Hey everybody, Peter Zeihan here coming to you from Canada’s famed Okanagan region, an area famous for its deep lakes. It’s nice wine, and it’s crystal blue skies, but maybe not today because it’s just as smoggy and smoky as the rest of the continent is going to be for the rest of the summer. Anyway, I want to use today as an opportunity to talk about some of the agricultural things that are going on in the Ukrainian space. Specifically, we now have a coalition of five EU countries that have decided they’re not going to accept any shipments any longer from Ukraine, they’ll still allow trans shipments. So it’s not like the stuff has completely gone now. But they’re not going to take the deliveries themselves. You’ve got five countries, Poland, Hungary, Slovakia, Bulgaria, and Romania, all of who are relatively significant agricultural producers for a lot of the same products that come out of Ukraine. And what’s been happening is, with the Ukrainians have lost the ability to do their normal export systems. Normally, they would ship everything out by water down the Nieper, get it packaged at a place like Nikolaev or Odessa and then shipped out to the wider world, or they would process it and crush it in the case of sunflower at home, and then ship out the the intermediate product, they can’t do any of that right now, power grid is not stable enough to do the crashing. And most of the crashing is imports, several of which are under Russian control. And the Russians have the ability because they have naval supremacy in the area to prevent any sort of
Bulker from coming or going without their Express say. So. Now there has been a deal in place that allows the Ukrainians to export some what basically the Russians insist on inspecting the bulk or on the way in and the way out to make sure it’s not being used to smuggle. And that deal has basically fallen apart now. So it’s been going less and less and less over the winter. And now it’s basically defunct, and the Russians are indicating that they really have no intention of re upping it at all. Now, this used to be 80%, almost 90% of Ukraine’s exports, you can rail stuff out. But now three problems. Number one, there’s a different rail gauge between the European Union and the former Soviet world. So that’s a problem, you and there are only so many carriages that can adjust. Number two, all of the countries that are on the edge, you know, Poland, Romania, and the rest.
They’re all grain exporters themselves. So when the Ukrainian stuff was coming in, it was getting dumped on the local market, local farmers were getting quite aggroed. And now they can’t do that. So you can still export it through these countries to other places.
But then you need twice as many rail cars that are capable of that jump, or you need a facility at the border that can shift the grain from one car to another. And those just don’t exist at scale. And now you need twice as many to get the same amount of stuff out. So all told, with these two problems in place, you’re looking at Ukrainian grain exports dropping by roughly 80 to 92%. And there’s really no way around that. The third problem is that processing stage. The Ukrainians while always been a significant exporter of the raw stuff, also did a lot of crashing specifically for their sunflowers. Well, without crashing, now I’m accessible. They need to find another facility, there are facilities in all five of these countries, but they process local stuff. So once you process an agricultural commodity into things like oil, it takes up a lot less space, it’s higher value to bulk. Well, not only are the Ukrainians not able to do that now. So they get this higher bulk lower value product, they have to send it farther. And it just takes too much effort and too much cost and there’s not enough infrastructure to support it. They’ve been trying to build out the rail system, they’ve been trying to bring in more rail cars, carriages, but it just hasn’t been enough to move the needle. And so even without the Russians deliberately attacking the agricultural infrastructure, which they are doing, you’re still looking at that 80 to 90% reduction in the ability of Ukraine to participate in the international market. The biggest losers, aside from the Ukrainians, of course, are the Egyptians who source the the majority of their imported wheat from Ukraine specifically. But there’s a large number of countries in Africa and in South Asia, that source ultimately Ukrainian and to a lesser degree, Russian wheat, and we’re going to see all of them get hit to a significant degree. The question will be if we get to a point where the Russians start actually targeting shipments themselves, we’re not there yet. It’s probably just around the corner.
The only way that this is going to change is this be Ukrainians get access to the water again. And that means if this counter offensive that they’ve just launched is successful. It would have to include, at a minimum the liberation of the entirety of the Crimean peninsula, because most of the grain goes down the NEPA river to Odessa and as long as any part of that route is within range of Russian weaponry. It’s
Just a no go. So you’re talking about them having the Ukrainians would need to liberate the entirety of southern Ukraine and the entirety of the Crimean peninsula. And that is a very, very tall order probably won’t happen this year. Which means that any of the agriculturalists and farmers in Ukraine who gets screwed this year, because of a lack of export options, won’t have the income that’s necessary to afford the plant next year. And assuming a runaway Ukrainian victory, it still means that Ukraine is not going to be a significant agricultural player in the world for several years. And then of course, if the counter offensive fails a lot longer than that.
Well, crap. I kind of was looking for a happier topic. This is not it. I’ll try harder tomorrow. Bye. You