John Hanekamp, a St. Louis-based consultant, has spent his career in the commodities business. In his second appearance on the podcast (his first was on November 17), Hanekamp talks about global coal demand, railroad bottlenecks, why “the real elephant in the room is not energy, it’s food,” Ukraine’s grain exports, fertilizer demand, and why some parts of the world may soon be facing famine. 

Episode Transcript

Robert Bryce 0:04
Hi, everyone, welcome to the power hungry podcast. Another special episode today looking at the effect of the Russia Ukraine war on global commodities. And I’m pleased to welcome a return guest for a second appearance on the power hungry podcast. John Hannah camp John. Welcome back to the power hungry podcast.

John Henekamp 0:22
How you doing, Bob?

Robert Bryce 0:24
I’m good. Thank you. So John, you know, you introduced yourself last time. And I know you’ve been in the in the commodities business for your whole career. But if you don’t mind, give us a short refresher of short reintroduction. If you don’t mind another 45 or 60 seconds, please go right.

John Henekamp 0:38
Well, I’m part of the, the the trailing edge of the baby boomers. So I grew up in the 60s in the 70s. And my career out of college started in the grain business in 1980, in the Midwest, and I spent close to 20 years in the grant business that pretty much every level that that you could achieve other than being the big man. And in 1999, the company that I worked for changed hands, and anybody that had a title was asked to take a check and have a nice life. And I got into the coal business. Another commodity, but certainly, as far as energy goes every but every bit as important as food, and spent 12 years with Peabody Energy, buying and selling coal from every base in the United States. spent about three years in Europe, opening a trading office in London, learned the European and global markets from that vantage point. When I returned to the United States. I eventually left Peabody and went to work for an Illinois based startup, which eventually became Alliance. And I left a lot a left white oak resources and went to work for Alpha Natural Resources. worked for them for three years selling thermal coal and listening to metallurgical coal, activities and marketing for that three years. And for the last seven years, I’ve been on my own working with producers and buyers around the world, for both thermal and metallurgical coal, trying to figure out which way the markets going and where you can find the best value on both products.

Robert Bryce 2:43
That’s good introduction. And for people who want to find John, he’s available on LinkedIn, you can find him there. So John, I get your Monday newsletter, which I look forward to and is remarkable, and how many different commodities you’re tracking. But I was really intrigued. And one of the reasons why I wanted to have you on again, is you said, I’m quoting here, you said the real elephant in the room is not you put in not in all caps. The real elephant in the room is not energy, it’s food. The loss of Ukrainian wheat and oilseed exports is going to have major implications on the world economy sooner than you think. What are those implications?

John Henekamp 3:20
Those implications are that Ukraine is responsible for about 30% of the feed grains and wheat and oil seeds exported out of let’s call it Eastern Europe, for the world, and most of that goes into Africa, and parts of the Middle East and parts of India and Southeast Asia. You cannot just stop exporting 30% of any supply chain and not expect serious ramifications. And a quick shout out to an old colleague of mine, Paul McAuliffe, who was a research analyst at Continental Grain and does his own work now. He pointed out that he sent a letter to the USDA Secretary and begged him to free up what they call set aside acres in the United States ground that because you guys production is so strong, sometimes you actually have to pay farmers not to produce and and put those acres into they actually plant green. I’ll just call it dead. It can be a buyer a variety of different non harvested products on those acres. But he, he literally sent a letter to the Secretary of Agriculture, asking him to force farmers to produce those acres because of what is coming.

Robert Bryce 5:12
And that would be that that would be the CRP land, the Conservation

John Henekamp 5:14
Reserve Program fee. And I forget what the acronym stands for.

Robert Bryce 5:18
Right Conservation Reserve Program. I think there you go. Right. Yeah. And so he’s saying, we need to produce more grain, we need to do it. And we need to plant now.

John Henekamp 5:27
Yes, because the window is open for about six weeks. And after that, it ain’t going to be open anymore. It’d be too late to plant too late to harvest now, irrespective of that, even if we planted all those acres. We also have a major problem with transportation in this country. It’s been impacting coal in the United States for the last well, since our last podcast for sure. But but

Robert Bryce 5:58
which was, which was, which was fort which was four months ago, we were on November 17. I was just looking and as we joked, or I’d said before we started recording, it seems like it’s been years given the tumultuous, you know, cycles, tumultuous activity and commodities of all kinds. But so when you say oil seeds, so we’re your your point there is that we’re going to restate what you said is that we’re facing a major supply, crunch, or just lack of supply for critical foodstuffs for Yes, potentially billions of people. Is

John Henekamp 6:30
it that is it that Diane, because it’s, it’s the poorer countries in the world that suffer the most, because the price gets out of reach, it’s no different than the price of coal getting to $300 a ton in South Africa and the Indian saying we can’t afford it. Sorry. We’re not buying. Right, okay, or we cannot take the cargoes. And the same is true for, for feed grains and oil seeds. The price gets too high, they have to reach out to the rich countries to try and subsidize or make that food available or face famine, and we haven’t faced famine in this in the world for many years now. Okay, the abundant supply of feed grains and all seats with technology and everything else has been so good to the world. But all of a sudden we have this major problem. And Odessa in Ukraine is where most of those exports and I think it’s pronounced Mary Opal. They’re close. Okay,

