Aug 9, 2022, 11:05 AM ET

Food, Fuel, and the Cost-of-Living Crisis

Jeff Curry (Global Head of Commodities Research) argues that the current price reprieve is temporary due to unresolved structural underinvestment in the "old economy," positing the start of a new commodity supercycle.
Curry cites a historical pattern where a 10–12 year supercycle begins with a 3-year track record, followed by a 3-year infrastructure build-out phase that creates cost inflation, and concludes with a 3–6 year de-bottlenecking phase.
Gary Schilling (A. Gary Schilling & Co.) rejects the existence of commodity supercycles, noting that the broad CRB index has declined by 83% in real terms since the mid-1800s despite massive industrial demand.
Schilling forecasts Brent crude prices to fall to the $60–$80 range, citing the peak is likely behind us as global recessions curb demand and speculators exit long positions.
Copper prices, currently down 31% from March 4 levels, are predicted to fall further to approximately $2.50 per pound due to an anticipated global recession and a projected 328,000-ton surplus in 2023 versus a 475,000-ton deficit in 2022.

Curry identifies three structural policies hindering supply response, collectively termed "RED": redistribution, environmental regulations (ESG), and deglobalization.
While capital assets under management (AUM) in commodities have risen since 2008, the absolute amount of capital allocated to the sector has sharply declined relative to the total market.
Allocators cite three primary deterrents to commodity investment: a historical track record of poor returns, high volatility, and unfavorable policy environments including windfall profit taxes.
Curry asserts that recessions offer only a temporary price correction, whereas the long-term solution requires substantial capital expenditure (CapEx) to de-bottleneck supply chains.
Historical data from the 1970s suggests that high commodity prices can trigger a massive CapEx boom that resolves supply constraints for two to three decades.

Cornell Professor Chris Barrett defines the global food issue as a crisis of high prices rather than physical shortages, with food prices approximately 20% higher than the previous year.
Food insecurity predates the war in Ukraine, driven previously by pandemic-related supply chain disruptions and a shift from institutional food service to retail packaging.
The war in Ukraine exacerbated the crisis by disrupting exports of wheat, maize, and sunflower oil, as well as nitrogen fertilizer inputs from both nations.
Barrett notes that livestock feed and biofuel production consume roughly 50% of global grain production, creating structural demand growth as incomes rise in developing nations.
Transport and energy costs comprise approximately 75% of consumer food prices; oil price shocks impact retail food costs in Africa faster and more significantly than maize market shocks.
Opening the port of Odessa is projected to relieve less than 1% of global grain calorie loss, meaning the fundamental food system issues will persist even if the war ends immediately.
Barrett warns that without technological innovation in the next 2–8 years to produce more food on less land, the number of people unable to afford healthy diets could rise from 3 billion to 3.5 billion.

Harvard Professor Megan O'Sullivan argues that oil-producing nations, particularly Gulf states, will gain geopolitical heft during the energy transition as they become the sole producers of the remaining substantial oil quantities.
The war in Ukraine is accelerating a strategic, rather than merely transactional, partnership between Russia and China, though O'Sullivan notes the relationship remains deeply imbalanced with China as the dominant partner.
European commitments to ban Russian piped oil imports by December create uncertainty regarding the ability of Asian partners like India and China to fully substitute Russian energy supplies.
O'Sullivan anticipates significant geopolitical tumult over the coming decades as the world attempts to remake the global energy generation, usage, transport, and storage systems in a compressed timeframe.
High food prices are directly correlated with sociopolitical instability, mass migration, and civil unrest, with record numbers of forced migrants (over 100 million) linked to these economic pressures.
Russia's loss of piped gas flows to Europe has tightened physical markets, though commodity prices have declined from recent peaks, creating a paradox of falling prices alongside tight supply conditions.