Commodity Conversations News Monitor

Russia’s invasion of Ukraine has created “the shock of a lifetime” in global commodity markets, with the fastest increase in prices since the 1960s or 1970s. Wheat (at the time of writing) is up 40 per cent on the week. One analyst called it “the modern-day equivalent to the 1974 Great Grain Robbery.”

Russian forces have closed off Black Sea shipments, leaving buyers scrambling for alternative supplies. Canada can’t help because drought reduced its grain inventories by 38 per cent from a year earlier. However, India could export a record 7 million tonnes of wheat in 2021-22.

The US Agriculture Secretary said it’s premature to project what will happen to agricultural exports from the Black Sea, but “the biggest areas of concern would be the Middle East and North Africa that do need those products to be able to feed their people.”

Chinese buyers bought about 20 cargoes of American soybeans and about ten cargoes of corn this week after the Chinese government encouraged state-owned companies to search for oil and gas, iron ore, barley, and corn.

The FT has written about “the weaponization of commodity trading.” A former US official told the newspaper, “Commodities have been weaponized for a long, long time. It was always a question of when does a state pull the trigger.”

Farmers worldwide are scrambling to lock in fertilizer supplies as prices once again head higher. Canada’s Nutrien, the world’s biggest fertilizer producer, said that the war could result in prolonged disruptions to the global supply of potash and nitrogen crop nutrients. India, meanwhile, has set up a rupee-clearing account to pay for urea imports from Iran.

Palm oil prices have also shot up as markets scramble to find alternatives to shipments of sunflower oil stuck in Black Sea ports. India has asked Indonesia to increase palm oil shipments to compensate for the loss of sunflower oil supplies. Meanwhile, Palm oil has become the most expensive of the four major edible oils for the first time.

Since last December, the USDA has progressively lowered its forecast for soybean production in Brazil, Argentina and Paraguay by more than 18 million tonnes. It now expects the smallest crop since 2018/19. However, heavy rains in Argentina’s farm belt – and expectations of more to come – are alleviating fears about a prolonged drought. There is even concern that there may be too much rain.

Societe Generale and Credit Suisse have stopped financing commodities trading from Russia. (The two banks are key financiers to commodity trade houses.) Commodity trading companies have told Reuters that Russian commodity flows will remain severely disrupted until clarity is established over what is sanctioned and what is exempted.

Nestlé has reopened its factories and warehouses in central and western Ukraine to ensure essential food and drink deliveries. The Swiss-based group has three factories and around 5,000 employees in Ukraine.

Although sanctions don’t yet target Russian energy exports or (non-military) containerized goods, many tanker owners and container liner operators are pre-emptively pulling out of Russia. Moller-Maersk, Ocean Network Express, MSC, and Hapag Lloyd have temporarily halted all container shipping to and from Russia.

Shipping lines are likely to come under increased scrutiny from the US Department of Transportation and the US Department of Justice over rising rates. However, the Federal Maritime Commission said that, for now, there is no evidence of wrongdoing.

Progress is being made to build the world´s first large-scale commercial e-Methanol production facility in time for the delivery of Maersk’s large dual-fuel methanol ready containerships in the second half of 2023.

Chevron has agreed to buy green diesel producer Renewable Energy Group for $3.1 billion. Renewable is a large producer of biodiesel and renewable diesel. Meanwhile, Marathon Petroleum Corp will form a joint venture with Finnish refiner Neste for its Martinez renewable fuels project in California. Neste will contribute $1 billion to the project.

Trade associations representing the world’s major trading firms have warned the European Commission that their plan to prevent commodities linked to deforestation from entering the EU market is “technically and effectively not feasible.”

A study published in Nature Sustainability shows that carbon loss from tropical deforestation in the last two decades has doubled and continues to rise, mainly driven by agricultural expansion.

Brazil’s cattle ranchers are trying to reduce methane emissions through “intensification” – keeping 15 animals per hectare, instead of fewer than one – and slaughtering the animals at 18 rather than 30 months.

Finally, in a special report on sustainable agriculture, the FT writes about the adverse effects of climate change and higher temperatures on farmworkers.

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