025: Black Sea Initiative 07-21-23

What's the cost of Russia's decision to abandon the Black Sea Initiative deal with Ukraine? Take a deep dive into the repercussions with Chief Investment Officer, Megan Horneman, as we tackle the thorny issue in this episode of Markets with Megan. Brace yourself for an eye-opening discussion on the potential strain this move puts on Ukraine, one of the biggest exporters of grain, fertilizer, oil, and seed, and the adverse ripple effects on lower-income nations and emerging markets that depend heavily on these resources. 

Feel the pressure mounting as we explore the sudden surge in wheat prices and the resulting impact on inflation, especially food inflation. Megan enlightens us on the global impact this situation could have on farmers across the world who rely on grains and fertilizers for their operations and animal feed. Discover the strain on central banks, the possible measures they may have to resort to in such a scenario, and the potential of a secondary deal. Tune in for an enlightening discourse as we dissect current market trends and global economic happenings in light of these developments. We'd love to continue the conversation with you, so email us your thoughts and questions at podcast at verdance.com!

Hello and welcome to Markets with Megan. I am the Megan Hornemann, the Chief Investment Officer for Verdin's Capital Advisors, and today we want to talk a little bit about the news surrounding Russia's decision to exit the deal they had with Ukraine the Black Sea Initiative and what this was was a deal that allowed Ukraine to freely use the Black Sea to transport exports around the world, specifically to a lot of the very lower income countries. Remember that Ukraine is one of the biggest grains producers and grains exporters, so they needed to use the Black Sea in order to transport their goods, and Russia decided that they were going to exit this deal, which means that any ships moving within the Black Sea are considered military aid towards Ukraine and Russia can take action on them. So why is this important from an economic and investment standpoint? A couple of things. As I mentioned, ukraine is one of the biggest exporters of grains, fertilizer, oil, seed and the lower income nations, so in the emerging markets, this was extraordinarily important for them to export this food to them, especially because they're already in food insecure countries Without these exports.

This is a dangerous for these emerging market economies and it can have ripple effects around the world as well. We're seeing that this week, with the spike we've seen in wheat prices, for example, they're up about 7% this week alone. This can have an impact on inflation food inflation Remember. Farmers around the world use fertilizer. They use grains to not only fuel their farms but also feed their animals. So we're watching this closely and seeing the developments on this. There is news that they might strike a secondary deal, but for this time, this is dangerous. This is one of those things that we talked about when it comes to inflation, where there's no room for error, and if we do get another spike up in food prices, this puts more pressure on the central banks and they may have to continue to take actions. So we'll watch this closely, but we just wanted to make you aware of the headlines and what that meant for the economy. If you have any questions or comments, please feel free to reach out to podcasts at verdancecom.