Robert Bryce 7:45
and merit merit mirror Opal mirror mera EUPOL or however it’s pronounced, that’s the major port, there’s been a focus of a lot of the most intense fighting between the orange showing from the Russians, which so that

John Henekamp 7:56
like, last week, there were something like 100 vessels that were trapped, and they’ve mined, they have mined around those ports as well, the rest of 10. So you can’t get in you can’t get out. And I think last week, or maybe 10 days ago, some major bombing took place. That severely impacted one terminal that I’m aware of, it’s the Bungie terminal in Odessa, if not others, I think the steel plant there was also affected. But either way, you know, this conflict doesn’t doesn’t look like it’s going to find an easy solution or a quick solution. And if the producers in the Ukraine don’t get to the fields, that’s one problem. And if they don’t settle this dispute, and repair the ports, that’s another big problem. Okay,

Robert Bryce 8:54
so let’s talk about let me interrupt you there, John, because I want to make sure I looked it up. Tell me so grains, I’m familiar with that corn and wheat. What? Tell us what oil seeds are.

John Henekamp 9:04
It’s probably sunflower seeds, maybe rapeseed similar oil seeds that are producing Canada.

Robert Bryce 9:10
Canola oil, and canola would be one of those rate rapes turned into canola oil. Yeah. A common cooking oil, some sunflower oil, which is another common cooking oil. What else would soy beans? Do they figure in that in that case?

John Henekamp 9:25
No, I think that latitude is too far north for soybeans. So okay. It’s the smaller pulses, if you will,

Robert Bryce 9:31
okay. So and they’re and they matter because there’s their overall role in the overall

John Henekamp 9:37
cooking oil. Right. Okay. It’s cooking oil, that more importantly, and then of course, after you squeeze the oil and and turn the byproduct into feed for animal feed, that’s missing too. Okay.

Robert Bryce 9:55
So it’s the it’s the human it’s the food for humans and the food for animals and And the livestock. And so what you’re doing Berg had an interesting piece just the other day on this very issue, but it was looking more at the fertilizer supply, talking about cost of fertilizer, cost of diesel fuel cost of propane, all of these inflationary aspects of the inputs needed to produce food, but you’re talking more directly about the food production itself, and the availab, and the ability of Ukraine to grow and export it.

John Henekamp 10:26
And that’s gonna have, you know, if they go through a growing season and can’t produce, well, that’s gonna have that’s going to have impacts going forward for a longer period of time now, you know, being away from from the grain industry for 20 plus years. The commodity or the supply chain dynamics don’t change. And we’re already looking at record high prices for corn, soybeans, and wheat as we speak. And top that off with record high energy costs, although I see today, oil prices have come down quite a bit. I mean, it all comes together that that, that make both the supply and the affordability almost impossible for a large portion of the world’s population.

Robert Bryce 11:26
Because the well, as Alex Epstein puts it very well, I think, what did he go hydrocarbons are the food of food, right? So even so if we don’t have the hydrocarbons, this is where the one of the things I’ve thought about lately, I’ve been meaning to write something about it. But it’s all renewable ly. And that’s what I started calling it. It’s just the all renewable ly. Well, one of those aspects of that lies, oh, we just don’t need hydrocarbons. Well, in fact, we need natural gas and a lot of it to produce the fertilizer we need to grow the food that we need. And that that is you know, that’s never discussed in these, you know, we’ll just do it all with wind and solar and the rest of it, but

John Henekamp 11:57
well actually tell you that input costs are double what they were last year. Okay, so a farmer here in the United States, is looking at an input cost of close to $600 per acre, okay. $600 an acre. So, let’s say the price of corn is $5 a bushel and you produce 200 bushel an acre, that’s $1,000 An acre for that corn, okay, still got to dry it. So there’s an element of shrink there. And you’ve also got the cost of the land, the land rent, right, and land rents are well over $500 an acre. So what is

Robert Bryce 12:49
there, you’re under, under under underwater $100 An acre just to get started.

John Henekamp 12:55
So right there, the price of corn has to be over $6 A bushel for him to even think about breaking even. And when you think about $6 A bushel, you rifle that through the food chain on on meats and oil seeds, if the price of soybeans is is $16 a bushel, I mean, everything’s twice as expensive as it was not only the inputs, but what that’s forcing in terms of the final cost of the product before you even begin to refine that product.

Robert Bryce 13:35
And turn it into something that people can eat or or converted to protein. Right, right. And Propane is a big part of that as well. That’s one of the other issues here for particularly farmers use it for grain drying for, you know, for all kinds of uses on the farm. And propane prices, like diesel prices are way up as well. So this is all this is all of a piece. But I mean, your your bottom line on it. Well, you said these implications. And we’ve talked about I mean, we are we are we’re looking at famine, you think that that’s a real possibility

John Henekamp 14:04
in in the core countries. Yes.

Robert Bryce 14:08
And there’s no way to at this point, there’s no way to avoid it. And it’s the combination of COVID. Russia, under ESG under investment in hydrocarbons, all of these things together.

John Henekamp 14:20
Yes. You know, there’s a I think we have a serious problem going forward. I I saw here earlier this week, an economic forecast that’s already reduced global GDP from 4.2% to 3.4%. This year, right. Okay. And three weeks ago, at around the middle of the month, Goldman Sachs took US GDP down from I think it was 3.3% to 1.75%. Now, you get below 2%. As far as US GDP now you’re in recession, you get below 3% global GDP and that includes China. Okay, then you get global recession, right? And they’re already forecasting China below 5%, regardless of the fact that the Chinese target I think is six.

