It's All By Design

As gas prices top $1.90/litre in many parts of Canada, there’s another number to consider. The price of Diesel fuel. You know, that other number that appears on the gas station sign board and is often the only empty spot at the station you pull into only to discover it’s Diesel and no good to you.

Farmers everywhere, but especially in the U.S. are really feeling the pinch. They’re paying 60% more for Diesel fuel than they did as little as 45 days ago. Everything runs on Diesel on a farm. Tractors, irrigation, trucks; it goes on and on. Already on razor-thin margins, this is putting farms at risk of going under.

Another whammy: the price of fertilizer. It’s 50% more than at the start of the year. No fertilizer, no crop. Or at least, not the yield they’re hoping for. 

What this means, is that for many farmers already in debt (averaging $1.8MM U.S. for larger farms), the thin green line is about to be crossed. They can hope things will be resolved quickly, but will they still be in business when the Strait of Hormuz is opened and fertilizer and Diesel fuel start flowing again?

Donald Trump isn’t in any big rush to get the Strait reopened. He has all the time in the world. Keeping the Strait closed works for him. And he literally has the money to back it up.

If many farms go under, multinationals benefit. Large companies like Cargill, Archer-Daniels-Midland and Bayer-Monsanto have the capital to buy up businesses and equipment, and eliminate competition. With fewer, larger players controlling the market, they’re free to raise prices for their supplies to the farms that remain. Institutional investors will swoop in and purchase farms at distressed prices. Hedge funds will profit from the volatility in soybean, wheat and corn markets. Fertilizer and seed companies like Nutrien, Mosaic and Corteva wouldn’t be so well off. As consolidation takes place, these companies will have fewer customers who will demand better prices. Land taken out of production means depressed sales and these companies face a dismal future.

And why would all this come to pass?

The Agribusiness donations to political parties in the United States 2024 election parse out like this: $41.3 million to Republicans and $18.5 million to Democrats. Bayer, Corteva, Syngenta, FMC, and BASF donated 62% of federal candidate contributions to Republican candidates and 38% to Democrats. Tyson Foods spent just under $1MM (pikers) with the majority going to Republicans. 

Farmers going out of business is just Trump’s way of paying back his donors. It doesn’t matter that farm debt is (sit down) $624.7 billion. That’s Billion with a B. He doesn’t care if this gets paid back or not. The Farm Credit System (FCS), an organization set up by an act of Congress, is basically a co-operative of farm lenders, and holds close to 50% of farm debt. It’s not a government organization, but FCS would likely seek relief from the government if too many farms went under. Relief that would ultimately be paid for by the American taxpayer. 

Debt is also held by commercial banks, who hold 30-40% of the total. This debt would have to be taken on by their shareholders, writing off the loans or making claims to the Federal Deposit Insurance Corporation to stem their losses. But the maximum amount claimed through the FDIC is only $250,000, which is a far cry from the $1.8MM that many farms carry.

The rest of the debt is held by federal agencies (government backed), insurance companies and private lenders, but these are relatively small potatoes compared to the debt held by FCS and the commercial banks.

Again, Trump doesn’t care. He doesn’t care about banks. Banks turned him down or called existing for loans for his businesses. He has no time for banks. He’s even tried to charge Jerome Powell, the head of the Federal Reserve, with malfeasance over renovations to the Reserve’s offices. This, in usual Trump fashion, went nowhere, but he sees the Fed as a bank and must be punished. 

In the meantime, the American (and likely Canadian) consumer will potentially suffer from an existential round of inflation the likes of which we haven’t seen since the 1970s-1980s. People don't remember when the bank prime rate hovered around 10%. A first mortgage in 1989 was 12.5%. In 1992 it was 9 ⅞%. Try those numbers on your mortgage and see how you do. The only way to keep a lid on inflation is to slow down the economy by raising interest rates (since wage and price controls are anathema to our Federal government), and the consequence of high interest rates includes throwing thousands of people out of work, depressing wages and reducing demand for goods.

Trump’s war isn’t a war on Iran. It’s a war on all of us. It’s the person in London who wants to go to Spain for the weekend, but there’s no jet fuel for the aircraft. It’s the fertilizer purchaser in sub-Saharan Africa whose crop yield will be so low this year, it’s hardly worth planting. It’s the mom in Elk’s Elbow, Saskatchewan who just wants some fresh orange juice, but the oranges are so expensive she just can’t bring herself to buy them.

The really sad thing is that it’s a war waged especially on the American people. Medicare and Medicaid funding was slashed so that billionaires would have a tax break. Millions of people no longer sign up for these programs because they are now too expensive for the marginalized with the elimination of Federal affordability grants. 

Now Trump has embarked on a scheme to starve his own people. As farms go out of production, food costs will rise and people will go hungry. The cost of Diesel ensures that existing food delivered to the store carries a fuel surcharge, further affecting affordability.

When this really hits, when the grocery tab and the gas tab and the medical tab simply no longer add up, people will figure they have nothing to lose. They’ll take matters into their own hands.

I’m not saying any of this will absolutely happen. But I think the conditions are ripe for the outcome. There doesn’t seem to be anything Trump can’t do. There just aren’t any consequences for him. But I don’t think the appetite for continuing down this path is one the American public is prepared to endure. They have a history of dealing with these situations in their own way. Tea gets dumped in a harbour. British are fought off from their shores. They eventually get it right. But it’ll be a very painful path to tread in the meantime.

A candid snapshot.