Speaking of Russia and Ukraine, Kazakhstan’s Revolution, Cotton, Grains, and The Week in Review

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Speaking of Russia and Ukraine, Kazakhstan’s Revolution, Cotton, Grains, and The Week in Review

Happy Friday! Our latest podcast on whether Russia will invade Ukraine with Max Suchkov is a must listen – which you can do by clicking here

Speaking of Russia and Ukraine. Security talks between Russia, the U.S., and NATO did not go well. A Kremlin spokesperson noted that despite some “positive nuances,” the two sides are still in disagreement over Russia’s primary demand: a guarantee that Ukraine will not be allowed to join NATO.  NATO secretary-general, Jens Stoltenberg, warned of “a real risk for new armed conflict in Europe.” Russian Deputy Foreign Minister Sergey Ryabkov told RTVI that “dialogue is still underway” but warned of a “military-technical response” if talks remain deadlocked.

What it means: We still think a large-scale Russian invasion of Ukraine is unlikely. Even so, and in light of recent events, we are reexamining our position. We are growing more concerned that a more circumscribed “military-technical response” could still cause significant problems, especially in global energy markets.

Kazakhstan’s short-lived revolution. After barely a week in Kazakhstan, Russian-led CSTO soldiers have reportedly returned home, having “accomplished their mission.” Kazakhstan’s parliament installed a new prime minister, Alikhan Smailov. After a brief disruption at some Kazakh oil and natural gas facilities, Kazakh production is roughly back-up to the same levels as before last week’s unrest. President Kassym-Jomart Tokayev continues to take steps to disempower former President Nursultan Nazarbayev and his family, whilst talking up populist policies aimed at reducing economic inequality and stamping out corruption.

What it means: Either Tokayev is a far savvier political operator than many, including us, appreciated – or Nazarbayev is unable to assert his traditional power, whether because of poor health or other unknown reasons. For now, Tokayev’s government appears to have things under control.

Cotton. The USDA revised its forecast for U.S. cotton production down 600,000 bales, sending cotton futures to a 10-year high. A combination of low beginning stocks, lags in harvesting and processing, and logistical issues has also led to two “extremely slow” months in terms of U.S. cotton exports reaching their intended markets. The markets most affected are Asian markets. U.S. shipments to Central America are actually up.

What it means: While COVID-19 induced supply chain disruption is at least partly to blame, this also seems to indicate U.S. cotton producers are clearly prioritizing shipping closer to home than traditional markets further abroad most global apparel producers are currently dependent on. Add severe drought to that picture and you get sky-high prices. 

Grains. In southern Brazil, high temperatures and lack of rainfall have estimates for Brazil’s soybean crop harvest being revised downwards by ~8 percent. Paraguay is now predicting a 40 percent reduction in its soybean harvest this year. A heatwave is bringing temperatures as high as 50ºC to parts of Argentina, Uruguay, and Paraguay. Water levels on the Paraná River have reached their record lows from August 2021, and Argentina’s National Water Institute predicts “deficient precipitation conditions on the Argentine coast” for the remainder of Q1 2022.

What it means: Global food prices declined slightly in December but are still at a 10-year high. USDA forecasts on South American grain production look overly optimistic.

Extra! Extra!

An early candidate for video of the year. #texasforever

The U.S. withdrew support for the EastMed gas pipeline project, meant to take Israeli, Cypriot, and Egyptian gas via pipeline (and outside of Turkish waters) to Europe.

The Tunisian government imposed a night-curfew and a ban on all public gatherings for two weeks from Thursday.

Uzbekistan ceased natural gas exports to China and has indefinitely postponed a planned increase to fuel prices.

Libyan oil production increased by 23 percent this week after the National Oil Corporation reached an agreement with Petroleum Facilities Guards, which had been blockading major fields at Sharara, El Feel, and Wafa for the last month.

Iranian nuclear negotiator Ali Bagheri Kani said outstanding differences between the U.S. and Iran were diminishing. According to Axios, the White House believes talks will reach a critical decision point “in a matter of weeks.”

South Africa is on track to hike the price of electricity by more than 20 percent beginning in April 2022.