Robert Bryce 15:25
So your show recession is almost inevitable now, is that what you’re saying? I’ve been

John Henekamp 15:29
saying that for the last four to six weeks that I think that’s coming, because these energy prices just are not sustainable. Okay. And

Robert Bryce 15:39
we’re gonna see demand destruction because of that. And it’s going to just filter through the rest of the economy.

John Henekamp 15:45
I mean, think about it. All right. So for example, last month, my power bill for my house, gas in, and all the frickin taxes that I was actually did a little bit of homework on turns out to be about 10% of the bill. But that power bill was twice what it was last year. Right. And that was February. Right? and in Europe, it’s five times what it was your before, right? Okay, so at what point do the Europeans begin to ration factories in terms of power? Now,

Robert Bryce 16:29
which means you know, a second, which means less than means fewer widgets, fewer things being produced fewer people, not that their jobs are going away?

John Henekamp 16:36
And and think about this, you know, there was a headline earlier this week, and I think I included it one day, that they believe that they’re going to have to ration diesel in Europe. Okay. So who’s going to be affected by that? Are the farmers going to be affected by that diesel rationing? Or are the commuters going to be affected by that diesel reaction? Are the vessel owners going to be affected? Right? I mean, I got a lot of work to do with respect to that. But the Chinese have already said that, they want to increase domestic coal production by 300 million times. Now, to put that in perspective, US coal production, both met thermal is 600 million tonnes give or take, right? They want to increase 300 million tonnes in the next two months, they want to increase that level of production by that amount, so that they can avoid imports, because they don’t like the import prices either.

Robert Bryce 17:41
So let me let me read that back to you. Because I was one of the questions I wanted to ask because I saw that headline, I haven’t seen it reported very much at all. I think Bloomberg Law was one of the few places where I saw that 300 million tonne figure and I looked it up I in fact, yeah, China and India’s coal production, and 750 million tons, you already gave the sick the US number, there’s a massive increase in coal production for one country to do it. And you’re saying, China’s aiming to do it within two months,

John Henekamp 18:07
they want to get to that level, okay, so

Robert Bryce 18:10
that their domestic production would be way more time

John Henekamp 18:13
throughout the calendar year. But they got to get to that level of production on a monthly basis, within the next two months. That’s the order. And anybody that fails to meet that objective will be severely disappointed. We know what that means.

Robert Bryce 18:27
And this is coming from the NRDC The national reform and planning plan. Development Commission, right, this is so this is coming from the highest levels of the Chinese government. But so the goal is China then eliminates imports of coal. So they’re going to be domestic production, 4.3 billion tonnes, something like that. Is that right up? Roughly last year,

John Henekamp 18:49
they imported I think it was 178 million tons of coal. Now, again, a big part of that a big volume of that imports is is Metco. It might be 20 30 million tonnes. Okay, the rest of it certainly didn’t come from Australia last year, but it came from everywhere else they could export that coal, right. But there’s some Herculean disruptions in commodity flows coming. Okay. And the point that I was trying to make Monday, was it. Grain is one of them. Right? Okay. And everybody’s been focused on energy.

Robert Bryce 19:38
But the more human story is going to be the food story.

John Henekamp 19:40
That’s what I

Robert Bryce 19:43
well, so let me ask you about the coal market because that was one of the things that that you know, you’re in, you’re right in your sweet spot. We’ve seen massive volatility in the coal market as well. I was looking at in mid March, we’re looking at over $400 a ton 430 I think at one point for that The New Castle benchmark out of Australia. I looked at it this morning on trading economics. It’s about 250. If I don’t know how I don’t know how recent their numbers are, but why why is it the volatility in the coal market been so extreme?

John Henekamp 20:14
Well, one extreme, it starts with margin calls. Okay.

Robert Bryce 20:20
So the traders have to the traders have to have liquidity

John Henekamp 20:24
got generators, you got producers that have hedged their production, okay. And one when the market jumps $100 a time, that puts significant strains on the margining requirements for that hedge. Wonder price jumps $250 at time, well, now you got to go see St. Peter. Okay, I’m following

Robert Bryce 20:49
you. So I’m thinking basketball, now, St. Peter,

John Henekamp 20:52
waiting for a loan with a big bank. Okay, to give you a line of credit to meet that margin call, and you’ve got to, you’ve more or less got to promise him that, all you have to do is let time pass, execute your your transactions, and all the hedges will come out in the wash. Okay. But maybe you’ve been able to finance your mind margin calls out of your working capital out of your retained earnings, whatever. And all of a sudden, you breached that. Now you got to go borrow several 100 million, or up to several billion dollars to cover the cover to cover cover to cover to cover your position in the mark in the trading market. Right doesn’t mean you’ve lost that money. But you got to say Ernest got out of whack. So if you can’t cover the margin call, if you can’t borrow the money, you have to liquidate the position at whatever the price is, which means that you’re chasing too few sellers, or too few buyers.

Robert Bryce 22:00
And so that that so you’re saying then that that that $400 Price peak was partly fueled by these margin calls, lack of liquidity in the marketplace, similar to what we saw on the nickel market is that

John Henekamp 22:12
similar was right. They closed the nickel market because it went bananas. And it’s no different than what happened to oil during the height of the pandemic when it went negative one day. Right. Right. You had more sellers than buyers. And a couple, there was a team of fellows in in London that took advantage of it because they were on the right side of that.

