War and Wheat: Navigating markets during global conflict with Dennis Voznesenski

Summary

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The HC Commodities Podcast: War and Wheat — Navigating Markets During Global Conflict

Host: Paul Chapman (HC Group)
Guest: Dennis Voznesenski, Agricultural Economist & Author
Date: July 15, 2025

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Episode Overview

In this thought-provoking conversation, Paul Chapman welcomes Dennis Voznesenski, agricultural economist and author of War and Wheat: Navigating Markets During Global Conflict. Drawing on his book, Voznesenski discusses how agricultural—and particularly wheat—markets have responded to the stresses of World War I, World War II, and the modern Ukrainian conflict. The discussion reveals underlying laws that govern commodity markets in times of crisis, lessons from history, and the enduring importance of logistics, government intervention, and adaptability within the industry.

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Key Discussion Points & Insights

1. Why Write About Wheat & War?

• Dennis began researching to truly understand what drives dramatic commodity price movements, beyond superficial explanations of “technical reasons” or fund positions.
• His analysis of days with notable wheat price moves (over 3%) revealed that the largest were almost all caused by politics, government actions, or conflict.
  • Quote:
    “I realised that the biggest price moves occur due to politics, due to governments getting involved, or due to conflict—they’re kind of wrapped together.” (02:38, Dennis Voznesenski)
• He meticulously dove through historical newspaper archives, tracking wheat markets during WWI and WWII from the Australian lens.

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2. Markets as (Imperfect) Predictors of War

• Pre-World War I, only Germany notably stockpiled wheat; Allied nations did not, illustrating how markets often fail to predict imminent conflict.
  • Quote:
    “On the eve of World War I, it wasn’t like—outside of the Germans—anyone was really stockpiling wheat. Wheat prices weren’t really reflecting the coming global tragedy.” (06:45, Paul Chapman)
• Governments are hesitant to restrict food exports to rivals ahead of conflict, as it risks escalating tensions into outright war.
  • Quote:
    “If you go and tell your potential enemy that, hey, you can’t actually buy food from us anymore, that’s almost getting to the point of a declaration of war in itself.” (07:51, Dennis Voznesenski)

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3. Commodity Laws of Crisis

• Geographic bottlenecks and supply limitations are constants: There are just a few global “breadbaskets” that countries can rely on for bulk food supply, both historically and now.

  • Example: China today relies overwhelmingly on South American soybeans due to scale limitations elsewhere, echoing Germany’s desperate WWII attempts to secure diverse global supply chains.
  • Quote:
    “There’s only so many places in the world where you can get sufficient commodities... whether it was 100 years ago or now, that hasn’t changed.” (11:44, Dennis Voznesenski)

• Control of logistics and routes is vital: Germany’s bid to secure colonial North Africa and connect to South America via the Mediterranean reflected a recognition of these immutable “commodity laws.”

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4. The Essential Role of Government Intervention

• Wartime government intervention—such as Australia’s nationalisation of wheat under the Wheat Board—was often critical, stabilising markets and ensuring continued agricultural production despite vast logistical challenges.
  • Quote:
    “The government said, you know what, we’re going to nationalise the whole industry. Farmers, you keep farming, we’re going to pay you a minimum price…” (13:57, Dennis Voznesenski)
• Such interventions had lasting effects, shaping the structure of today’s big agricultural trading houses (e.g., Dreyfus, Elders).

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5. Logistics: The True Power Broker

• In both world wars and the Ukraine conflict, shipping and logistics—not just raw supply—dictated the fate of global markets.
  • “Freight was just disappearing whenever a conflict began,” says Dennis, prompting governments to step in.
  • Ships were requisitioned, sunk, or abandoned; insurance became unaffordable or ceased entirely—paralyzing trade.
  • Quote:
    “Whenever a conflict begins...insurance companies went, no, this isn’t for us...the whole grains industry just came to a halt. That is what actually started prompting governments to get involved.” (20:11, Dennis Voznesenski)
• Modern parallels: Russia-Ukraine, Taiwan Strait, and the Straits of Hormuz could quickly hike freight costs or block food and energy flows.

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6. Food Insecurity as a Strategic Weakness

• Hunger often topples governments; food logistics can become the difference between war lost and won (e.g., German collapse WWI, bread riots).
  • Quote:
    “If you can’t get enough food to feed your people, to feed your army, it’s kind of game over.” (41:31, Dennis Voznesenski)

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7. Commodities: From Product to Asset Class

• The modern era introduces fast speculative money into commodity markets, amplifying volatility but not fundamentally changing directional price setting.

