Geopolitics and commodities, where fire meets gunpowder

The volatility in the energy price and for the grain and cereals market will be enormous, and this is in addition to what the increases in fertilizers have discharged for the replacement of crops in the incoming cycle of the northern hemisphere

Good morning Good afternoon Good night. We are in a very complicated area, and I’m going to tell you why.

We usually refer to China when we have to talk about supply and demand, but when it comes to instability and turmoil, we have to talk about Russia. The Russians know that this is their moment, and they have been working on it strategically.

The fact that Russians need to have a neutral zone between their borders and those that include NATO members is unknown to anyone. This intermediate zone is Ukraine, and in the past, European influence in Ukraine has been very uncomfortable for the Russians, so much so that they have done everything necessary to influence and destabilize elections in favor of more “comfortable” leaders for the Kremlin.

This is not the case now and for this reason the Russians have launched support for what is in fact a proxy invasion on western Ukrainian terrain, an area that seeks inclusion with mother Russia and that Ukraine defends in a sterile way. Russia has already moved against Ukraine by annexing Crimea, a strategic annexation that ends with influence in the Black Sea, the rest is to go for a strip of land optimal for agriculture.

The time of the Russians is this, the winter turned harsh in Europe and the dependence on energy is excruciating. Russia has the key to that supply and the open road in the area. The accumulation of Russian troops on the perimeter is widening, and it seems only a matter of time.

Russia did not start this strategy recently. He worked it months ago in detail. In the months leading up to the pandemic, the Russians and Arabs were locked in a competition to extract oil, more than was required.

What both nations characterized as a war between them, actually ended in the weakening of the North American oil industry that could not sell profitably at low prices, then the pandemic and the unprecedented times in which the oil went negative … a craziness.

The fact is that the US oil infrastructure was hurt and with the change of government it ended up decoupling. The current administration looks for clean energies and in this initiative the support to the fossil industry does not go.

The Black Sea area is not only vital for the energy issue, it is also for the supply of grains and cereals, in fact, the Russians went from dependence on wheat to be the largest exporter.

They have done an enormous job in that regard and the efficiencies have them as a strategic supplier for North Africa and the Middle East, areas where the lack of wheat is not negotiable. If you don’t believe me, check out the heart of the Arab Spring movement in Egypt.

If we put the strings together, you will realize that a Russian intervention that seeks the annexation of part of Ukraine will very possibly not happen without bullets being crossed. The conflict could last as long as the disruption in the Black Sea port area lasts. Both Russia and Ukraine use this port area to feed destinations that would have to seek alternative supply in what accommodates the administrative issue.

The premiums that shipowners would charge to sail the Black Sea will be high.

The world at this moment is left in important supply gaps in high protein wheats, in fact, it is raining a lot in Australia and this rain does not suit the wheat that cannot be finished harvesting, and the quality is hurt by excess of water.

Canada has been a productive tragedy this year and many European countries are in need of grain. Spain needs no less than 700,000 tons per month of grains to feed the Iberian herd.

The Black Sea area should be on any buyer’s radar for risk. Russia has in hand the energy key that Europe cannot lose. In addition, for the world, the capacity to supply grains and cereals is essential in the short and medium term.

The volatility in the price of energy and of grains and cereals will be enormous, and this is in addition to what the increases in fertilizers have discharged for the replacement of crops in the incoming cycle of the northern hemisphere.

Geopolitics will be unstable, commodity prices are simply volatile, these are not times of short volatility, it will be necessary to know how to manage risks because as Chimoltrufia says, “just as I tell you one thing, I tell you another.” Once these fears pass, agricultural prices are on a tight path especially if South America successfully completes what they have started as a highly successful agricultural cycle.

Instability and volatility, to navigate difficult seas. You’re in good hands?

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