Robert Bryce 22:39
So so that you think that that’s the main cause of the volatility. I mean, in your newsletter, the main point, but the points you made in your newsletter, though, as well are on the constraints in the supply side, whether it’s a heavy rains in Indonesia, you pointed out that that is being one of the constraints on supply there multiple other factors, including ESG, COVID, under investment over years and into into coal. But I guess let me ask you, if we talked about the volatility, what do you see about pricing in terms of the coal market going? Or do you see strong coal prices for the future? And for how long? I think

John Henekamp 23:16
the best way to describe that is that we are going to see higher lows. Right? Okay. And lower highs going forward? Right? The markets kind of come down as demand destruction takes hold. Okay. But we’re still gonna wind up with higher lows, primarily, because the overall global demand, there is still a base load of demand. Okay, depending upon the season. And as we go through the calendar year, and we approach, the fourth quarter, people are going to be looking to try and rebuild supplies that don’t give you the higher low. But in the meantime, how much demand destruction are we going to see? Right?

Robert Bryce 24:04
Yeah, well, and you mentioned as well, and it will show it back to China for just a minute. So I saw that same thing that you were, we were just discussing the 300 million tonnes target, to increase overall production in within the year right to go from 4 billion to three 4.3 billion, which is a huge jump, which would be roughly eight times US coal production in rough terms. But the the part that I thought was interesting as well is that China is also saying we’re gonna make, we’re going to require a bigger stockpiles and Indonesia’s doing the same, right, that these countries are saying, we’re going to have a bigger stockpile of coal because we’re not going to run out we’re going to prioritize domestic production, as you know, and which is easy to do in these command and control economies Do you

John Henekamp 24:47
see and the Europeans are talking about restarting idle or mothball coal plants? Now they can’t do UK? Because I told them all down,

Robert Bryce 24:57
right? German but Germany is gonna have been keeping continuing running. They’re lignite plants they’re going to, can they run higher rank coal and there’s lignite plants are they are they just going to get just boosted lignite output?

John Henekamp 25:09
No, I Well, they’re going to maximize whatever power generation they can or need with their lignite. But they’re hard coal plants. They’ve got to buy coal for them if they’re not going to take the Russian and it’s expected that the Russian coal is probably going to run out in terms of their impose sanctions on themselves not to buy more by the end of the third quarter at the latest.

Robert Bryce 25:40
But you also said that, though, that in your note that coal exports, and I don’t know whether this was your liner from a different report, but that Russian coal exports keep flowing for now. And then some of that coal is flowing, in fact, not via rail, but via truck. Is that right? Or? I mean, this,

John Henekamp 25:57
I don’t know. But I don’t know about the truck. But okay, I do know that it’s moving by rail in China. It’s moving, it’s moving by rail into the Pacific, the these of the discussioni. It’s moving into the Black Sea through the port of Tommen. Okay. I think it’s still moving through more months, which is the currency of Greiner. Yeah. But I think the restrictions have mostly been to the Eastern European connects these of the Poland and Germany. And there’s only there’s only two countries that I think in Europe that can take Russian rail because the grade not the grade, but the, the width of the tracks, the gauge. God, the tracks in Europe or in Russia, is narrower than it is in Europe, after World War Two in the United States help rebuild Europe, when they rebuilt the rails, it matched the US gauge.

Robert Bryce 27:09
And those don’t match the Russian gauge.

John Henekamp 27:11
Exactly. So let’s journey as an example, in Poland, it goes to a terminal and then it offloads from the narrow gauge to the wider gauge. But there’s only a couple of those terminals where you can do that.

Robert Bryce 27:25
Gotcha. Well, so let’s talk about polling for a minute, because I probably mentioned that I testified before the Senate Energy and Natural Resources Committee last November, and one of the there’s a gentleman there from the IEA. And he was talking about what was happening in Europe and prices in there. And he had kind of made a special carve out talking about Poland. But Poland has also really ramped up or made it clear that they’re going to rely on their own domestic coal. They have a lot of history with Russia and all of its bad. So Poland, can you talk about the Polish market a little bit about what’s going on there, and how Poland’s looking at the coal business?

John Henekamp 27:57
To be honest, it was the last that I heard about Polish market before the Ukrainian war broke out, was at the poles were going to be fined heavily by the EU for every day. They didn’t reduce their coal production. Right. And the poll said, Sorry, we’re not going to reduce our coal production, and we’re not paying the fines. Yeah. And now, I’m sure that’s all going away. Because Polish coal is very similar to US Central Appalachian coal, and Germany needs at the worst way. And if anybody’s got more influence on climate policy in Europe, it’s Germany, and the new chancellor there has kind of done a 180.

Robert Bryce 28:38
Right. But they still said they’re going to close their nuclear plants. I mean, as crazy as that. I mean, I just, I mean, I saw that and I thought, Okay, wait a minute, now, they closed three plants in December, why would they reopen them? And then they have the invasion. And the green party who’s in control to the key ministry says, oh, no, we’re gonna go ahead and close that the remaining nuclear plants, we’re going to go ahead and close them this year, I thought, I mean, my immediate reaction was you just can’t fix stupid. I mean, what do they think?