  • Short-term flows can overshoot prices; the physical supply-demand always “wins” in the medium-term.
  • Quote:
    “They [funds] don’t really pick the direction. When they see prices going up, they jump on...But they don’t pick the direction.” (27:55, Dennis Voznesenski)

• COVID exemplified this: prices initially fell as funds pulled out before rallying when physical shortages and logistics snarls hit.

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8. Industry Structure: Adaptability and Private Power

• The most resilient firms own or control logistics — and the names dominating today are often those that managed crises a century ago (the ABCDs).
  • Quote:
    “The ones who survive have the most adaptability and the most flexibility...either they own [ships] or they charter a significant amount.” (35:29, Dennis Voznesenski)
• Agriculture stands out for private, global, logistical reach; in contrast, metals and especially oil are dominated by national or state interests, which can create different types of disruption.

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9. Strategic Takeaways for the Future

• Large importers can’t hide stockpiling (ships can be counted; purchases visible).

• Large exporters need either their dedicated shipping fleets/navy or robust domestic demand (e.g., biofuels).

• Freight capacity is a perennial Achilles’ heel—and a source of power.

• Countries like Brazil may hold a privileged “neutral” position with both surplus food and energy.

  • Quote:
    “If you want to stockpile as a large country, you can’t really hide it...if you actually look at who’s buying what, it gives you a pretty good lens of what’s happening in reality.” (38:55, Dennis Voznesenski)

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10. Commodity Markets: A Force for Global Stability

• Despite their vulnerability in crisis, integrated commodity markets foster global cooperation and interdependence, raising the stakes for peace.
  • Quote:
    “Commodity markets are absolutely a force for good now...one of the only key pieces of global cooperation that holds together because of how vital they are.” (44:42, Paul Chapman)

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Notable Quotes & Memorable Moments

• On Commodities as Predictors
  “If you just track who’s buying how much, that’s a good way to track where geopolitics is heading.” — Dennis Voznesenski (38:50)

• On Historical Lessons
  “By analysing commodity markets at their key stress points, you can find out and understand what’s going on right now a lot easier.” — Dennis Voznesenski (43:02)

• On Adaptability
  “Who can actually shape their own destiny? It’s the ones that actually have control of ships.” — Dennis Voznesenski (35:27)

• On Stability through Commodities
  “The fact that you’ve got this specialization...enforces global cooperation. It does mean that it’s much more expensive and challenging to go to war because of these risks.” — Paul Chapman (44:17)

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Timestamps for Key Segments

• [01:58] — Why Dennis wrote the book; drivers of wheat price volatility
• [04:32] — How market structures reflect wartime experience (national grain boards)
• [06:55] — Markets’ ability (or lack thereof) to anticipate war
• [09:35] — Commodity “laws” during crisis: global breadbasket limitations
• [13:28] — Positive (and negative) outcomes of government interventions in Australia
• [18:43] — Logistics as ultimate power and vulnerability
• [27:03] — Commodities as asset class; the impact of speculative funds
• [35:21] — The rise of the ABCDs and structural adaptability
• [38:50] — Tracking imports as a geopolitical signal; strategic implications for importers/exporters
• [42:34] — Positive lessons and realistic outlook for commodity interdependence

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Summary

Dennis Voznesenski, in conversation with Paul Chapman, convincingly argues that war and geopolitics—not merely technical factors—are the primary drivers of major volatility and change in commodity markets. Through the lens of wheat, the episode outlines how logistics, government intervention, and industry adaptability have shaped not only the past but the very structure of the modern agricultural sector. The “laws” of commodity stress—dependence on a handful of supply nodes, the centrality of shipping and freight, and the importance of rapid adaptability—are shown to be as true today as a century ago. The discussion closes on an optimistic note: global interdependence in food and commodities, however fraught, is a stabilising force that often rewards collaboration and peace over conflict.

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For more information and to purchase Dennis Voznesenski’s book, see the show notes.

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Transcript

[A]

Foreign welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we're talking War and Wheat Navigating Markets during Global Conflict, a brand new book written by Denis Voznesensky. Dennis is an agricultural economist at the Commonwealth bank of Australia and prior to that at Rabobank. And today he's talking to us in his own capacity as the author of this book. Dennis tells the story of how the agricultural markets fared during World War I, World War II, and the recent Russian invasion of Ukraine, and elucidates key learnings and and understandings about how commodities markets work, key points of fragility and key points of strength, and some key learnings that would hold any organization in good stead for what is very much a much more volatile world. As always, you can really support the show by leaving us a positive review on the platform you're listening on or following us on the podcasting app you use and thus allow us to continue to get great guests. And as always, I hope you enjoyed the episode. Dennis, welcome to the show.

