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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Zoltan Pozsar, Credit Suisse’s global short-term credit strategist, is right at the top of the list of most popular Wall Street analysts as a result of the financial sanctions on Russia.

But the best thing I read Wednesday was not research by Mr. Poszar. It was a reaction to one of his recent reports by Singapore-based pundit Alex Turnbull,

“Commodities are not like [money]. They exist and move through physical space: the plumbing is actually plumbing, something that the academic literature has oddly forgotten - outside of power markets … The literature in power markets as well as day to day practice at grid regulators is heavily focused on scenario testing for flow constraints, potential outages of transmission leading to localized shortages and how best to ensure reliable supply at reasonable cost. That sounds a lot like the world we find ourselves in today: commodities do not just clear in an abstract market at a few sites that qualify for futures delivery with perfectly fungible (but not free) transport anymore … If this all sounds a little like exclusive dealing and vertical networks in the railroad baron era that is because this is exactly what is happening … One of the big losers in all of this is likely to be freight shipping: as China is likely to trade more with Russia the appeal of overland transport is going to be significant here both to avoid detection and ensure capacity … If Russian nickel doesn’t miraculously make its way to China I will be very, very surprised … Zoltan’s solution - that the PBOC be a kind of grand commodity backstop misses the point that the problem is not money - it is logistics… What does this look like in a year? Trade will look less like a fully connected network where everyone trades with everyone. Instead, there will be two clusters with some parties that trade between both networks perhaps via intermediaries, perhaps covertly but a great many who do not.”

This is not the most accessible essay, but I think all investors in commodities will learn something.

“A Reply to Zoltan Pozsar” – Turnbull, Substack

Related: Zoltan Poszar of Russia, Gold and a Turning Point for the U.S. Dollar – Odd Lots (Apple podcast)

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Citi commodity strategist Aakash Doshi published his Viewpoint slide deck Wednesday,

“No matter what the outcome [ in the Ukraine], the world will have changed whenever the current conflict reaches a point of stabilization. Geopolitics and markets will be different, but the question is how different. … The Energy Transition has been described as creating a bumpy road for the world, but it is more of a revolutionary path. For 160+ years the model of global growth has been based on the ample supply of cheap fuels, generating power, fueling transportation, providing the bases of industrial and agricultural processes. Now much of the world has committed to undo all of that in 30 years … The R/U crisis, overlapping with the 1st crisis of the Energy Transition, has seen a new surge in commodity prices, based on increased supply risk from commodity-intensive Russia. Two macro changes provide a preview of the years ahead – heightened commodity volatility … Implied volatility has escalated for commodities whose trade is dominated by Russia/Ukraine, the largest world wheat export bloc with 28% share, with Russia at about 18% of global wheat trade flow. Ukraine is also the fourth leading global exporter of corn (after the US, Brazil, Argentina) and each economy is ~15% of barley export share, for a combined 30% of global trade for the minor feed grain. Hence 100% implied vol here and in other Russia-”intensive” commodities, like nickel and aluminium”

“Citi Commodities Forecast Update” – (table) Twitter

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Scotia’s Fertilizer Weekly by analyst Ben Isaacson report has become a must read for me because of Russia-related food inflation. The newest edition was published yesterday,

" When EU gas was ~$30/mmbtu early last week, the marginal cost of ammonia production was ~$1,100, and the benchmark price? Also, $1,100 (FOB Black Sea). With gas now in the $55 to $65/mmbtu range, the cost of ammonia production is $2,000 to $2,400/mt. Watch for most gas-based ammonia plants in Europe to shut down imminently (the timing couldn’t be worse, as spring gets underway)… Russia’s Ministry of Industry and Trade recommended on Friday the suspension of all fertilizer exports, effective immediately. The ministry cited logistics issues, which really means foreign logistics companies are refusing to deliver Russian product … Urea prices soared $70 to $155/mt last week, with only the NOLA market left behind at ~$643/st. It’s nearly impossible to imagine a scenario where nitrogen prices don’t continue soaring higher”

The summary here is that things are dire for farmers buying any type of fertilizer as planting season approaches.

“Fertilizer markets are insane (Scotia)” – (research excerpt) Twitter

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Diversion: “China Hacked at Least 6 U.S. State Government Networks” – Gizmodo

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