John Henekamp 29:04
Well, here’s the thing, and, you know, like anybody that’s married to the climate change religion, nothing will change your mind until the lights go out. Hmm. Okay. So, you know, it’s,

Robert Bryce 29:24
it has to get even more extreme. It has to get even more extreme than it is now. Exactly. For them to answer that stalemate for them to let me see now it really makes them better to have the come to Jesus moment is gonna require a blackout or something. I’m really mixing my metaphors. I

John Henekamp 29:43
was really startled when I read it. Their intent was to build more renewables, well, they got more renewable capacity than they can use and you know, it’s one if the wind doesn’t blow, it doesn’t make any difference how much renewable capacity you have You can only generate so much electricity from a width.

Robert Bryce 30:03
Yeah. Only only for only so much so much electricity from a website from a web

John Henekamp 30:10
a with a with a little bit of wind. You know that being

Robert Bryce 30:16
from Texas? Well, believe me I’ve you know, look, this is one of the issues that I think is really so remarkable is this, you know, these calls after the crisis in Texas after the crisis in Europe, oh, we just need more renewables? Well, you said it a different way. But my line is you can cover all Texas, you can cover all Europe, with wind turbines, you can’t make the wind blow. So

John Henekamp 30:33
we must remember, we have to remember that, in practical terms, there has to be balance. Because if you don’t have balance, you upset too many of the supply chain issues that also impact your ability to build renewables.

Robert Bryce 30:54
what’s your what’s your plan? I were gonna feed that back to you, John, I’d say you that we have to make make sure that we have a variety of fuel sources that we can’t rely too much on any one thing is that is that a fair way of? Okay,

John Henekamp 31:06
here’s, here’s the Ukraine, they’re responsible for an element that goes into making computer chips. Okay, and they’re one of the largest suppliers in the world. And if you think that the automobile industry is going to recover, sometime this year, you are mistaken.

Robert Bryce 31:27
Because they’re going to hit these supply chain issues.

John Henekamp 31:30
Because the chips aren’t going to the chip supplies not going to get any better.

Robert Bryce 31:34
And when do you know what that element is? Or do you know whatever you require, I,

John Henekamp 31:38
you know, my problem is being 65 years old. Now, I can’t remember stuff. And I didn’t write it down.

Robert Bryce 31:47
Well, so let me talk about it. Let me ask about whether I was talking to or we have a mutual friend, Chris Peterson, who I know has been in touch with you. And Chris, Chris is a dear friend. And so I called him before I called you or before we got on this call. And I said well, what should I ask can I can but he said, Ask him about fuel switching. So I thought one of the interesting things you point you made in your newsletter this week was you did some comparisons on cost of fuel cost of coal on a per MMBtu basis. So you API, which is that Appalachian, which is Europe, with its European coal, now selling for about 1175 per million BT us and just for reference at Henry Hub today. I don’t know natural gas is selling for about $5.30 550 today, but an API for another app coal is $11. Another European goal $11 And Newcastle’s about the same 1130. And then what did you say? North Appalachian coal? or No? No, Illinois basin? lation.

John Henekamp 32:47

Robert Bryce 32:48
right is what about 550? So that’s on it’s on par with it’s on par with gas.

John Henekamp 32:53
I didn’t print long report out. But it you got to remember, in Europe, you have to add you have to add the cost of carbon to that carbon. If you saw on that report carbons about 78 euros a tonne. Uh huh. Okay. So even though the cost per million BT to you is a big discount to Dutch gas. On top of that cost per million BT you have API to you have to add carbon. Right. Okay. Because the carbon, but it still will dispatch a hit of gas at prevailing levels. But it’s something you have to watch all the time here in the United States. You match it up against Henry hubs, the most expensive hub in the United States for natural gas as you get away from it, except going west to California. Gas gets cheaper because you get closer to the supply source. Okay. Okay. And in the northeast, you can’t get that natural gas because they wouldn’t build the pipelines that you’ve talked about. Right. And you can’t get natural gas from Texas to go to the northeast because of the Jones Act, like prohibits us, which prohibits non US flagships go important port. Right. Okay. So the point that I was trying to make was that coal even at these elevated levels in the US, it’s, it’s 5050. Whether you go again,

Robert Bryce 34:29
in terms of gas to gas, why coal gas switching

John Henekamp 34:33
what’s Yeah, it’s it’s a question of overall demand. But it just shows you it’s, it’s right there. They’re neck and neck with each other. Right? In the US, but in Europe, US but overseas, coal beats hands down natural gas, both in Asia as well as Europe.

Robert Bryce 34:53
And that’s because the price of gas at TTF which is the Dutch trading hub, I think today it’s at 30 the front and the front month price is 32. dollars. So nearly six, you’re like 6x, what it’s selling for in the US? Yeah, that in the carbon price and your that’s going to be far in excess of what you can buy by the

John Henekamp 35:08
side of coal. Hey, if you take Henry Hub and you add $5, to freeze it and put it in a boat and another $3 to get it to Europe, that’s really the landed price or the cost, let’s call it a cost basis. And then the differential is, is the supply demand, fighting for equilibrium.

Robert Bryce 35:29
So 14, so $14, say to get it there to buy it and get it there. But you can sell it at TTF for 30 or 35. And then you still have to pay the carbon price,

John Henekamp 35:39
right? That that’s for the incremental turn of LNG, right? Most of this gas has already been sold. And the only way it becomes spot is somebody says, I don’t need it. I can burn coal, right? Or I can burn oil. Right. And for a window of time there, Europeans were looking at the ability to burn oil now that’s gone.

