Above the Fold

North America Picking Up Commodity Slack … but There’s a Catch

As the Russia-Ukraine war rages on, western allies are scrambling to completely restructure trade agreements and supply chains to keep energy and food flowing, while permanently reducing their dependence on Russia’s resources. The European Commission recently published plans to cut the European Union’s dependency on Russian natural gas by two-thirds by year-end, and completely sever its reliance on Russian energy “well before 2030.” The plan includes modifying climate change policies to force the usage of renewable energy sources, while at the same time dramatically increasing the import of gas and liquefied natural gas (LNG) from sources such as Qatar and the United States.

With the current administration’s support, America is now exporting more LNG overseas than at any moment in time, draining our country’s inventories and keeping prices very high. Natural gas prices are up 43% year to date in 2022, and are more than double where they were a year ago. And since we are now likely to remain a primary supplier for Europe, the restocking of supplies during the spring and summer is unlikely to happen. In other words, prices are likely to remain high for some time, impacting a myriad of related goods and services that we consume. To our north, Canadian potash (fertilizer) production is ramping up to fill a global supply imbalance as Russian exports decline. Unfortunately, there are logistical challenges and subsequent costs to deliver the fertilizer and producers are being cautious not to expand too quickly. This too means that fertilizer prices continue to rise globally, adding to already stubborn inflation pressures.

Three Things 

1. Hewlett Packard (HP Inc.) Drops $1.7 Billion to Capitalize on Hybrid Work – In a deal centered around the growing probability of hybrid workplaces, HP Inc. agreed to pay $40 per share in cash ($1.7 billion total) to purchase Poly. Poly, formerly Plantronics, manufactures workplace communication products such as headsets, audio/video products, desk phones and other devices. Poly is expected to report annual sales of $1.53 billion and could help HP offer more complete solutions to companies and workers reconfiguring their workspaces. 
2. Etsy Collecting Record Revenues; Sellers Aren’t Happy – Etsy, the marketplace for unique and bespoke items, reported record revenues in February. At the same time, CEO Josh Silverman sent an email to sellers announcing a 30% hike in transaction fees. The fee increase has created a massive uprising among sellers and buyers alike, and many are planning a digital walkout/boycott on April 11, when the new fees are set for implementation. Sellers also complain that other policies, driven by the need for corporate profits, have taken priority and sometimes quality away from the goods being sold.  
3. Icahn Takes His Pig Battle to Kroger – After launching a proxy battle over how pigs in McDonald’s are treated, Carl Icahn has now set his sights on America’s largest supermarket (by sales), Kroger Co. Icahn is seeking two board seats and wants the supermarket giant to enact changes to its pork suppliers and address what he calls “a widening gap” between worker and executive pay. The pork battle is centered around the use of gestation stalls, which are small crates used to house breeding pigs and keep aggressive pigs from injuring one another. While removing gestation stalls would improve swine welfare, it would likely send pork prices soaring. 

Did You Know? 

A Palo Alto Legacy

Hewlett Packard (now HP Inc.) has some serious street cred. The two founders, Bill Hewlett and Dave Packard, became friends on a camping trip in 1934. Like several other famous Palo Alto alums, Bill and Dave started out with $538 in capital, building electronic devices in their garage. Their first device was the “HP Model 200A,” which was an oscillator used to test sound equipment. Walt Disney was their first big customer, snapping up eight of the devices to prepare movie theaters for its musical masterpiece “Fantasia.” The company finally went public in 1957 at a price of $16. Among its many accomplishments, HP Laboratories invented the first practical light-emitting diode (LED) in 1966.