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Citi’s research team has attempted to answer what is arguably the most important current question for investors: how long does the commodity rally last?

Mining analyst Ephrem Ravi believes the Russian invasion is a transformative event for commodity markets. In his view, the sanctions on Russia, combined with the global energy transition away from fossil fuels, heralds a new era of resource price volatility.

The first quarter of 2022 marks the seventh consecutive quarter of commodity sector outperformance versus other major asset classes, Mr. Ravi notes.

Edward Morse, Citi’s global head of commodity research, says that investor inflows into commodity assets are near record levels.

And those inflows are particularly huge for wheat, barley, natural gas, nickel, fertilizers and seed oils where Russia and the Ukraine combined are the world’s largest exporters. These countries are the second largest exporters of crude oil, palladium and platinum, lumber, refined copper, ammonia, steel, uranium and these areas have also seen big investor interest.

Mr. Ravi emphasized that all commodity production, including agricultural, is energy intensive and high fuel costs limit profitability for providers. This limits the motivation and funds available for expanding resource operations outside the oil and gas sector.

Mr. Morse sees the oil price forecast as a binary proposition based on the duration of the military conflict. Continued warfare would see Brent crude supported near current levels but Mr. Morse is an outlier in his bearish mid-term view on oil. He believes that increased supply is imminent from Iran and that OPEC countries are set to raise exports. He predicts a US$69 per barrel oil price by the end of 2022.

Soft commodity prices will see the biggest near-term increase, according to Citi. Wheat prices, already up more than 30 per cent, could climb another 35 per cent if exports from the Black Sea are cut off, the bank predicts. Corn prices, up 13.5 per cent so far, might increase by another 25 per cent. Mr. Morse cautions, however, that grain prices are highly cyclical and are, in his words, “more likely to crash hard into 2023/24″ after conditions normalize.

Significant upside is also seen ahead for metals. The strategists believe that prices will continue to climb until demand destruction occurs and, thanks to renewable power expansion, that may take a while. Mr. Morse identifies copper as the most investable. Higher red metal prices are likely in most of the scenarios Citi has modelled and the bank forecasts a 20 per cent price increase in coming weeks.

Citi’s assumption of a new post-Ukraine commodity complex dominated by volatility sounds plausible to me. It should be noted that, as Mr. Morse freely admits, these year-end commodity predications, while higher, are not significantly above Citi’s forecasts at the beginning of the year.

Part of this is because the duration of Russia’s incursion into the Ukraine is unknowable; the U.S. bank doesn’t want to jack up estimates only to have to cut them again if Russia retreats.

There’s an implication here for all investors: be careful about banking on the commodity rally maintaining its current strength.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Emera Inc. (EMA-T) This Maritimes utility is a yield-investor fave: The company has been raising its payout for more than a decade, and told Bay Street last week that it’s targeting 2-per-cent to 4-per-cent annual growth in its dividend through 202 4. What it says in its annual financial statements, however, offers a more worrisome picture. David Milstead explains.

Fuel Tech Inc. (FTEK-Q) This stock is too risky for most investors - or even speculators. After all, the enterprise has lost money for seven straight years and less than two years ago it almost lost compliance with its Nasdaq listing. Revenues have been in a continuous downtrend for years, and except for a brief blip above $5 at the end of 2020, the stock price has done virtually nothing since it was above $34 in 2007 except tumble. Yet, The Contra Guys recently purchased the stock. One reason is the field where it works, as its primary business is controlling the pollution of utilities and industrial customers. And there are a number of other reasons, as they explain.

The Rundown

Nickel prices and oil uncertainty show nobody is sure about anything right now

Commodity markets are struggling to catch up to a world turned upside down by war and sweeping international sanctions against Russia. The London Metal Exchange, a key global price setter for industrial metals, suspended nickel trading on Tuesday after prices more than doubled. Wheat, copper and gold have also been on a tear, while oil, the single most important commodity to the global economy, continued its relentless climb after U.S. President Joe Biden banned the import of Russian fossil fuels to the United States and Britain declared it would phase out Russian oil by the end of the year. The combination of an unpredictable war, expanding sanctions and booming prices is resulting in an unprecedented wave of uncertainty for commodity producers and investors. Ian McGugan reports.

