We know that the war in Ukraine has led to sharp increases in prices for both food and fuel. This in turn has sparked concern that we may see a repeat of the famine and food riots that took place in 22 countries in the years following the global financial crisis, caused by a perfect storm of rising commodities prices.
While US wheat farmers should be in a good position to help buffer some of the pain from agricultural disruptions in Ukraine and Russia, they are worried about inflation of another sort — in fertiliser.
The war is part of that problem, too. Russia was until recently the second largest foreign exporter of fertiliser to the US, providing 10 per cent of the total supply. But it is not the only reason prices are rising.
As a March 11 release from the US Department of Agriculture put it: “Fertiliser prices have more than doubled since last year due to many factors including [Vladimir] Putin’s price hike, a limited supply of the relevant minerals and high energy costs, high global demand and agricultural commodity prices, reliance on fertiliser imports, and lack of competition in the fertiliser industry.”
It’s that last point that has many farmers in America’s own breadbasket angry. “Farmers here are already making a decision to apply less fertiliser because of prices,” says Joe Maxwell, a Missouri farmer and co-founder of the Farm Action network, an alliance of farmers, ranchers and food system workers, most of whom work outside of the large corporate agricultural sector. “That will mean lower production, and that is in turn one of the things that could spark global instability.” Corporate concentration is, in Maxwell’s view, one of the systemic factors fuelling this.
A Farm Action report released in January noted that while many areas of American agriculture have a concentration ratio in which the market share of the top four companies exceeds 40 per cent (the level at which economists say that market abuses start to occur more frequently), fertiliser has experienced some of the highest levels of consolidation in the past 25 years.
As the report puts it: “Between 1980 and the mid-2000s, low commodity prices and high input expenses led to a drop in demand. During this time period, we saw the number of fertiliser firms decline from 46 to 13. As the price of natural gas (from which nitrogen-based fertilisers are derived) dropped and demand increased, this pattern of consolidation continued.” Today, just two companies, Nutrien and the Mosaic Company, supply the entirety of North America with potash, a potassium-based fertiliser.
Fertiliser expenses have increased far beyond the levels that agricultural simulation models would have predicted. Farmers say price gouging is part of the problem. Nutrien, for example, reported a 51 per cent increase in the cost of goods for nitrogen production (a key fertiliser input) in the third quarter of 2021, while gross manufacturing margins were up 680 per cent over the same period. The company declined to comment.
These and other such examples have increased the already deafening calls for monopoly actions in the US. On March 11, the USDA put out a call for public comment on anti-competitive market practices in fertiliser, seed and agricultural inputs. It also announced a $250mn grant programme starting this summer which will “support independent, innovative and sustainable American fertiliser production to supply America farmers”.
As agriculture secretary Tom Vilsack said in the announcement: “Recent supply chain disruptions from the global pandemic to Putin’s unprovoked war against Ukraine have shown just how important it is to invest in this crucial link in the agricultural supply chains here at home.”
Geopolitical instability will certainly lead to more “local for local” production and calls for insourcing — for reasons that range from worries about cross-border trade hitches, to the rising cost of energy for transport and the emissions associated with it.
But antitrust actions will be as much about curbing domestic players as foreign ones.
Fertiliser makers — not to mention the big four beef packers currently being probed by the justice department and the USDA — include both. “It’s pretty clear that we need to make a fundamental shift in how these markets work,” says Andy Green, a senior adviser for fair and competitive markets at USDA.
That will require a varied approach, including everything from antitrust action and support for smaller players (such as the $1bn fund for independent meat and poultry packers) to reducing financial speculation in commodities (derivatives trading played a big role in post-crisis food and fuel inflation).
It will also require fundamentally reconsidering how we eat. One reason why farmers require increasing amounts of fertiliser is that industrial agriculture has put such huge demands on the planet. A recent UN report, which called for more diverse farming and ranching methods, warned that nearly a third of the world’s crop fields would be unsuitable for food production by the end of this century because of the climate change that is itself caused in large part by the emissions-heavy farming methods of Big Food.
It’s an unappetising thought, to say the least.
Goldman Sachs CEO David Solomon gets 29% pay cut to $25 million
David Solomon, Chairman & CEO of Goldman Sachs, speaking on Squawk Box at the WEF in Davos, Switzerland on Jan. 23rd, 2023.
Adam Galica | CNBC
The package includes a $2 million base salary and variable compensation of $23 million, New York-based Goldman said in the filing. Most of Solomon’s bonus— 70%, or $16.1 million, is in the form of restricted shares tied to performance metrics, while the rest is paid in cash, the bank said.
Solomon’s pay, while large by most any measure, is about 29% lower than the $35 million he was granted for his 2021 performance. Meanwhile, Goldman’s full year earnings fell by 48% to $11.3 billion, thanks to sharp declines in investment banking and asset management revenue, the company said last week.
While the bank was primarily hit by industrywide slowdowns in capital markets activity as the Federal Reserve raised interest rates, Solomon also faced his own set of issues last year. Goldman was forced to scale back its ambitions in consumer finance and lay off nearly 4,000 workers in two rounds of terminations in recent months.
Fiji fires police commissioner and end security deal with China
Police operate a security check point in the Fijian capital of Suva in December following general elections. The Pacific island nation has played an important regional role amid competition between China on the one side and Australia, New Zealand and the United States on the other.
Saeed Khan | Afp | Getty Images
Fiji’s president on Friday suspended the commissioner of police following a general election saw the first change in government in the Pacific island nation in 16 years, after the military earlier warned against “sweeping changes.”
