How a year of conflict in Ukraine has "dynamically changed" global markets


Looking at current grain prices, it might seem markets remain largely unchanged by the impacts of an entire year of Russia’s war on Ukraine.

But the truth is, says Arlan Suderman, at StoneX, is that global markets have been “dynamically changed” in a great way that impacts all commodities.

“First of all, we had become very comfortable with just-in-time supplies in the world. In other words, if a country needed something it knew we could get it quick. And we’ve a very efficient transportation system in the world. And so we really didn’t worry about having to build up inventories, most countries were letting go of their old reserves — China and India, perhaps were a couple of the countries that were still hanging on to some of those concepts — or even they were allowing those reserves to go down. But this totally changed that we can’t necessarily depend on getting what we want when we need it,” Suderman says.

Supply has been further complicated by where product comes from, not just if a country has product.

“Now it’s ‘Well, are you a friend of Russia? Or are you a foe of Russia? Are you a friend of China? Are you a foe of China?’ [and] that may impact who you do business with that lengthens shipping lines that increases the cost of shipping. Countries are less comfortable with just time supplies or hoarding supplies, building up inventories. So that tightens everything up at a higher cost,” he says. (Story continues after the video interview).

Looking further at supply, Suderman says the world was perhaps surprised by the amount of crop Ukraine managed to harvest in 2022, but doesn’t expect the same level at all, if the war continues into the growing season.

“We saw productive output go down about 30 percent. Depending on the crop, plus or minus this year, we’re going to see another decline of that degree this coming year,” Suderman says. Corn production will likely drop more than some other crops because of its high input demand. Suderman sees Ukraine moving more acres in to oilseeds, such as soybean, rapeseed, and sunflower.

As for the longer term impact of the conflict on markets, Suderman says the news cycle may dictate how money moves.

“So much money in the market today comes from Wall Street. It’s not the traditional ag traders that we had for so long. It’s more Wall Street money, [and] how does Wall Street money behave? We trade a story for a while. And then we’ve traded that and let’s move on to the next thing they think it’s priced in? Well, not necessarily if you still have the problem. So something has to happen to remind them as you say that we have the problem. That might be another conflict erupting that intensifies the shortfall, it may be a weather problem. If we were to have a major drought in Brazil’s Safina corn belt here over the next two to three months that could remind them of it,” he says.

There are more sinister lines being drawn around the world too, especially as this conflict draws on. Changing trade flows hasn’t stopped Russian-sourced product from being bought and sold, but the transactions and product movement are less transparent.

Suderman says movement of Russian products is happening, much is being moved on what’s called the Dark Fleet.

“It’s probably best documented in the oil movement, where we’re seeing a significant amount of oil go on what’s called the Dark Fleet, particularly now with the West putting price caps on Russian oil. So Russia says we’re not going to sell oil to anyone who supports the price gaps. Well, a lot of that oil is still moving through. But because of the regulations that were put in place to enforce it, that means that it can’t be on a ship flagged and getting insurance necessarily from the normal means. So it has to be part of the Dark Fleet that’s not really tracked. The question is, are there enough ships in that Dark Fleet to haul the oil? And so the limitations will not be on the availability of oil or the availability of buyers of the oil, it’ll be on the number of ships willing to do business that way. That’s going to be the primary limitation.”

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