THE GROWING IMPACT OF ECONOMICS & GEOPOLITICS ON OUR MARKETS…

Sébastien
18 Nov 2021

Who would have thought that an immigration crisis in Poland could directly impact our cost of production? Who would have thought that the COVID19 pandemic would have generated major supply issues and thus inflation ? What will happen next for Taiwan? There is no doubt that geopolitical tensions are growing, everywhere. In a world where wars are declared without weapons, energy and food supplies can turn into very powerful negotiations tools.

Global economies are booming.  Shortages are occurring within most supply chains.  In this context food and energy security represent a real geopolitical stake. Mr. Putin knows this. The world is dependent on his wheat, Europe upon his gas. He is a powerful man. The remainder is about political communication.

Over recent decades and since the end of the Cold War, most international conflicts have been resolved through negotiation. This should be the case once again. However we should not ignore any short-term escalation risks with Russia, China and the Americans playing a major role. But at this stage, it is still more likely that gas shortages will be solved  in 2022 and thus fertilizer supplies could come back to normal. 

In the longer term, world geopolitics is evolving rapidly and power is changing hands, from West to East and from North to South. This will inevitably impact the international trade of commodities, both energy and food. Food security and stockpiling will certainly become a real focus for all. 

All in all, we consider that geopolitic tensions should induce higher demand and provide a supportive environment for our commodities. Food prices should remain high and could even reach new records. Yet as a counterparty to this, cost of production should also increase along with energy prices. 

Profitable farming will depend on your ability to efficiently produce, to mitigate your costs, optimize your yields and with more importance, to sell your crops at the right moment! Price volatility will remain a very strong margin trigger in the coming years!

    

Sébastien Mallet 

 ODA UK