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Nicholas J. Johnson, Gillian Rutherford
This article originally appeared on institutionalinvestor.com on 19 May
2014.Since the end of February, trading in the commodities markets appears to be largely unaffected by the Crimean crisis – at least at first glance. Oil prices are 1% lower, based on brent crude oil futures, despite Russia being the largest oil producer in the world. Even in European natural gas, where roughly 30% of supplies come from Russia, prices have actually moved substantially lower despite some initial spikes in early March as warm weather sapped demand. We see several potential reasons for this, but the bigger picture is that commodities traders haven’t been very concerned about supply disruptions from Russia. However, the same is not true for traders in commodities that depend on Ukraine for a large share of supply. Those commodities are wheat and corn. The link between Russian credit risk and wheat prices If you want an outside gauge of whether the market is more or less concerned about events in Russia and Ukraine, you can look at wheat prices. Ukraine is a major supplier of grains, particularly wheat and corn: The country represents roughly 7% of global wheat exports and 17% of global corn exports, on average. Since the end of February, when the Crimean crisis started to escalate, grain prices have responded to nearly every up and down of the crisis (Figure 1). Wheat is up 21%, and corn is up 10%.
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