Robert Bryce 36:05
So this is part of that broader, a broader return. Is it fair to say a broader global return to coal? I mean, you know, this idea that Sierra Club and Michael blip funded by Michael Bloomberg $500 million for the beyond coal campaign, the world is re is the last question, is the world re carbonizing or was it ever decarbonizing?

John Henekamp 36:25
I think there’s a better way to look at, okay. at 4.4% global GDP, energy is fighting with each other to find equilibrium between renewables and fossil fuels that are being taxed with carbon credits. And well, that’s it so and coal, okay. So you got oil, gas, and coal renewables, that are also being taxed by carbon credits, all fighting for that equilibrium at 4.4%. As that GDP comes down, and the IMF took it down from January to February from 4.4, to 4.21, independent forecaster took it down to 3.4. And I’m waiting for the IMF, somewhere in here put out a new report, but I suspect it’ll be every bid is as close to 3.4 if not lower, here in April, okay, with an expectation that before we get to the end of the year, we’re going to be below 3% Global.

Robert Bryce 37:37
And at that lower growth rate, then renewables are too expensive. Is that where you’re going with this or that hydrocarbons other than hydrocarbons? You’re just

John Henekamp 37:45
right. At that lower growth rate, we had destroyed enough demand that that price has come down and we find a lower equilibrium. Okay. Okay. But because we’ve got so much switching going on, in Europe, away from one supplier to the rest of the world, okay. And the ton miles, if you will, hauling hauling coal from Russia into Europe is a lot shorter is a lot fewer ton miles than hauling coal from Australia to Europe, right? Or South Africa to Europe, or Columbia, Europe, or the United States to Europe. Okay. So, but either way, you want to look at it as as GDP increases or decreases. And the sweet spot for the world is right around 3% where everything’s manageable. Okay. But above 3%, fossil fuel prices began to get and supplies begin to get stretched and prices move higher. And vice versa. Gotcha. That’s the one thing that I’ve learned that that I’ve paid really close attention to over the last 22 years is world GDP. Because that’s when you add the GDP. If we get above 2% Things are good. The economy hums along, it’s just great. Okay, 3%. Man, everybody’s doing well. Below 2%, we’ve got a recession. Okay.

Robert Bryce 39:22
And all of those factors are going into effect. Let me tell you all forms of energy consumption.

John Henekamp 39:27
If this country goes into into recession, without all this, what I’d call excessive to be polite spending by Congress, the deficits going to go haywire because this year alone, that the US government has collected some on the order of 350 to 400 billion additional tax revenues, right because of the stronger economy. Okay, I’m sorry, that was in 2001. And the expectation is is 350 this year? Okay. But if we, if we fall out in the back end of this year, that’s going to be heavily disappointing. And we’ll have to go out there and compete with the economy, the government will to borrow money, or don’t have to print more. And that only ruins any efforts on inflation.

Robert Bryce 40:26
Which is all bad for the low and middle income consumer. It’s bad for all Iowans. Right? But but there, but it would they will be impacted the most.

John Henekamp 40:35
I tell you what, one of the most interesting things and, and I learned macro and micro economics at the University of Chicago. Macro Economics is a lot about what we’ve been talking about. Micro Economics is the decision that you and I make, and the feeling that we make when we go into a grocery store or department store or go to the gas pump, right? Okay? When we go to the gas pump, and we’re filling our tank up at three bucks, we have a different feeling than we do when we’re filling it up at six bucks, right? It’s six bucks. We’re not passing the guy on the freeway anymore. We’re just sitting there doing the speeding, right. And the only morons that are passing me now on the freeway are the guys driving tests?

Robert Bryce 41:31
So one of the one of the ideas that popped in my questions that popped in my head, John, as I was getting ready for this interview was I saw there was some progress today and in the apparently that, at least when they’re meeting the Ukrainians, and the Russians aren’t spitting on each other. But there’s some idea that there may be you know, well, some inkling of maybe this they can cool things off. If we were able to say, well, the Russians now they say a mia culpa and go back to Moscow or whatever. And that, you know, they that if they’re able to call a truce, how much how long will this economic dislocation from this, we talked about the the wheat market that the grain markets from Ukraine, but the sanctions, all these other effects that have already been placed now? Is this going to be a years long workout to reintegrate Russia back into the USA or to the global economy?

John Henekamp 42:25
We’ve got a major paradigm that’s changed in Europe. For the first time they saw what their dependency really meant. And in all fairness to Donald Trump, he told him, yeah, why are you guys doing this? Why are you putting handcuffs on your, on your economies to the Russians? And I don’t think the Russians are leaving until everybody promises in NATO to stay out of the Ukraine. Right. That was part of the deal that Reagan made with Gorbachev. Okay. That was part of the the reaffirmation that Bill Clinton made with Putin. Okay. And why these guys keep pushing in Ukraine? I don’t understand. What’s so important.

Robert Bryce 43:16
This is what is this is this is Putin’s backyard. And I know what’s

John Henekamp 43:21
so important in there that they had to get 300 kilometers from Moscow. Why is that important? I don’t understand. I don’t know. I don’t know what drives that or who’s drunk.