Worried about joining the rush into commodities? Consider these alternatives

The rally in commodity prices amid fears of a global supply crunch has turned a number of producers into red-hot investments this year, rewarding early bets on the sector. But latecomers might wonder how long the euphoria will last. One solution offered up by our David Berman: Look at stocks that stand to benefit indirectly from the rally, but have not yet reached the boiling point. In other words, ignore wheat and focus on railways. Tune out the forecasts for crude oil prices and embrace pipelines. Or accept rising natural gas prices as a good reason to invest in renewable energy.

Canadian dollar decouples from oil, adding to central bank’s inflation headaches

As the Russia-Ukraine crisis propels crude oil to its highest level in 14 years, the historic link between the Canadian dollar and energy prices has weakened, leaving the Bank of Canada with one less tool to fight inflation. Fergal Smith of Reuters explains.

2023 U.S. rate cut bets appear before hiking even starts

A flattening yield curve and slumping consumer confidence have been warning for months that U.S. recession risks are rising, but the alarm bells are suddenly being amplified by a rare quirk in the interest rate futures market. As Jamie McGeever of Reuters reports, there are signals a recession could be lurking as early as next year in a world that is changing so rapidly.

Investors shift to Latin America amid war in Europe, but risks remain

A rate hike cycle that started last year and low valuations had already made Latin America a darling destination for investors in 2022, and the Russian invasion of Ukraine is likely to keep cash flowing to the commodity-exposed region.

Also see: Winners take all: In some markets, Ukraine war sparks boom

The young HODLers keeping bitcoin on an even keel

Bitcoin’s been known to freak out when Elon Musk tweets a broken-heart emoji. So why isn’t it flying off the handle as we seem to stand on the precipice of World War 3? That could be down to the new HODLers, in part. Young retail investors betting on bitcoin as a long-term proposition rather than for quick gains are swelling the ranks of these true believers, whose name emerged years ago from a trader misspelling “hold” on an online forum.

Others (for subscribers)

Number Cruncher: How large investors rate U.S. home-building stocks

Number Cruncher: Which of these 10 leading TSX copper stocks are undervalued?

Wednesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: CEO cashes out over $12-million from this tech stock

Tuesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: CEO invests nearly $500,000 in this dividend stock after it tumbles to 2022 low

Globe Advisor

Medtech companies set to bounce as pandemic-delayed surgeries resume

Three investment themes that can stand the test of a selective market in 2022

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Ask Globe Investor

Question: I am hoping to buy a bigger condo in 1-3 years and have started saving for that. I have a modest amount in my TFSA sitting in cash towards this purchase. Given that I am going to need that cash in the near term, I have opted to not invest the funds in stocks or bonds because of the risk.

I was wondering if there is a money mart where I can park the cash in a TFSA and get a better return. Even a negligible amount of interest is still tax free income, and assists in a rising inflationary environment. – Martha D.

Answer: EQ Bank is a good choice in your situation. You can open a TFSA with them and arrange a direct transfer from the cash in your current plan. Just don’t make the mistake of withdrawing the money and the redepositing it; the CRA would consider that as a new contribution and you could end up facing overcontribution penalties.

EQ Bank’s current TFSA rate is 1.25 per cent interest, which will be tax sheltered. It’s not much in the way of return, but you say you want safety above all else. Your money will be protected by the Canada Deposit Insurance Corporation, up to $100,000.

--Gordon Pape

What’s up in the days ahead

Tim Shufelt looks at the Canadian stocks, sectors, and styles most vulnerable to the geopolitical shock of Russia invading Ukraine.

Click here to see the Globe Investor earnings and economic news calendar.

A callout to readers

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Compiled by Globe Investor Staff