[B]

Thank you so much.

[A]

We're talking about your book War and Navigating Markets During Global Conflict, which I've read and I've enjoyed and we're going to discuss it today. I guess before we go too far down, what's in the book and some of the key takeaways that, you know, I guess fascinated me, it'd be great to get a moment on why you wrote this book. And to my mind, this is kind of. I can't think of other books that have actually explicitly covered commodities during times of conflict and actually the stories that you elucidate from this that seem quite important. But yeah. Why did you start writing?

[B]

Well, initially I started writing because I wanted to understand what fundamentally drove the markets of commodities. Because if you look at just day to day news, you can get reasons like wheat prices went up for technical reasons. And it's like what's technical reason? Or speculative funds decided to increase their short positions or their long positions. And that's all great, but in reality you haven't actually got an answer as to why prices went up. And what I found was that I went initially I took the last 20 years of data and I filtered it through by, you know, what days wheat prices went up or down by more than 3% because I thought that was substantial. And there should, in theory should be some news behind it. Some genuine news. And I went through it day by day and eventually I realized that the biggest price moves that occur are due to politics, due to governments getting invol or due to conflict, or they kind of wrapped together. And I thought when in history were the biggest times where there was conflict, where there was a lot of government involvement. And I realized it was World War I and World War II. And that's how I started looking at those industries and the way I actually got the information, because the present. So war in Ukraine during COVID I was working in the industry, but for World War I and World War II, obviously I wasn't there in person. So I found a database of old newspaper articles called Trove here in Australia. Australia. And I went literally day by day looking at what was happening from a global market perspective to wheat and all from the lens of Australia as a large exporter. So literally going day by day from the beginning of World War I to the end of World War II. Something only a crazy person would do.

[A]

It's fascinating, isn't it? Because it seems like now I think we can confidently say, if you ask the average person what really drives volatility in commodities, we probably say, you know, war, geopolitics, you know, war and politics.

[B]

Right.

[A]

I don't know if I would have said that seven years ago or even five years ago, you know, I think. But if you look in the long sweep of history, it absolutely has been that. Right. You know, you've obviously got rich data from World War I and World War II and focusing in on the wheat markets. You know, we can look at the cotton markets in the US Civil War and so forth, but there's some sense that actually we've forgotten that actually these are huge drivers. They rent enormous change in the market. Not just short term, but actually long term as well as we're going to discover. And they kind of highlight a lot of the fragilities in these supply chains as well. Right. I mean, it seems in some ways that we kind of forgot that the world was quite a risky place.

[B]

Yeah. And the interesting thing is that when there are conflicts, there's not much a market can hide as to why it's doing what it's doing. So if a country is running out of wheat because it's import avenues, it's supply chains are disrupted because there's not enough freight, suddenly you actually see that. And it helps you understand why industries are even structured the way they are now. So one of the things I looked at, it might be a little bit foreign to People who aren't in the agricultural industry. But in Australia and in Canada, they had something called the Australian and Canadian Wheat Boards where the government basically nationalized the whole industry and they sold all the grain that was produced by farmers in World War II, in World War I and following. And when I started doing this research, I started to find out why and I asked a lot of people, so like veterans in the grains industry. Did you ever come across why they actually came to be these large government run organizations that sold all the wheat and exported all the wheat. And they're like, no, not really. And it turned out that one of the main factors was that freight was just disappearing whenever a conflict began. And countries that didn't have their own freights literally had a situation of grain piling up at ports around the country and rotting. And to avoid the whole farming industry going under, governments had to nationalize industries entirely. So they basically told farmers, you know, you're going to get a minimum price for your wheat, you just keep farming grain traders, you're going to become agents for the government and move grain from point A to. To be. There's no speculation anymore. And they got a handful of companies to try organize freight and these sorts of things. A lot of them actually come as legacies from wartime. And I never would have known about it unless I went through it and learned about it.

