think a recession is coming, and I don't know how bad or how long it will be. I don't think it will dip to depression or even 2008 levels though unless a huge domino crashes.

[AdmiralKird]

Depends on the stores and the grocery habits too. I was house sitting in Wentzville for a few days last week and my friend's wife left their kids' cantaloupe behind so she told me to eat it. Price tag from Dierbergs: $7.99 - for a tub that was equivalent to half a cantaloupe. An full cantaloupe is $2.28 at wally world.

High End Frozen pizza's haven't moved very much - your Homerun Inns, your Fresceta's and Digorno's and Lottamotzas. But if you go to the bottom the $2.50 Jack's Pizza is now sitting comfortably everywhere at $3.48 unless there's a special.

Soda is another that is being hit. It's heavy, so transportation costs affect it, but it's also a very established supply chain. Usually you could find the six pack of bottles for $2.50 in any brand somewhere that week. Sometimes as low as $1.88. Now You'll be lucky to get them for $2.75 at the lowest and usually $3.50 without a sale. Occasionally Meijer will still have its $10 for 11 2L's that are the best deal in soda, but those seem to be quarterly now.

I wish I could compare other specific items but these are the ones I know the most just because they're usually stable prices rather than weekly sale fluctuations. And no, I don't just eat pizza and drink soda and I'm not overweight. I do know the same type of grocery trips I used to make for $80 a few years ago have easily gone up to $120.

[Jocephus]

I do know the same type of grocery trips I used to make for $80 a few years ago have easily gone up to $120.

this is close to me. i buy for the week and im usually in the 100-120 range but 5-6 years ago it was more in the 80s. maybe thats natural price increases. im technically in a better financial situation but i live in a more expensive state than i did those 5-6 years ago so its been hard to gauge truly what my personal increase has been. can't say i haven't felt an increase but it hasn't been awful for me, knock on wood.

i do see weird price fluctuations...like a few weeks a standard bag of coffee was near 10 bucks, now it seems to be back more in 6 dollar range. maybe its been mentioned here, in some thread, but apparently "shrinkflation" is a thing too, where these companies are using smaller bags/boxes for their product but still charging the same price.

i suppose i'm lucky since im vegetarian i dont feel those increases.

i dont eat out much but got some thai food a couple weekends back. a pad thai and 2 spring rolls, with tip, was 30 bucks. insane. which sucks 'cause its really good too.

i dont know where im going with any of this.

[AWvsCBsteeeerike3]

I will just briefly comment on energy. The issue right now is not production, it is demand. Crude oil price is of course high, but has been relatively stable since the Ukraine invasion. Globally, there is a rush to fill the energy demand in Europe and elsewhere created by shutting Russia out. Russia is a giant player in both petroleum products and natural gas. US companies are going all out to produce refined products, and the domestic price is going to reflect that they can get a premium price for those products by exporting them.

Not to get political, but the government does have an easy lever to pull if they wanted to curtail US energy prices - place a temporary ban on exports. But that would screw over our closest allies in Europe and we want to ensure that we retain a united front against Russia, so here we are.

I was under the impression supply (oil at least) was below where it was pre-covid.

https://ycharts.com/indicators/world_cr ... production

I thought nat gas was similar but can't find a good chart.

Crude oil supply is indeed down compared to pre-COVID. Some various reasons for that - but that is baked into the pricing of crude oil. Currently in the range of ~$110-120 per barrel, where it has been pretty steadily since March.

What is causing the run-up at the pump since March is continuously expanding refinery margins - the price that they can sell refined products for vs. the cost of crude. That's coming from the demand side, and specifically the export demand. Biden issued a letter to major US refiners this week blasting them for reduced refining capacity vs. pre-COVID. At first glance, the assumption is refiners are deliberately suppressing supply so that they can reap those huge margins.

That's not what is happening though. It is true that US refining capacity is below pre-COVID levels. Several refineries were shuttered in 2020 when demand crashed. The ones that were closed had marginal profitability to start with. They would be profitable *now*, but how long is that window? Re-starting a refinery isn't just flipping a switch and it is on again - you are talking several months at the very least getting permits re-issued, testing equipment, securing supply and distribution (pipelines in and out are likely also decommissioned or re-purposed), etc. In other cases, refining equipment has already been removed and re-purposed at other refineries. In yet other cases, there are a few refineries that are significantly down the road being converted to renewable fuels facilities - nobody wants to reverse that course at this point.

Bottom-line though, refiners are not suppressing their operating plants - if you are making 4-5x as much margin as you normally do, are you really going to leave those dollars on the table? No, you are going to run full throttle.

