Category Archives: Geopolitical Concerns

The Port City of Odessa…Why it’s an Important Piece of the Puzzle

Not only is Odessa an important warm-water port in Ukraine, once giving the Russian Empire and the Soviet Union access to the Atlantic Ocean, but it is also home to the Ukraine Navy. Thoughts are pro-Russian activist are aggressively trying to take over this region. Reports circulating inside the trade show the Odessa port will move between 20 and 25 million tons of cargo per year. Their container terminal is massive and GRAIN represents the largest percentage of that business. There is also talk that about 100,000 jobs are directly or indirectly related to the port’s activities. To say it’s a key piece to the puzzle would be an understatement. It appears Russia is most interested in the port city of Odessa (with approximately 1 million residents) because of its geographic proximity to “Transdniester,” which is only about 40 miles northeast of Odessa. For those who don’t know, “Transdniester” is is a breakaway independent state located along the Ukraine border. The area hosts a strong Russian military presence. It is also argued that following the collapse of the former Soviet Union, the Russian 14th Army left 40,000 tons of weaponry and ammunition in Transdniester. Moral of the story, Russia has troops and weaponry in Transdniester and the best way to gain access to the Black Sea is via the well connected rail and roadways into Odessa. If Ukraine looses control of the port then their begins to be more questions and uncertainty in regard to grain shipments out of Ukraine. 

Ukrainian Farm & Political Update…Things To Think About

According to sources in Ukraine, the planting season has started a bit early this year. For most of the country, I am hearing the winter crops have seen their plantings decrease by about 2.5 million acres as producers shift to more profitable crops — like corn, sunflower, and soybeans. However, the current political risks seem to be limiting the producers’ desire to sharply increase planting area or input costs, so who truly knows how many acres will for sure go in the ground???  According to the APK-Inform agency, Ukraine is forecast to produce 57.3 million metric tons of grain in 2014. I am also hearing that corn planting will start in about a week in many locations. As far as weather, most meteorologists seem to believe planting conditions in the coming weeks will be somewhat favorable. Soil moisture levels seem to be satisfactory with a few concerns in select areas. So at least as of now, the picture looks fairly good for Ukrainian production to get in the ground. The kicker however is that total ending yields and crop prices hinge on a possible war with Russia. The risk of full-scale invasion by Russian troops still remains a concern and is certainly something we must continue to monitor. Despite earlier promises from Putin to withdraw troops from the Ukrainian border, the number still remains massive and certainly on the minds of those inside the Ukraine borders. From what I have read and heard, the Russian troops are fully equipped with tanks, anti-aircraft battalions, bombers, fighters, armored vehicles, heavy artillery, etc. As I have said on several occasions, many believe Putin’s takeover of Crimea is actually part of a much larger mission. Remember, in and of itself Crimea is a big burden if you don’t have the logistics from the coastal Ukraine to go along with it. The cost of shipping all necessary goods to Crimea by sea is overwhelming if they are coming from the Russian mainland. This is why many believe Russia is strategically more interested in moving further along and occupying the entire southern part of Ukraine. This way Russia also cuts Ukraine off from the Black Sea ports. The military experts say the most crucial days for Ukraine will be from now through the end of May. The dry and warm weather in South Ukraine currently allows for the movement of the heavy military weapons like tanks, anti-aircraft mobile radars, etc. Experts also say an invasion is unlikely before April 20, since this is when Russians and Ukrainians celebrate the “Orthodox Easter.” The big day on the radar screen seems to be May 25th, the day of presidential elections in Ukraine. Several military experts believe Russia will try and disrupt the elections by provoking turmoil in the Eastern and Southern areas in the days leading up to the event. Possible dates that are bing thrown out for such turmoil are May 1 (the International Working people solidarity day), May 9th (the Victory day), and days just after the elections. Bottom-line, provided there is no full-scale war, Ukrainian agriculture looks to be in adequate shape. I am certainly concerned about the higher interest rates and falling valuations of the Ukraine currency as it makes farming much more expensive. Ukraine’s ports however look more than capable of keeping up with ALL export demand  just as long as the producers are willing to let go of the bushels. However, the question still remains, what happens if and when violence in the Black Sea region escalates into a full-blown war???

What About Fuel Costs…Are We Overlooking Egypt?

With all eyes focused on Ukraine, recent events in Egypt may have been largely overlooked. On March 24, 529 individuals were sentenced to death and at least 600 more are currently awaiting trial. The charges are related to events that led to the ousting of former President Mohammed Morsi last year. The mass trial for all the defendants that have been sentenced lasted only one hour, and only 129 of those accused were present. They are charged with attacking police, killing one officer and attempting to kill two others. According to defense lawyers, they were not allowed to present their case or call witnesses. The international community and human rights groups view the trial as a “sham”, with the sole intent of silencing dissent among the Muslim Brotherhood members that protested against the ouster of Morsi. As of right now Egypt is currently under the control of the military. Army chief Abdel Fattah el-Sisi was heading things up until March 26th, when he announced he would step down in order to run for president. That election will be held on May 26th and 27th. He’s a popular guy, having stepped in to end Hosni Mubarak’s three-decade reign in 2011, then again heeding the public’s call to have Morsi removed from office less than two years later. Morsi was actually the first democratically elected president in Egypt’s history. Keep in mind, Morsi’s main group of supporters are members of the Muslim Brotherhood, which have been declared a “terrorist organization”. Militant members of the group have no doubt launched violent attacks against soldiers and police since Morsi was dethroned, but the severity of the crackdown is definitely raising international eyebrows and has even led to mass demonstrations across Turkey, which is also in the middle of a contentious election. The crackdown in Egypt is slowly turning into a deeper battle against Islamic fundamentalists and while that may be justified to some degree, Egypt’s radical move to silence the dissent may be creating more problems than what it hopes to solve. If Sisi does indeed win Egypt’s presidential election in May – and most believe that is inevitable – the legitimacy of that vote is no doubt going to be questioned, which in turn is probably going to lead to even more violent protests. Unfortunately, they may not be isolated to just Egypt. We could be looking at a more dangerous and widespread “Holy War”, stretching from northern Africa to across the Middle East, where stability is tenuous at best. The reason I bring this up, is because it could make crude oil and energy traders a bit more nervous in the weeks ahead. If this ends up being the case and violence starts to spread across the Middle East, then I suspect more “risk premium” will quickly be added to the energy sector. I am not locking in my fuel as of yet, but I am certainly keeping a close eye on it.