[A]

Yeah, and I want to come back to that because it's an example of government intervention that actually was, looking back, necessary, but also perforce picked winners. And some of those big names that won those, those logistics contracts are the big houses today. But let's get back to that. Okay, so again, kind of, I know just encouraging people to read the book because you know, a lot of the minutiae, a lot of the sort of the market fun, if you'd like, that went on in World War I and World War II and actually more recently is is not going to be in this podcast. But the first thing that sort of strikes me is kind of the markets as predictors of war don't seem to be really that, that good. Right. On the eve of World War I, it wasn't like the outside of the Germans, which itself is quite telling. No one was really stockpiling wheat and wheat prices weren't really reflecting the coming global tragedy, if you'd like.

[B]

True to an extent. Germany was of course one of the instigators of it. So it is important to look at what they were doing and there are examples showing both sides of this. So if we start on the German side, it turned out that in the months leading into World War I, they actually imported about a year's worth of wheat from Canada.

[A]

So it kind of belies that sort of the Guns of August. Barbara Tuchman, you know, that kind of view that actually well meaning people bumbled into this First World War through a web of, you know, the Germans are there buying wheat for a year beforehand. Right. But on the flip side, on the Allies side, you know, there was no real UK Government. You know, Australians and Canadians weren't preparing.

[B]

For this to an extent, you're absolutely right. And I think one other important thing to remember though, is that it's not necessarily that they didn't see it coming, it's that it's nice to look back in history and say, oh, you know what, Australia, Canada, the U.S. they all should have stopped selling to Germany or Japan their commodities well before, and all this could have been prevented. That's great in hindsight, but if you go back in time and you sit in the position of any of those governments and you see that tensions arising, the last thing you want to do is inflame tensions even more. Your number one priority is probably to avert conflict. And if you go and tell your potential enemy that, hey, you can't actually buy food from us anymore, that's almost getting to the point of a declaration of war in itself.

[A]

And we see this in World War II with Japan. Right. In Australia.

[B]

Well, the closer we got to the or the US got to confrontation with Japan and the Allies more broadly, the more constrained the imports into Japan became in terms of the rules that were set out for what allies could send there. But they were still buying even Texas oil, converting it into jet fuel in the months prior to everything kicking off between the US And Japan. So, yeah, it's a tricky one, but.

[A]

I think what you can say is that food or wheat and food more broadly, commodities more broadly, are absolutely inform our goals from a strategic standpoint as well as help give us some intelligence on what the various participants are up to. So you already mentioned, as you say, like actually a deep analysis of what Germany was up to in terms of stockpiling with wheat might have informed. And again, same with Japan prior to Pearl harbor, same with Germans in World War II. You talk about, you know, there is some element that you can take these market activities and turn them into intelligence. I'm sure that happens. But also how crucial actually when it comes to World War II, for example, it's very explicit that Germany is going after the breadbaskets of Eastern Europe. And that's a key goal for them.

[B]

Yeah. And the other interesting thing is by going through all these scenarios, I've created this kind of like, you know, how for physics there's laws of physics. Well, I think there's also laws of commodities, especially when it comes to a crisis. And one of the best examples of this is that when World War II happened, when it started off, Germany knew that suddenly it wouldn't be able to import from the US it wouldn't be able to import from Canada, it wouldn't be able to import wheats from Australia. So all large agricultural producers, it kn Russia was probably going to backflip and it won't be able to import from them as well. There were large producers back then, just like they are now. And what Germany actually did was it tried to create this daring supply chain for food all the way through from continental Europe to North Africa to Dakar and then to South America. So it sent troops to take over French North African colonies, it took over Dhaka, it tried to take over both entrances or not both entrances, both sides of the entrances into the Mediterranean. And it sent its agents to South America to start shipping lines that went from South America to North Africa, refueled, and then went to continental Europe. And you think about why. Well, it kind of shows this desperation and this again, this kind of law of commodity sourcing, that there's only so many places in the world where you can get sufficient commodities, whether that's fertilizer related, it could be meat related, it could be wheat related. There's only so many places in the world you can get that. And whether it's then or right now, that hasn't changed. If you look at China right now, where can it source its agricultural commodities from? It can go to Australia, it can go to the US or it can go to Canada. Russia's relatively far away, but it can in theory go there as well. But you have to remember that most of the food in Russia isn't produced in the east, it's produced in the west, and it has to get out of the Black Sea. But point being is that its biggest reliance now is South America. And to give you some pretty crazy numbers, if you combine all the crops that Australia produces, wheat, barley, canola, pulses, cotton, you name it, at best, the most we've ever produced is about 60 million tons of everything for China, just of soybeans alone. This year they're going to import 105 million tons, 105 million tons of one crop that they use for feeding hogs to a large extent. And their biggest avenue is to get that crop from South America. Think of the trade war right now between the US and China. If it can't get it from the US because of the trade war, where does it go? South America? And whether it was 100 years ago or now, again, there's only so many places on Earth you can get enough food and those kind of laws don't really change.