Additionally, it is a pretty conflicted message in regards to hydrocarbon energy companies. Up to this month, the message has been that they better start preparing themselves for a post-fossil fuel economy. So they start making multi-billion dollar conversion projects. Except now they need to stop, because we need all the fossil fuel capacity we can get!

Thanks, makes sense mostly. Still a couple questions though.

So, crude is high, currently $118, which isn't helping anything. Refineries, in the US and presumably around the world, are either 1) running full capacity, 2) shuttered due to the drop in demand at the beginning of Covid, or 3) converting to something else and the later two cases is the reason for lower supply compared to pre-pandemic levels. And, the large demand in Europe is driving prices higher in the US and presumably around the world.

If all that is correct, how does the supply work to Europe? Are US refineries shipping products to Europe? If so, how does the cost of that not become prohibitive to European nations? And, aren't most European nations still relying on Russian oil/gas for the time being albeit trying to ween themselves off? And, lastly, wouldn't it make sense for countries like Germany (whom I thought was most reliant on Russia) to strike a deal with refiners around the world directly months in advance? Enough time that would allow a shuttered refinery enough time to re-open and presumably export at a competitive price? The US could do the same thing too. Basically just guarantee payment for the product (eg, 100M gallons over the next 6 months or whatever at a minimum of $3/gallon or whatever). If market price falls below that, the govt could make up the difference. If not, it's just a free market. But it at least provides the incentive to get production levels back up.

Of course, regarding refineries that are being converted, that obviously would be a big step backwards.

Also, lol at the conflicting messaging.

[Popeye_Card]

Yes, refined products (particularly diesel) and LNG are being exported to Europe and other markets that are currently boycotting Russian sources (both directly in the form of refined products, and indirectly in the form of the crude supply formerly coming from Russian sources). Russia is the world's 3rd largest oil producer, and largest natural gas producer - when you cut them off, it has huge ripple effects.

As to your other questions regarding Europe - I don't know if I have the answers. Europe is a mess right now on the energy front. They have of course been setting the pace on renewables, but they also closed the majority of their nuclear plants and made up most of the gap with natural gas in the interim. Now their main source of natural gas is cut off and they are scrambling. So do you re-commit to other sources of fossil fuels long-term, or do you ramp up renewable infrastructure? Has hydrogen infrastructure gone from a 10 year plan to a 2 year plan? Are we going to cut Russia off forever?

Everything is still in too much flux to make the type of long-term, multi-billion (trillion?) dollar decisions that need to be made to bring the market back into order.

[IMADreamer]

The thing I've noticed most in just shopping for food over the past six months is there is no 7% inflation. There has been a rather sudden, overall increase in food prices by 30-50%. I think future's contracts for the supply chain have been pricing in an awkward crop season since Ukraine - even though prices should have fallen as we emerged from a pandemic economy. There's also a lot of fuel problems pricing in what it might take to bail Europe out of a Russian gas shutoff in the winter. In some ways the immediate recession should be encouraging a post-pandemic return to work rather than the great retirements of the pandemic - so at least there's that.

It's all dependent on how long it takes the energy situation in the world to stabilize and how rough it gets. I don't know what you mean when you say "fuel prices will hit the farm world hard." Without taking steps to curtail your variable expenditures for the year over what is normally spent, and factoring in an increase in harvest market prices, what sort of profit reduction do you think you're currently looking at percentage wise versus last year?

Also the stupid decade-long drug of near 0% fed interest rates is at least finally over. Our financial system shouldn't have seen those rates as financially healthy. In some ways you can tie what we're going through back to finally getting a correction to the financial measures taken after 2008. It's just not possible to sustain a high debt while giving out free loans indefinitely.

Just a quick over view looks like last year at planting season we spent around 35k in fuel. This year we have spent 70k so far. Harvest last year we spent 144000 in fuel. Assuming fuel prices stay the same that number will be in the neighborhood of 300k.

Generally we expect our input cost on corn to be around $600 an acre, but this year we are over the $750 mark. I don't have the exact figure because we still aren't done with nitrogen application and spraying. Best guess is 750-775 though. We know we will not have great yields as it's been too wet and we have already lost some yield potential due to planting. I'd be surprised if we saw 200 bu/ac which gets us a profit of just over 225 an acre. Which will be 175 less than last year. That's of course if corn prices stay strong and we don't have weather that hurts yield further.


Another thing someone brought up in this thread was credit card surcharges. I've noticed all the sudden everyone is tacking those on. I ordered a bunch of steel the other day for my business and they stuck a 3 percent surcharge on the card. I was kind of surprised and ticked as they have never done that before.