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1.  Bird Flu Outbreak In U.S. – Chicken-and-Eggflation Ahead?

·         Largest US egg producer temporarily shutters facility after bird flu virus (H5N1) found in chickens.

·         The largest producer of fresh eggs in U.S. begins culling millions of hens.

What you need to know: The top U.S. fresh egg producer - Cal-Maine Foods - shut down a Texas facility due to a bird flu outbreak, leading to the loss of nearly two million birds. The closure affects around 4% of the company's total flock. Operations have paused as per USDA protocols. Despite this, eggs in the market pose no known risk, and no recalls have been issued. This follows news of a Texas resident testing positive for bird flu, as per CDC1.

Why it matters: There was an avian (bird) flu outbreak back in 2022-23 – the deadliest in U.S. history – that saw tens of millions of egg-laying hens perish. This caused a significant shortage of eggs and various poultry, which pushed prices significantly higher. For example, by the end of 2022, average egg prices surged by 49.1% compared2 to the previous year (2021), marking the highest annual percentage increase among all grocery items. Now as the avian flu resurges, it could indicate a new wave of supply shortages in eggs.

Now the Dunham Deep Dive: I am sure you all remember how expensive eggs, chicken, and turkeys were in 2022 (especially around Thanksgiving time). That was all due to the bird flu stroking the fires of the inflation that was running heavy.

The reason is pretty simple: as we learned in economics, if there’s a shortage (cut in supply) while demand stays flat, prices will rise.  And it’s becoming clear this trend is worsening.

For instance – according to the USDA - over 14 million egg-laying chickens perished in November and December due to avian flu (the U.S. currently houses over 368 million egg-laying chickens). And the recent news of Cal-Maine Foods (the top U.S. fresh egg producer) culling two million birds isn’t sobering.

Now, bird flu is relatively rare in the U.S.  – but up until last year in 2022 (where it’s estimated roughly 82 million birds were infected) – 2015 was one of the worst outbreaks. And as the chart below shows, that also saw egg prices surge due to the culling (limiting supply).

The good news: bird flu doesn’t really affect humans (it’s considered low risk). So that’s good.

The bad news: it is crippling for birds and requires culling, which can have ripple effects in the food supply chain.

The ugly news: if this continues, look for egg, chicken, turkey, etc. prices to lift higher – sparking inflation concerns (ironically there’s nothing the Fed can do about this, as tightening interest rates won’t magically bring back hen supplies).

Just some food for thought (no pun intended).

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2.   Rising Tide: Business Bankruptcies Surge Amidst Accelerating Wave of Failures

·         This week equals a 2008 record for three-day bankruptcies, according to Bloomberg data.

·         Michael Hunter, VP at Epiq, notes a steady 20-month rise in bankruptcies encompassing consumers, small businesses, and large corporations.

What you need to know: This week (beginning of April) mirrors the most active three-day stretch for major corporate bankruptcies ever recorded, as per Bloomberg data3. If this trend persists until Saturday, it will surpass the late April 2009 peak when 16 major firms collapsed as the US emerged from the Great Recession.

Why it matters: "Over the past 20 months, there's been a steady ascent in bankruptcies spanning consumer, small business, and corporate sectors," remarked Michael Hunter, Vice President at Epiq, a legal services firm specializing in insolvency filings. Hunter attributes this trend to elevated interest rates and a downturn in consumer expenditure, as stated in a recent press release.
Commercial insolvencies surged by a staggering 43% in the initial quarter of 2024 compared to last year, per data from Epiq, and are expected to continue throughout the year.

Now the Dunham Deep Dive: U.S. corporate bankruptcies are steadily rising amid higher interest rates, declining and changing consumer spending habits. It’s important to note that some reversion to the historical average is normal after bankruptcies hit extreme lows during 2021 and 2022, but the trend certainly shows a mixed story about the economy.

Adding to this, S&P Global Market Intelligence4 noted a rise in new bankruptcy filings for February - reaching 50 - compared to a revised figure of 35 in January.

That puts year-to-date corporate bankruptcies at 85 in the first 60 days of 2024 - surpassing figures from the same period in 2021 and 2022 but remaining slightly lower than last year's filings (see chart below).

Most of these bankruptcies were in the healthcare sector – showing some fragility that’s plagued the sector post-COVID.

·         Keep in mind that last year marked a historic high5 in the US as a record number of large healthcare companies filed for bankruptcy amid rising costs, declining patient numbers, lower Medicare payments from the government, and increasingly stringent regulations.

An interesting ripple effect from this will be how it affects private equity – which has poured a substantial6 amount of money into the healthcare sector over the last few years (not to everyone’s liking).

Something to monitor.

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3.  The Great Glut: Is The Solar Energy Sector Facing A Crisis?

·         Chinese excess production of solar panels is flooding into the world – oversaturating the market.

·         This has pushed prices significantly down, and while good for consumers, it’s crushing solar company margins.

What you need to know: The plummeting costs of solar panels have led to an unexpected trend: they're now being integrated into garden fences across the Netherlands and Germany. This surge is fueled by a booming Chinese production, flooding the global market. Jenny Chase, lead solar analyst at BloombergNEF7, notes, "This is the result of solar panels getting so cheap that we’re just putting them everywhere." She explains that with installation costs being the major expense for rooftop PV systems, it makes economic sense to utilize solar panels in such innovative ways.

Why this matters: According to the International Energy Agency, the global supply of solar panels is expected to hit 1,100 gigawatts by the year's end, tripling (300%) the current expected demand. This surplus is largely driven by excessive manufacturing in China. However, despite this abundance, installation costs are rising due to increased labor expenses. Furthermore, delays in connecting panels to electricity grids are posing challenges for both industry players and households alike. Grid capacity issues persist across many countries, presenting complex and lengthy obstacles to resolution.

Now the Dunham Deep Dive: This is an interesting article highlighting the trend I’ve written to you about before, that China is dumping excess output onto global markets in order to drive growth domestically. And now, solar panels have become one of their top exports (far exceeding global demand). Just take a look at the chart below.

It’s gotten so bad that Europeans – specifically in the Netherlands and Germany – are being drowned in cheap imported solar panels.

And as I hypothesized in the article two weeks ago in my article - Trade Wars Redux? China's Manufacturing Glut and Its Global Implications – it would put significant pressure on the global economy, corporations, and trade – which is exactly what’s playing out.

For instance, because of this solar glut from China, Longi Green Energy Technology (one of the world’s largest solar panel producers) said it recently fired thousands of factory workers as the oversupply (remember, too much supply relative to demand pushes prices down and thus crushes profit margins for producers). You can’t keep employees if you’re losing money, right?

Now throughout Europe, industry executives are sounding the alarm about looming difficulties for a sector already grappling with a barrage of challenges. Job losses, bankruptcies, and closures have plagued the industry in recent months, prompting concerns about its sustainability and prospects.

Again, I don’t think the laid-off employees in Europe are ecstatic that their lives were upended so that China could prevent unemployment in their own country.

Thus don’t be surprised if Europe throws up trade barriers (tariffs and quotas) against China to try and prevent further issues. And then China retaliates by raising barriers against Europe, and on and on.

The trade war continues brewing. So, remember where you saw it first. . .

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Anyways, who knows what will happen? Maybe this is just noisy data.

As usual, just some food for thought.

Have a great rest of your weekend.










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