[A]

Yeah, yeah, you talk very eloquently in the book about Germany's. You know, the invasion of North Africa was very much the. The link to get that commodity belt from South America up. And yeah, it's a very relevant story today. Right. We've got, obviously the US is looking at China controlling the critical mineral supply chain, but, you know, in contrast, actually oil, which is very much the Straits of Malacca story, all that piece. But also food, you know, the west is very rich in that. And yeah, and again, as we're talking off air, my hope is this is a chapter within a broader book on conflict and commodities and the lessons learned. The second sort of big, I guess, takeaway is obviously in these crises we see government intervention. And we've seen that more recently, obviously with Ukraine. We can come on to that. There's a sense in the commodities world that any kind of government intervention is usually negative. I think the book argues very much that actually without government intervention, Australia in particular would have faced a real crisis. And the shortage of logistics would have just meant that, you know, all this new land that had been opened up for agriculture, harvest would not have been sown. All this kind of stuff. Can you give us some sense? Well, a. Can you tell that story briefly about Australian government intervention and kind of the. The positive outcomes and then some of the negatives, but also, you know, that led to the rise of. Well, you know, it was a great bolster to the Dreyfus House, for example.

[B]

I'll start off by saying that there's kind of a really important rule here, an overarching statement or learning that comes from the book, and it's about the importance of freight and it's something that doesn't get enough airplay, but the importance of freight to a large exporting country. Now I'll leave that there and I'll tell you the story. So leading, I was going to say.

[A]

That'S my next point. It's all about logistics. But yeah, let's hear the story.

[B]

So leading into World War I, Australia had a horrific drought. Production collapsed 70% compared to the year prior, not 17, but 70%. And as soon as the war started, the British government asked the Australian government to get farmers to produce as much as they possibly could. So the government said, farmers, you cut down every tree in sight, you expand as much as you humanly can, and you plant as much as you physically can do. And they did. And area planted increased by, I believe it was like 30 to 40%. It was massive. And production, it didn't increase 17% again, it increased 70% compared to not even the drought year, but the last historic year and leading into the harvest. So in the months just before, the government realized that what was going to happen was that because the war had begun, freight was going to start disappearing. And I'll tell you, I can. I can share in the next point as to why, so I'll leave it to that. But take it as given that freight started to disappear. The government knew that as soon as harvest would start, there would be grain piling up from rural areas all the way to ports. It would start rotting. What would happen in a situation even now, if you can't get grain out of the country, prices collapse, farmers can't pay back their bank loans, the whole industry starts to go under, and then people leave. And when an industry starts to fall apart, it's incredibly difficult to rebuild it. And the government knew that as soon as freight did become available, the priority of a country like Australia would be to be a food basket or a bread basket to supply the Allies. Armies can't march on empty stomachs. So the priority was we need to keep these farmers farming until a point where we can actually get the grain out of the country. So government said, you know what, we're going to nationalize the whole industry. Farmers, you keep farming, we're going to pay you a minimum price for your grain. That's going to cover your cost of production and maybe a little bit of a margin. But that's not the priority. The priority is for you to just keep running. For grain traders who are large logistical companies who also get involved in speculation, you no longer do any speculation. Your agents for the government, you move grain from point A to B and you get a fee for that. And then they got two shipping companies, one which was Elders, which is still a large company now in Australia, and then another company that got absorbed and the names have changed, but the point is they got those two companies and said, you are now responsible for organizing all the shipping for Australia. And when you get it, we as the government will allocate it accordingly. That took a little while for them to figure out how that's going to look. And then In World War II, as soon as it started, it was about one to two weeks and then they took that blueprint and implemented it again. The energy and resources sector is experiencing unprecedented changes. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Enco Insights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high and insight matters.

[A]

Learn [e-mail] Two things struck me. Firstly, with wheat, with ags in general, you had an established commodity market as we would recognize it today, minus some of the current tools. But so you do get a lot of rich data from that that you wouldn't have got from oil and from other markets that just weren't robust commodity markets with independent traders and so forth. The second one is it's kind of like the when the crisis does happen, it's quite good to have good governmental relations, right. So that you're the one that they pick to handle the logistics and you.

