Friday, March 31, 2023

Supply Lines: Russia's crop grip

Shortly after the outbreak of Moscow's invasion of Ukraine, a wave of foreign companies left Russia. Most Western crop traders stayed put wh

Shortly after the outbreak of Moscow's invasion of Ukraine, a wave of foreign companies left Russia. Most Western crop traders stayed put while touting the importance of their role in keeping grain flowing from the vital Black Sea breadbasket.

But this week, their future has been quickly rewritten.

The two biggest Western shippers of Russian grain, Cargill and Viterra, will halt purchases for export in a shift that will give local firms more control over shipments. The moves appeared to spook other traders, with Archer-Daniels-Midland now reviewing its stake in a sweetener and starch venture there.

Even though agricultural products are not under sanction, the war had already made trade more complicated and foreign traders have faced some Russian government pressure to leave. Some food and agriculture companies have been scaling back their operations or investments over the past year. Another big trader, Bunge, already left Russia last year.

Russia is the world's largest exporter of wheat and a key contributor to global food security. Its grain is expected to continue to flow out. 

But changes will come. As Bloomberg Opinion's Javier Blas argues, just as in the oil trade, Russian grain will move into the shadows and without Western traders present, Washington and Brussels will lose a key source of intelligence:

"If anything, the Kremlin will have a stronger say about where — and at what price — its grain goes, a potent economic weapon. Obscurity, money and political influence is what Putin will get."

Agnieszka de Sousa in London

Charted Territory

Brazil's charm offensiveHundreds of Brazilian agribusiness leaders flooded Beijing last week. President Luiz Inacio Lula da Silva is betting a high-stakes trip to China will further open the world's biggest commodities importer for his country's products, helping him make peace with a sector that overwhelmingly supported his predecessor in last year's election. Trade and investment are the key drivers for any deepening of relations between the two countries. Lula wants to boost sales to China, which is already the biggest destination of Brazilian exports, and lure investment to upgrade the country's infrastructure. The South American nation is already the main supplier of agricultural goods to China, accounting for 60% of its soybean imports and 40% of its beef purchases. (Read the full article here). 

Today's Must Reads

  • Pricier sugar | Ubiquitous sugar is becoming ever more expensive, raising costs for the industry and keeping up pressure on global food inflation. 
  • Biodiesel plans | Indonesia said the ramp-up toward its latest biodiesel mandate has been slow, but the country will stick to its target of producing fuel using a 35% blend of palm oil this year.
  • Banning lab-grown | Italy's government introduced a draft law that, if approved, will ban the production and sale of cultivated food and meat.
  • 'Dollar Malbec'| Argentina is rolling out a temporary, subsidized exchange rate for wine and other agriculture products in an elaborate bid to boost exports and foreign reserves as the worst drought in a century exacerbates a looming recession.
  • Food probe | South Africa's Competition Commission is investigating the price of a range of essential-food products, after consumers were subjected to "unjustified increases" over the past two years.

On the Bloomberg Terminal

  • Sustainable agriculture | Policy, markets, technology, and consumer preferences need overhaul and alignment in order to invert farming and land use from climate and environmental burdens to remedies, BloombergNEF argues. 
  • US crop | US soybean and corn acreage might rise in the upcoming planting season on improved crop profitability as fertilizer prices tumble, according to Bloomberg Intelligence.
  • Run SPLC after an equity ticker on Bloomberg to show critical data about a company's suppliers, customers and peers.
  • On the Bloomberg Terminal, type NH FWV for FreightWaves content.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.

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