President Ratu Wiliame Katonivere said Commissioner of Police Sitiveni Qiliho had been suspended on the advice of the Constitutional Offices Commission, “pending investigation and referral to and appointment of, a tribunal.”
The Supervisor of Elections Mohammed Saneem was also suspended by the commission, the statement said.
Qiliho declined to comment to local media because he said he will face a tribunal over his conduct. He was seen as being close to former prime minister Frank Bainimarama, who led Fiji for 16 years before a coalition of parties narrowly won December’s election and installed Sitiveni Rabuka as leader of the strategically important Pacific nation.
The day before a coalition agreement was struck, Qiliho and Bainimarama called on the military to maintain law and order because they said the hung election result had sparked ethnic tensions, a claim disputed by the coalition parties.
The Pacific island nation, which has a history of military coups, has been pivotal to the region’s response to competition between China and the United States, and struck a deal with Australia in October for greater defence cooperation.
On Thursday, Fiji Times reported that Rabuka said his government would end a police training and exchange agreement with China.
“Our system of democracy and justice systems are different so we will go back to those that have similar systems with us,” the prime minister was quoted as saying, referring to Australia and New Zealand.
The prime minister’s office did not immediately respond to a request for comment.
Republic of Fiji Military Forces Commander Major General Jone Kalouniwai earlier this month warned Rabuka’s government against making “sweeping changes,” and has insisted it abide by a 2013 constitution which gives the military a key role.
Inventory glut and underused factories
Intel CEO Pat Gelsinger, with U.S. President Joe Biden (not pictured), announces the tech firm’s plan to build a $20 billion plant in Ohio, from the South Court Auditorium on the White House campus in Washington, January 21, 2022.
Jonathan Ernst | Reuters
Investors hated it, sending the stock over 9% lower in extended trading, despite the fact that Intel did not cut its dividend.
The earnings report, which was the eighth under CEO Pat Gelsinger’s leadership, shows a legendary technology company struggling with many factors outside of its control, including a deeply slumping PC market. It also highlights some of Intel’s current issues with weak demand for its current products and inefficient internal performance, and underscores how precarious the company’s financial health has become.
“Clearly, the financials aren’t what we would hoped,” Gelsinger told analysts.
In short: Intel had a difficult 2022, and 2023 is shaping up to be tough as well.
Here are some of the most concerning bits from Intel’s earnings report and analyst call:
Intel didn’t give full-year guidance for 2023, citing economic uncertainty.
But the data points for the current quarter suggest tough times. Intel guided for about $11 billion in sales in the March quarter, which would be a 40% year-over-year decline. Gross margin will be 34.1%, a huge decrease from the 55.2% in the same quarter in 2021, Gelsinger’s first at the helm.
But the biggest issue for investors is that Intel guided to a 15 cent non-GAAP loss per share, a big decline for a company that a year ago was reporting $1.13 in profit per share. It would be the first loss per share since last summer, which was the first loss for the company in decades.
Management gave several reasons for the tough upcoming quarter, but one theme that came through was that its customers simply have too many chips and need to work through inventory, so they won’t be buying many new chips.
Both the PC and server markets have slowed after a two-year boom spurred by remote work and school during the pandemic. Now, PC sales have slowed and the computer makers have too many chips. Gelsinger is predicting PC sales during the year to be around 270 million to 295 million — a far cry from the “million units-a-day” he predicted in 2021.
Now, Intel’s customers have to “digest” the chips they already have, or “correct” their inventories, and the company doesn’t know when this dynamic will shift back.
“While we know this dynamic will reverse, predicting when is difficult,” Gelsinger told analysts.
Underpinning all of this is that Intel’s gross margin continues to decline, hurting the company’s profitability. One issue is “factory load,” or how efficiently factories run around the clock. Intel said that its gross margin would be hit by 400 basis points, or 4 percentage points, because of factories running under load because of soft demand.
Ultimately, Intel forecasts a 34.1% gross margin in the current quarter — a far cry from the 51% to 53% goal the company set at last year’s investor day. The company says it’s working on it, and the margin could get back to Intel’s goal “in the medium-term” if demand recovers.
“We have a number of initiatives under way to improve gross margins and we’re well under way. When you look at the $3 billion reduction [in costs] that we talked about for 2023, 1 billion of that is in cost of sales and we’re well on our way to getting that billion dollars,” Gelsinger said.
Long-term investors have always closely watched how the company balances the near-term need to placate shareholders with the massive capital spending needed to stay competitive in the semiconductor manufacturing business.
If Intel is cutting costs and still needing to invest in chip factories to power its turnaround, analysts say it may want to reconsider its dividend. Intel spent $6 billion on dividends in 2022, but did not cut its dividend on Thursday.
Meanwhile, the company said it wants to cut $3 billion in costs for 2023 and analysts believe it wants to spend around $20 billion in capital expenditures to build out its factories.
Gelsinger was asked about this dynamic on Thursday.
“I’d just say the board, management, we take a very disciplined approach to the capital allocation strategy and we’re going to remain committed to being very prudent around how we allocate capital for the owners and we are committed to maintaining a competitive dividend,” Gelsinger replied.
There was at least one bright spot for Intel on Thursday.
Mobileye, its self-driving subsidiary that went public during the December quarter, reported earlier in the day, showing adjusted earnings per share of 27 cents and revenue growth of 59%, to $656 million. It also forecast strong 2023 revenue of between $2.19 billion and $2.28 billion. Shares rose nearly 6% during regular trading hours Thursday.
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