The Wrap: Beer and Food Production May Fizzle With C02 Shortage

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C02 Supply Shortage on Tap

A shortage of CO2 is looming in the United States which could hike the prices of food products ranging from meat to beer.

Uses In Food and Beverage Processing

CO2 is vital for the food and beverage industries. The gas is used in drying to extend the shelf life of fruit and vegetables. Dry ice from CO2 refrigerates perishable goods for transportation. In addition, it is used in the brewing process.

Last month, Kraft told retailers the shortage was impacting the production of cold cuts.

“Without CO2, we’d lose significant shelf life on our products,” Kraft reported.

Beer Bonged

“It provides the bubbles,” Rich Gottwald, president of the Compressed Gas Association told NPR. “It provides the foam in the beer. CO2 is used for carbonation.”

Larger brewers have and can invest in CO2-capturing equipment. The gas is naturally produced in various stages of brewing. However, microbrewers usually do not have the resources to capture CO2.

“Some breweries will invest in CO2 recovery equipment as a result of this shortage but many will just pay more for their ingredients,” says Virginia Tech Professor Herbert Bruce. “This will hit the smaller independent breweries the hardest, especially those who bottle or can their beers where you need an external source of CO2 to package the beer.”

Higher brewing costs equal higher prices at the tap and in stores.

Usual Constraints

Demand for CO2 usually rises in the summer months as sales of carbonated drinks, including soda and beer, spike.

Production of CO2 comes from deposits underground and from commercial production.

Carbon dioxide can be derived from ethanol and ammonia production. However, manufacturers usually shut down such plants in the Fall for cleaning and maintenance. That creates a temporary lag in CO2 production.

Supply Drop

About 70 percent of the CO2 produced in the United States is used in food and beverage processing, according to Gottwald.

Routine plant closings can be anticipated. However, the current shortage is attributable to other sources.

Concerns about CO2 production first occurred during the pandemic. Not only was there a rise in consumer demand, but vaccine producers needed more of the gas. It has been used to refrigerate vaccines.

The current shortage accelerated dramatically earlier this year. A major source of natural CO2 harvested for food and beverage production came from the Jackson Dome in Mississippi. Located 2,900 feet below the state capital of Jackson, the dome is a huge reservoir of CO2.

When gas prices soared to record heights a couple of months ago, producers began using CO2 to enhance oil recovery. Danbury Energy, which owns the Jackson Dome, began drilling more wells to meet the demand, according to gasworld. Unfortunately, that lead to contamination of some existing wells. Contaminated CO2 is not safe for food production.

A Danbury spokesperson told the Wall Street Journal,  “We continue to work with certain of our customers with specific needs, such as food and beverage grade requirements, to address processing issues that may exist in their distribution chains.”

Inflation Makes Negative Impact on Insurance Coverage

So, you have trimmed your household budget, maybe taken a second job, or developed a side hustle. All in an attempt to keep up with inflation.

However, you may leave yourself vulnerable to a surprise expense, if you have not reviewed your auto insurance coverage. 

Rates Rise. Coverage May Not

Car insurance rates are up an average of 4.9 percent across the nation, according to S&P Global Market Intelligence. However, a rate increase does not mean a coverage increase. In other words, you are paying a higher rate for the same dollar amount of coverage. With medical and repair costs rising, your coverage may not go as far as it used to.

An auto insurance policy generally covers costs arising from an accident. Those costs can include damage to your car and other driver’s cars, other property damage, and medical costs.

As an example, look at the increase in personal injury costs. According to the Insurance Information Institute, the average bodily injury payout was $20,235 in 2020. 

Meanwhile, medical expenses have climbed 5.1 percent between July 2021 and July 2022. That means the same payout would be about $1,000 more. 

Replacement Parts Cost More

In addition, inflation has pushed motor vehicle parts and equipment prices up 14.9 percent From July 2021 to July this year, according to the Bureau of Labor Statistics

That is the largest increase in parts and equipment costs since 1974.

“Vehicles have gotten pretty expensive, and you want to make sure the (property damage liability) limit you are carrying is going to cover that,” Adam Pichon, Vice President and General Manager of U.S. Personal Lines Insurance for LexisNexis told Bankrate. “It’s not uncommon these days to be driving behind a car that costs $70,000 or $80,000, and these are not luxury cars.”

What To Do

It is a good idea to periodically review your insurance coverage. That is especially true in times of economic change. 

As painful as it may be, you might need to talk to several insurance companies to compare rates and coverage.

When you talk to these agents, ask for discounts. You may get a cheaper rate by paying your premiums annually or semi-annually. If you own a home, you may be able to save money by bundling homeowners with auto policies. Your rates can drop with certain anti-theft devices installed on your vehicles. In addition, you could get a reduced rate due to your age or good driving record.

Next Rise In Gas Prices Is Natural

So, you just stopped hyperventilating because reduced gas prices mean you do not have to take a second mortgage to fuel your car. However, you should not put down the paper bag just yet. The coming rise in natural gas prices may have you breathing faster than ever.

Back to the Futures

Futures traders try to gauge the price of specific assets at a point in time down the road. Traders in natural gas are betting the house on a significant rise in prices this winter.

The U. S. natural gas futures contracts for November through March are up 95 percent in September compared to the same time last year, according to Forbes. 

If the futures market is right, heating bills will rise this winter.

Production and Supply

Fortunately for Americans, the U. S. is the world’s largest producer of natural gas. As a result, our domestic supply of natural gas is expected to see us through the winter. However, those supplies are at a five-year low, according to the Energy Information Administration.

Those lower supply levels have contributed to the recent rise in natural gas prices. 

Cold Winter Ahead

In addition to a tight supply, natural gas prices are expected to be pushed higher by a cold winter across much of the nation.

“Winter for much of the Midwest and along the East Coast is best described as Shivery & Snowy.”, according to the Farmer’s Almanac. “The eastern half of the U.S. should brace for potentially record-breaking cold to define the season. This frigid forecast extends to the Deep South and Texas, which could see the mercury diving as much as 8°F below normal!” 

Read More:

Basics of Having An Effective Financial Plan For Future Goals
5 Ways to Reach Your Personal Financial Goals
Here’s Why You Should Have a Budget Surplus

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