Agricultural Commodity Super Cycle on Steroids
Growing Food Shortages & Food Insecurity
The intensity of the Russo-Ukrainian conflict continues as Russian armed forces traverse through the Ukrainian agricultural heartland. During this period of extreme global market volatility and uncertainty, several fundamentals continue to support present-day and near-future agricultural price gains.
The immediate impact on agricultural goods price rise has been the prolonged disruption of Ukrainian agricultural food exports. Draconian sanctions on Russian agricultural exports have compounded the global shortfall since the combined Ukrainian and Russian production represents 30% of the agricultural export market.
The Russian navy has prevented commercial shipping in the Black Sea from entering or departing key ports through which 90% of Ukraine’s agricultural goods are exported. According to the London-based shipping tracker Windward Ltd., there are 200 maritime vessels unable to depart from Ukrainian ports. Furthermore, road, rail and maritime infrastructure damage by the conflict has greatly inhibited the commercial transport of goods.
The conflict is adversely affecting present-day and future production of agricultural crops. Some of the major issues are as follows:
1. Missed Planting Season: With respect to most Ukrainian agricultural crops, particularly wheat, the planting season normally begins in early March and must be completed by late April. Many of these fields are directly in the path of Russian forces moving northward from the southern region. For this reason some of these fields may be mined or have unexploded ordinances which must be identified and removed before ploughing can safely begin.
2. Fertilizer Failure: The draconian sanctions on Russian energy exports has triggered high gas prices from elsewhere and are dramatically reducing the production of fertilizer. Gas is a key ingredient who rising prices may be unaffordable for Europe’s ammonia facilities to continue production. Less fertilizer means lower crop yield.
3. Labor Shortage: Because of the conflict there is a manpower shortage for planting and harvesting. Many farm workers have joined the Ukrainian war effort while others are using farm equipment to remove destroyed or abandoned Russian military equipment.
Even if the war ended immediately and all Russian armed forces left Ukraine and the Russian navy in the Black Sea permitted the free passage of maritime vessels, there has already been severe damage to the food supply chain in Ukraine.
The Agricultural Commodity Super Cycle Has Just Begun
My recent SA article published March 5, 2022 and entitled How to Gain on Grains – More Opportunities In Wheat was wheat-specific because it’s classified as a “strategic grain” and highly political. For those investors who prefer to have a diversified agricultural portfolio, the following list of ETF and ETN investment options provides broad-based and crop-specific agricultural goods.
Agriculture | broadbased
· Teucrium Agricultural Fund (TAGS)
· iPath Series B Bloomberg Agriculture Subindex Total Return ETN (JJA)
· Elements Rogers International Commodity Index-Agriculture Total Return ETN (RJA)
· Teucrium Wheat Fund (WEAT)
· Teucrium Corn Fund (CORN)
· iPath Series B Bloomberg Grains Subindex Total Return ETN (JJG)
· ELEMENTS linked to the ICE BofAML Commodity Index eXtra Grains Total Return (GRU)
The following maps provided by the US Department of Agriculture (USDA) Foreign Agricultural Services indicate the geographical region in Ukraine for specific crops (wheat, corn, barley, soybean, sunflower seed) and where they are planted and harvested. These will enable investors to determine the level of risk of the planting and harvesting for each crop.
Ukraine is the world’s 6th largest exporter of wheat. Their largest purchasers include China and Egypt.
Ukraine is the world’s 4th largest exporter of corn.
Ukraine produces 12% of the world’s crop.
Sunflower Seed Oil
Ukraine is the world’s leading sunflower seed oil, planted in April harvested in September. It’s their most profitable crop because of low production costs and high demand.
Ukraine is the world’s 7th largest exporter of soybeans.
The global markets will continue to experience extreme volatility. However I believe that the overall trend is for dramatic near-to-medium term increasing agricultural commodity prices based on the aforementioned fundamentals of logistical blockages in Ukraine for present-day, ready-to-ship agricultural goods and acute near-future reduction of crop yields.
Grain prices have risen considerably since the outbreak of the Russo-Ukrainian war in late February as I forecast in my SA article entitled Buy Opportunities with Tightening Global Agriculture Markets on February 19, 2022 before the Russian invasion 5 days later.
I believe that agricultural commodity prices are still laggards and under-valued because the aforementioned factors have not yet fully impacted consumer prices. Unlike energy needs whose usage is seasonal while declining during the warmer months, global food requirements are consistent year-round.
For this reason there are still ample investment opportunities in the agricultural sector to get onboard the once in a lifetime, inexorable surge of the commodity super-cycle on steroids.
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The Cerulean Council is a NYC-based think-tank that provides prescient, beyond-the-horizon, contrarian perspectives and risk assessments on geopolitical dynamics and global urban security.