‘Next Year’s Harvest Will Be a Disaster’ – John Butler Warns of 2008-Style Crisis

Overview

John Butler argues that the economic shock from disruptions in the Middle East—especially around the Strait of Hormuz—has not yet fully appeared in market prices or real-world economic data. He warns that the “real impact” will surface later, potentially culminating in a 2008-like financial crisis. Separately, he also highlights a major agricultural disaster driven by fertilizer shortages, particularly affecting next year’s harvest.

Key arguments and analysis

• Markets are misreading risk because they track prices, not inventories. Butler claims investors focus on spot prices (e.g., oil), while the more important signal is the rapid drawdown of physical stockpiles/inventories (including strategic reserves and downstream commodity inventories). Because these inventories are being depleted, price signals are described as “misdirection” that will be replaced by harsher reality when shortages become unavoidable.

• Oil and downstream inputs show mitigation now, but the damage is delayed. He uses a “Titanic hitting the iceberg” analogy: the disaster is already underway even if the ship doesn’t immediately sink. He argues the effects on the real economy and households “show up” later as inventory buffers run out.

• Fertilizer supply and inventory are a major under-discussed issue—next year is the risk. Butler emphasizes fertilizer supply constraints linked to the same Gulf choke point. He argues they may not hit immediately during this year’s growing cycle, but will be most dangerous for the next year’s harvest.

  • Seasonality matters: fertilizer must be available in the right quantities at the right times across the northern-hemisphere growing season, where much staple crop production occurs.
  • If fertilizer is missing then, yields drop later.

• Fertilizer price signals may be misleading and masking shortage risk. The discussion focuses on urea (used for nitrogen fertilizer). Urea prices surged and then retreated, which could obscure whether physical supply problems are truly resolving. The concern is that even if spot prices soften temporarily, physical processing and shipment constraints may remain.

• Data is hard, but the qualitative supply shock is “indisputable.” Butler argues there is no single global fertilizer index/exchange comparable to what exists for some other commodities, making inventory tracking difficult. Instead, he infers shortage conditions from:

  • shutdowns of Gulf-based fertilizer plants (operational disruption), and
  • inability to transport product through Hormuz (logistical disruption, including insurance/shipping constraints).

• FAO warning supports the delayed timeline. Butler references a Food and Agriculture Organization (FAO) warning that fertilizer impacts could carry into the second half of 2026 and through the 2027 harvest cycle, aligning with his claim of a delayed agricultural disaster.

• A catalyst for broader financial panic may come from “seasonal” and “inventory” lags. He argues a turning point will occur when markets can no longer frame the situation as temporary or perception-managed—especially once seasonal planting deadlines approach and fertilizer availability is clearly insufficient.

“2008-like” financial crisis thesis

• A financial crisis could begin later this year or next, and be perceived as comparable to 2008. Butler says it may not match 2008’s mechanics exactly, but it could involve systemic liquidity stress and dysfunction.

• Private credit is already showing strain (and may contribute to systemic risk). The host notes withdrawal/gating problems in private credit funds (with examples such as Blue Owl and broader withdrawal pressure). Butler agrees private credit is “bad,” though not “subprime on the same scale,” and argues it increases liquidity constraints that could help trigger wider instability.

• Modern finance is more “socialized,” so bank failures may not be the trigger in the same way. Butler argues the risk may unfold differently because major parts of finance are effectively protected/managed by governments rather than collapsing like Lehman. Still, he warns the system will “seize up,” and that liquidity creation/monetary responses could produce stagflation-like outcomes.

• Quant/model failure risk. He criticizes quantitative finance’s reliance on numerical models that may fail when uncertainty in the physical world becomes too great—leading to poor risk pricing and potential blowups.

Inflation, stagflation, and gold

• Inflation pressure may persist and return to double digits (using Butler’s preferred historical measurement). Butler argues authorities may tolerate higher inflation to erode debt burdens, and that Gulf-driven supply shock pressures are inflationary enough that official measures may lag reality.

• Gold is positioned to benefit. He frames gold as an “uncounterparty” hard asset that won’t default or be diluted. He argues demand is driven not only by inflation, but also by uncertainty and a shift in gold’s underlying demand curve.

• Gold price forecast. Butler suggests gold could reach roughly $6,500–$7,000 by the second half of 2027 and could reach around $40,000 in ~5 years (with earlier numbers in the discussion referenced as part of a longer-run trajectory).

Government response and “why aren’t they panicking?”

Butler argues governments won’t openly warn the public to avoid panic, so actions may occur “around the margins” without full disclosure. He suggests narrative management and partial/indirect interventions are likely.

Presenters / contributors

• Michelle McCrory (host/presenter)
• John Butler (guest; financial market historian/author)