Who can spare 3 million barrels of oil … per day?
That’s the highest query for commodities markets as European nations think about a ban on Russian oil imports.
Russia offers about 28% of the European Union’s oil imports, which might must be sourced elsewhere within the occasion of an import ban.
That’s a giant motive why oil costs shot up over 3% in response on Monday and stay 42% above the place it began the yr.
It’s additionally one other instance of how Russia’s actions during the last month have plunged commodities markets into disarray, with the world’s largest financial bloc dashing to reconfigure its power provides. Ted informed you in regards to the new alternatives rising as the worldwide power commerce is turned on its head.
But there may be one other … maybe even better … disruptive pressure at play that’s already sending shockwaves properly past the borders of Europe.
What’s Extra Essential Than Vitality?
Russia’s significance to the world’s power safety is of nice strategic concern, however the battle in Ukraine can also be an rising menace to the world’s meals provide chain.
Russia and Ukraine account for practically 30% of world wheat exports, whereas Ukraine alone contributes 14% of corn exports and 10% of barley.
Attributable to sanctions or bodily blockades of ports, these exports have floor to a halt … sending costs skyrocketing as you’ll be able to see within the chart under.
(Click on right here to view bigger picture.)
However the challenges go properly past their respective crop share. Take fertilizers, for instance. Russia is the world’s largest exporter of crop fertilizers (see chart under) and has reportedly instructed its producers to cease shipments.
(Click on right here to view bigger picture.)
That has led to hovering costs, whereas the availability of different necessary crop vitamins is underneath stress from the area’s battle as properly.
Which means crop yields in different rising areas of the world might be underneath stress if farmers can’t entry fertilizers or in the event that they’re too costly … making it troublesome to offset losses from what’s known as Europe’s “breadbasket.”
Exporting a Meals Disaster
As fears over meals shortages develop, different exporting nations have gotten cautious about sending grains overseas that could be wanted at house. A number of nations, together with Argentina and Turkey, are putting export restrictions in consequence.
It’s nearly a self-fulfilling prophecy at this level that meals shortages take maintain, very like the shortage of many gadgets on account of hoarding within the early days of the pandemic.
That’s why the eye will shift to firms up and down the meals provide chain to do every thing potential to fill the void, which is why I spot a chance with the VanEck Agribusiness ETF (NYSE: MOO).
From home fertilizer producers to classy farm gear, these firms and their merchandise might be in excessive demand to stymie the rising meals disaster.
Finest regards,
Clint Lee
Analysis Analyst, The Bauman Letter
