The War in Ukraine: The principal impacts on commodity markets

On February 20, 2022, an event shocked the world. The first Russian attacks on Kiev, the Ukrainian capital, and other áreas occurred. A year later, the war in Ukraine has unleashed numerous challenges on the commodity markets, causing significant changes.

From the difficulties that arose, solutions were proposed, new agreements emerged, and thus the markets began to change. In addition to all the tragedies resulting from a war, the economic losses have mainly affected the two countries involved.

As a result, other countries have stepped in to meet the demands, and they’ve ended up benefiting. This is what happened to other suppliers of the same commodities that Russia and Ukraine were major suppliers of before.

Our specialists who work with the commodities most impacted provide an overview of the main events as the war reaches its first anniversary. We look at the impacts, losses, and changes that have occurred.

 The War in Ukraine’s impact on grains

Of course, when two big countries are at war, many markets are affected in many ways. In a globalized world, all international trade is intertwined in such a way that if a large player has its flow altered, it winds up affecting the rest of the world in a cascade effect.

In the case of this conflict, the main agricultural commodities affected were grains, especially wheat. Russia is the world’s largest exporter of the commodity while Ukraine occupies fourth place in the ranking. Together, the countries account for 30% of global wheat exports.

Even Brazil, which is both seeing an increase in its production and moving towards self-sufficiency, still needs to import between 50-60% of all the wheat it consumes. Our main supplier is Argentina, the seventh largest producer in the world. But this example shows the true impact of the war, since other countries–mainly those that don’t produce–are very dependent on Russia and Ukraine in this sense.

With the conflict, the price of wheat recorded its highest price increase in history in 2022. International wheat prices increased by 76% above the February average, according to Ipea. As a result, there was an incentive for greater production in Brazil, but few producers were able to adapt their production to make such a change.

Faced with this situation, Russia and Ukraine signed an agreement in July allowing the creation of a maritime corridor for grain exports. Overseen by Turkey and the United Nations, the “grain corridor”, as it became known, helped to alleviate the food crisis.

After six months of activity under the accord, 19 million tons of agricultural products have already been shipped from the port of Odesa, on the Black Sea.

Impact on the energy marrket

As soon as the war began, one of the major concerns was the supply of energy to Europe, mainly natural gas and oil. Russia is the continent’s biggest supplier, and as well as the difficulties of logistics and negotiations in a country at war, there were sanctions imposed on Russian products.

But the concern was greater than reality. As the winter in Europe wasn’t as cold as previous ones, our own production and imports from other players were able to meet the demand. In terms of oil, the United States was able to meet its needs through the stocks it had.

During the year, the oscillation in the price of oil was one of the biggest since the crisis of 2008. As soon as the war started, the price shot up 20%. Throughout the year, there were many ups and downs, and instability reigned. In Brazil, the political scenario made the energy market even more unpredictable.

There’s still no clear expectation of an end to the war in Ukraine. Even if an agreement is reached, it should take a while for everything to become stable and go back to the way it was–if indeed there’s a way to go back. Some changes from the period are definitely here to stay.

How do you protect yourself from fluctuation in the commodity markets?

As we see time and again, commodity markets are highly unstable. Even when they’re not impacted by an international conflict, the political and economic scenarios in Brazil and abroad greatly influence price formation. Exchange rates also typically fluctuate a lot.

With so many extreme variations, it’s essential that you plan well to ensure more predictability and security for the future of your business.

Using hedging strategies is the best option to avoid unpleasant surprises in the financial planning of those who work in the commodity chain.

hEDGEpoint brings together the knowledge of experts in risk management through technology and customized products to always offer you the best experience.

We are globally present, and always prepared to serve you, at any time and in any place. Get in touch with a consultant soon to learn more about how to use these instruments to favor your business.

Talk with a hEDGEpoint specialist today.