Robert Bryce 43:35
Right. But as far as Russia being, you know, if they, if there were some truce or you know, that maybe by the end of the year of this fight, you know, the the fighting we, you know, we can pray starts, you know, tapering off or they come to some accommodation. This this Europe has has you say this is a paradigm shift. So, Europe is destined to not be as dependent on Russia for these key commodities. Cold, not cold, that is not

John Henekamp 44:01
Not, not key commodities, energy. Okay.

Robert Bryce 44:05
Okay, so So are you saying that there’s going to be a permanent that that Europe isn’t going to go back that there, this is going to be re a long term realignment along energy lines?

John Henekamp 44:15
Well, my understanding

Robert Bryce 44:18
that it is that you’re just going to be more aligned with the West with the other Western countries and saying we’re not going to depend on Russian. But does that push then Joel Kotkin and I talked about this just recently, does that necessarily push Russia closer to China then Is that Is that another one of the likely outcomes, it

John Henekamp 44:35
means that it means that that Russia is going to have to build more infrastructure to go east with a lot more of their energy? I mean, it’ll all get consumed. Right? It’s just that instead of us, instead of the US exporting, you know, half of the LNG to Asia, right? It’s gonna wind up going to Europe and and maybe now, although I saw where I think it was the Taiwanese came out with an LNG tender and said, Russia, you guys don’t need to respond. We’re not buying. So it’s the Pacific that I don’t have is as good a feel for their response to, you know what Russia is doing in the Ukraine, because those headlines just don’t get out here in the States much. Right. Our media, just our media seems to only be covering what the White House wants him to cover. Okay. And as I pointed out this past week, in that letter, nobody, nobody covered the attack in Radia and Saudi Arabia, on the oil assets there. Right. That’s pretty darn significant.

Robert Bryce 45:57
Yeah, I saw that. You said that the you asked it. Did anyone hear about the bombings that took place in Saudi Arabia this past week, Saudi supply disruption reappeared with oil storage facility taking a missile hit in Jeddah, presumably from Yemen’s Houthi militias. So well, I didn’t see that until I saw it in your in your in your newsletter. But let me jump back if I could, just to the coal market for just a moment here, John. So I’ve written about the coal business for a long time. And I had a long chapter in my fourth book power hungry about the resilience of coal. And I think, you know, Joe, Joe craft, and Joe helped me get into an alliance resource partners mind and in Western Kentucky. It was really a remarkable experience. I don’t want to go back underground. I’ve done that once. I can say, Okay, I got it. It’s fine. But why? Let me it’s one of the questions I really wanted to put to you. Why is cold been such a resilient fuel? Why is it just keep, despite all these, you know, efforts to eliminate it, the PJM they’re closing a bunch of coal plants this year, which I think is a bad idea, especially now. We’re still seeing this push to close coal plants in the United States that we’re seeing. But the last question, so why is the coal business? Why is the coal as a commodity? Why is it been so resilient in the global marketplace?

John Henekamp 47:10
Because the infrastructure is there, that the infrastructure has always been there. Okay. And I guess the other best example I could give you, whenever, whenever the energy markets get in trouble, the cheapest, most dependable fuel that you can always go back to is cold, provided the labor is there, and the transportation is there. Okay. It kind of reminds me whenever I was in a tight spot, and I was experiencing something I’d never seen before. Before my dad died, I can always call dad. Right? What what can what should I do? Right? My son does that for me today. Okay. And, but when that’s gone, you have to go back to what you learn. And what the world has learned is that you can always go back to coal, it’s cheap, and it’s always there. And the infrastructure is still there.

Robert Bryce 48:09
Yeah, that’s I like that analogy. The world would you say the world is learned? It can, it can always go back to coal. And I guess it’s just also the just the scale of the market as I think about it is a flywheel there’s just a lot of inertia behind that system. Right. A lot of parts, a lot of the network has been built at note, we know it works. And I guess I would twin it with the demand for electricity that, you know, countries are just, I call it the iron law of electricity, people, businesses and countries are going to do whatever they have to do to get the electricity they need and demand for coal as part of that.

John Henekamp 48:41
And let’s remember, because coal is inexpensive, relatively speaking, okay. It’s the equilibrium that you drift back to.

Robert Bryce 48:54
Because it was the foundational fuel for the electric power structures

John Henekamp 48:57
there. You can always go back to Alright, everybody tries to get away from it, but you can always go back to it. And what drives that, that you’ve pointed out so many times, Robert, is cheap. Energy is a foundation for living standards. Right? Okay. And when those when that when that energy gets explosive in terms of cost, the only way to bring it back to an equilibrium price that we can all live with in terms of the cost of energy, is it we have to get we have to go back to the cheapest source. Okay. And these is year after year. And now, you know, last week the SEC came out with this edict. It said now all everybody’s going to be accountable. It’s not just going to be the fossil fuel producers, but all the consumers are going to be responsible. Okay. It’s, it’s, for me, it’s just more work for the attorneys. Okay. They’re going to get a good attorneys, but a lot of this government regulation, the people that benefit the most from government regulation are entireties. Right? Or attorney firms? Sure. Okay.

