Good morning. This is just starting to get picked up by the media, but I don't believe anyone has realized the scale of what's about to happen.
You've seen sanctions take a toll on gas prices, and this has already brought you more inflation on top of your post pandemic inflation. This was just the beginning. Now it's time for your pocketbooks to hurt.
Russia and Ukraine are two of the world's biggest exporters of grain. Russian has banned grain exports, and as for Ukraine, it's hard as fuck to grow that shit when tanks are rolling through your fields and you gotta use your tractor to steal em, instead of planting. How do you play this? Well if you are in Africa you better stock up on food because you are about to have none. Turns out African countries and countries like Lebanon are the biggest importers of Ukrainian and Russian grains. Expect to see massive famine in these parts of the world.
Ok, but what do I care? I'm not poor! Well here is some bad news. Grain scarcity is gonna drive up your food prices. Expect even more inflation in the grocery stores.
Ok so no big deal, let's increase production in other countries. Well that's easier said than done. Food production required significant inputs. Those tractors need deisel. Those prices are already skyrocketed. You need food to feed livestock. Corn and other commodities have skyrocketed. Oh and one last thing. You need fertilizer. Who is the world's largest exporters of fertilizer you ask? Well, guess what. It's Russia. They've banned exports. Ok well let's get fertilizer from somewhere else! Who is another major exporter? Belarus. Also banned exports. Well let's buy from YARA, one of Europes biggest producers! Well no, there cut production due to skyrocketing natural gas prices. Well let's increase our output of natural gas. Well no, Europe's destroyed all that infrastructure ( thanks to Russian funded lobbiests and environmental groups). So with skyrocketing costs of fertilizer, and grain, and gas, we are fucked. Expect mass starvation in Latin America ( Brazil is largest importer of Russian fertilizer) and Africa. Expect prices to skyrocket in Europe and in north America. Expect massive rate hikes to control inflation ( won't help)
My time frame: 90 days. My inflation estimate, 12-20%
So can we do anything to solve this? No. It's too late to do anything. Planting is already happening and many farmers are choosing not to due to high prices. Even if sanctions are lifted tomorrow, fertilizer doesn't just magically appear in Brazil from Russia. Grain doesn't just magically make its way to Africa. So far we have done nothing to increase our food production to account for this. Why 90 days? The world Operates on a 90 day supply of food. If we stop producing today, that's all we have left. 90 days. Expect by July to see massive price increases.
How do you play this? I don't know, that's why it's a discussion not DD. Spy doesn't seem to have this priced in. GM puts may be a good option (rate raises, plus high gas prices, plus gm is not well positioned for hybrid/ electric) I wouldn't touch commodities, it seems the only area with an idea that this is coming. Good luck and if you bake, stock up on your flour now.
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