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Ukraine is Europe's most important actor in agriculture. And the Russian standoff over the Crimean region is creating a number of concerns for Europe's breadbasket.
Ukraine also feeds North Africa, and social unrest over food prices in nations like Egypt and Tunisia will heat up again if grain prices continue to soar.
Today, Ukraine is one of the top six exporters globally for both corn and wheat, and it's renowned for having some of the best soil in the world. The world's largest grain-trading companies have strategic ports and processing facilities in Odessa and Mariupol, and expansion has surged in recent years.
But Ukraine's current situation is part of a broader perfect storm for agricultural investors.
Four major stories happening right now are driving grain prices to new heights and will make this summer a "hot time" for those who know how to invest in global agriculture.
Here's a quick breakdown.
The Four Factors Driving Grain Prices Higher
- China is buying everything. The country's sovereign funds have been gobbling up grain-trading houses, port terminals, and farmland. COFCO, China's largest grain trader, might even purchase Noble Group's agricultural arm, which would deepen China's reach in South America, South Africa, and Ukraine. There are more than 1 billion people in China, and they're doing all they can to feed their rising middle class.
- The winter weather in the United States probably won't affect a possible record harvest. But the longer this cold snap goes on, the more uncertainty it will cause. California's drought is part of a broader story on how weather can cause greater volatility for the road ahead in the grain markets.
- Argentina and Ukraine, two of the world's leading agricultural producers, have serious currency problems that are not going away. Both nations have seen their currencies contract in massive price swings this year. And when that happens, farmers hold their grains off the market as long as possible as a hedge against rampant inflation and political risks, creating steep supply concerns like the one that caused a spike earlier last week.
- Brazil will face protests this summer over the World Cup. Brazilians are outraged that the government spent billions to host a soccer tournament but continues to do very little about education and poverty. Ukraine's uprising happened during the Olympics, when the whole world was watching. And that's going to happen again this summer when 32 teams meet in Brazil. Expect disruptions in the nation's commodity markets at ports and on roads and possibly even massive strikes across the nation.
All four of these trends create supply concerns. And when supply concerns rise, so do prices.
The road ahead for agriculture is full of volatility, but it's going to be a great time for long-term minded investors.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.