Robert Bryce 50:17
Well, so then cast this forward, then Gianna we were in for over a few years, then you think that this is going to the for all this to work out this these supply disruptions we’re in for years of disruptions in commodity markets. I mean, how I say stability, what do you see happening in the next few

John Henekamp 50:35
months? I’m trying to follow GDP, global GDP. Alright, if that goes too far down. That’s a problem. Okay, we go from boom to bust. Right. Okay. And that only makes the return to equilibrium of let’s call it 3% world GDP. A real problem, just like we saw during during 2020 with COVID right went too far. On the downside. Okay, now, we’re going too far on the upside. All right, we’ve got these extreme volatility. One was led by a pandemic, the other now is led by a disruption in the global supply chain for energy. Right and food. Yeah. We’re gonna be, I think, the next eight to 12 months. Well, they’re just they’re going to be just as amazing as what’s happened since November the last time you and I talk. Yeah. I mean, it’s like this morning, I woke up and found out that Russia announced they were going on the gold standard. So what does that mean?

Robert Bryce 51:53
I thought they were gonna trade in rubles and now they said now they’re back to gold. I’m this is news to me.

John Henekamp 51:57
Well, they’re but they’re they’re saying that to gold that that the ruble is going to the gold standard. It’s not going to be a fiat currency. Well, so what does that mean? Everybody’s going to go out and chase rubles and trying to exchange rubles for gold. What does that mean for the US dollar? Do they sell dollars and buy rubles?

Robert Bryce 52:17
Heck, if I know, I have no idea.

John Henekamp 52:21
It just adds. It just adds further complexity into this global marketplace. I mean, and we’re on a wild roller coaster ride. And we can’t see the end of the ride. Right.

Robert Bryce 52:39
So what are you reading? Then? John, we’ve been talking about an hour and again, my guest is John Hannah camp. He’s of St. Louis based coal industry consultant expert on global commodities, you can find him on LinkedIn. And, you know, I asked you this before, but what are you? What are the books that you’re reading? John, what do you have?

John Henekamp 52:56
I’m not reading any books, I’m hearing all material I can get what’s going on in the global marketplace. It takes up. It takes up all my free time. And when I’m not doing that, I take the dogs to the park and walk around and park for him.

Robert Bryce 53:11
And and where you go flying, I guess is the other

John Henekamp 53:14
one. Yeah.

Robert Bryce 53:16
So what? You know, I had to adjust this last question that I always ask as well. It’s what gives you hope. But I interviewed Simon Irish who used to work on Wall Street. Now he’s at Terrestrial Energy in Canada. He’s an Englishman and trying to get it into the new nuclear reactor marketer and get trying to get licensed in Canada. And I asked him What about hope? And he says, well, on Wall Street, saying there’s no hope and bother two kinds of hope, Bob Hope and no hope. So. What makes you optimistic when you look at this, you know, I’m optimistic for my children. I’m by nature more optimistic. But you we’ve we’ve talked about a lot of things here that are in a chaotic world, in a volatile world, what what gives you optimism.

John Henekamp 54:05
What gives me optimism is that there are still enough of us who have earned this journey through life. And who have taught those principles to our children, who also understand that anything and everything that you want to accomplish in this life, you have to earn it. And it doesn’t matter what country you come from, what race you come from, or what religion you believe in. The only way to earn this. The only way to succeed in this life is to earn it. That’s what gives me hope. Okay, and when we get to all these things that disrupt for me, all this disruptive, all this disruption is pretty darn exciting. Okay, it’s not gonna be good for some, it’s gonna be great for others. But at the end of the day, it’s a puzzle. That’s fun to try and stay in front of. Okay. And when I, when I sit down on Sunday afternoons or Sunday mornings, and I try to put my thoughts together for what I want to say on Monday, that’s what I’m trying to figure out is what’s going to happen next, and what’s driving. And in the commodity business, that was the fundamental training that I got when I was a young man in the 80s. And I still use that training today. And I found out there’s a number of people that plagiarize my work, which I’m very, very happy about. Because it helps them to see the game too. Yeah,

Robert Bryce 55:52
yeah. Well, that’s fair, that’s

John Henekamp 55:55
worth a lot. And the fact that you call me back a second time means that you’re interested do

Robert Bryce 56:02
I am and I find this all of this stuff just endlessly fascinating. And it is I’ve been fortunate, I’ve been fortunate in a lot of ways in the podcast, people tuning in to because there, I’m only following my interest. And so I’m flattered that people are interested in following what my interest is. So. But yeah, I so I’m glad that we can talk about especially about the food market, because, you know, I’ve seen it couched in these other terms around fertilizer prices and insecticide prices and propane and the rest of it. But I think that that you hit on a whole different part of it, which is that this just the raw grain itself, the underproduction, that’s going to occur because of this incur the war in Ukraine. I mean, we can have this unsettled market for a very long time, the longer and the longer the war, the longer the war goes on, the worse it’s going to be.

John Henekamp 56:48
I tell you one thing that bothered me more than anything else this week, the week before was the fact that I bought, I bought aviation fuel cheaper than I bought gasoline for my car. This week, I went to the store. And everything I put in my basket, I realized after I checked out cost more than $5 Everything I put in there, okay, right over five bucks. I’m like, so everything’s $5 Now when it used to be a buck, right, more or less, yeah, and I can I like to remember when I was a kid, my mother used to go to Kroger’s and feed a family of seven for 20 bucks a week. 20 bucks.

Robert Bryce 57:38
$20 bill isn’t what it used to be. We can go Well, John, you’ve been it’s been great to reconnect with you. Again, my guest is John handicap you can find him on LinkedIn. John many thanks for being on the power hungry podcast again with me. That Robert, and all you in podcast land until next time, see ya.


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