Commodities Volatility Is Here to Stay, Cargill Says

(Bloomberg) -- Wild swings in commodities from wheat to crude oil are here to stay with global supply chains getting reassessed in the wake of Russia's invasion of Ukraine.

That's according to Gregory Broussard, global head of financial trading for agriculture giant Cargill Inc.'s risk management unit.

An economic ostracization of Russia is likely to persist even if the war ends, prompting reconsideration of how critical supplies like grain, fertilizer and fuel are sourced and produced, Broussard told Bloomberg in a wide-ranging interview. Countries will likely start hoarding commodities as a caution.

“We will exit this war from the supply side tighter than we entered it,” he said. “When people start throwing sanctions around, they don't just dissipate overnight. It has implications for routing of raw materials.”

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The need to be less reliant on unstable regimes for key commodities is coming to the forefront amid the worst U.S. inflation in four decades. It also coincides with another driver of volatility -- the global push for net-zero emissions by mid-century in a bid to avert catastrophic climate change. 

“Everyone is going to look at how they source raw materials, if they can in fact produce those raw materials themselves such as not to have to deal with a player like Russia,” said Broussard, who rarely gives public interviews and has visibility into the largest traded agriculture markets across the globe. 

Giving up Russian exports won't be easy. Russia is the European Union's biggest natural gas supplier, accounting for more than 40% of imports. It's also a top global exporter of fertilizer, which is produced with hydrogen and ammonia, viewed also as promising potential ingredients for future “clean” transportation fuels. 

Governments and companies are looking for new sources of biofuels other than food crops as more petroleum companies look to make climate-friendly diesel from ingredients like soybeans and canola.

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“People are trying to turn everything from wood to cow's manure into fuels,” Broussard said. “All sorts of technologies are on the table to help answer the question: Do we want to give up half of our food to put in our car?”

How the energy transition unfolds is anyone's guess, but in the near term, one thing is clear, Broussard said: “It will be highly disruptive.”

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