[B]

Also have to have the scale to be able to actually support whatever the government needs to do. So for the government, it's picking those who can fulfill the requirements that the government has to the best abilities and as efficiently as possible. So I think it largely comes down to not just relations or the government, but more whether you have the scale and ability to actually fulfill those needs.

[A]

Well, let's talk logistics because in every, In World War I obviously you tell that story with regards to Australia and how, you know, it would have affected in country production. World War II obviously we get a very, a stark story of immediately sort of logistics are under attack, you know, with regards to global shipping. And then that story reemerges as well with Russia's invasion of Ukraine and all again, all of this potentially very stranded assets in Ukraine and the fact that Russia does not immediately go after the ports because those are such valuable installations. Can you just tell us that logistics story? The book sort of screams that actually it is all about logistics and how powerful and whoever controls those, the power that they have in these times of crisis.

[B]

Yes. In the book, more broadly about food, I just show how I think it's kind of undervalued when you're talking about conflict and it's not really thought about that much in present day how critical it is. But not only is food critical, but the ability to actually get it to where it needs to go. It's about the US and Canada and Australia being able to supply the Allies in both world wars. And the challenge with freight is that whenever a conflict begins, it is either sunk by the enemy. So In World War I and World War II, there were German submarines. It is either requisitioned and taken back by governments where it's actually docked, domiciled. So, for example, Australia, and I believe Canada as well, we barely had any of our own domiciled ships. And the ones that we did have got sunk pretty quickly. So a lot of the ships that service Australia got recalled to their own ports and then ships that were available, in theory, they were too afraid to actually come to Australia because they thought that the Australian government was going to requisition them and use them for their own use. And a lot of governments were doing that. So it wasn't unfounded.

[A]

This was insurance rates in the Mediterranean went up by 30%. 30% plus higher. Right. Which is a story that's instructive for what? When we think about Taiwan, when we think about the Straits of Hormuz and so forth, it doesn't have to be shut. It might just be prohibitively expensive to get this stuff insured.

[B]

Yeah, well, actually, you hit a really good point. In some cases, yes, insurance went higher, and in other cases, insurance just entirely disappeared. And when Russia invaded Ukraine, we actually saw that insurance rates just weren't being quoted at all. And back In World War I and World War II, there were similar issues. Just insurance ceased to exist because no private insurance company was prepared for insuring vessels against conflict suddenly. And in World War I, actually, what was happening was that prior to the war beginning, there was a lot of trade between the US and the uk and as soon as the war started, insurance companies went, no, this isn't for us. We just won't be able to absorb these sorts of losses. And then neither the exporter or the importers wanted to take the risk of freight. So America was basically saying, if you want our wheat, you can have it, but you're going to have to come and get it. And you have to either have your own ships or you're going to have to organize ships to come get it. And then the British were saying, well, no, we want it, but we're not going to send our ships. If you want to sell it to us, you have to come and give it to us. And obviously, the ones with the most leverage are the ones who are actually selling this commodity in a conflict because if you're next to the conflict zone, you need wheat no matter what. So eventually you will end up taking the burden of it. But that for a moment, the whole grains industry just came to a halt. And that is what actually started prompting governments to get involved. They started realizing that hey, the private sector can't actually prioritize food security. They're just worried about not losing their vessels, about not losing money. And it's not coming from partially, it's trying to secure your own future, but also it's like, you know that your ship's probably going to get sunk. Why would you send it? So that's a point where governments actually started getting involved in saying, you know what, we have food security concerns, we need to start start inserting ourselves into industries because if not, we'll simply not get the food that we need.

[A]

Yeah, yeah. And talking of food security. Right. The backdrop to the book as well is if you don't have food, the government falls. There's lots of different commodities that countries can survive without for a period of time, of course, and we can see that threaded through the Russian Revolution in 1917, why in World War I, Germany eventually was depleted. I mean, this stuff is critical and, and I think part of the sort of future learnings of this book is actually when you look about how the world starts to organize into different blocks, if indeed it does. And as it de. Globalize, it's going to be commodities that are through line about how you build those blocks. You just can't build them in unless you have access to these critical commodities.

[B]

Yeah, there's only so much that you can build up stocks, but they're only going to last for a certain amount of time. Even if you just look at the trade war between the US and China, you don't look at this current one, but the previous one when President Trump was also in power and China, so I mentioned they were immensely import exposed to soybeans. They used the soybeans to crush them into oil and meal. Oil can be used for whatever purposes. The meal gets used to feed their huge hog population prior to Covid and prior to an outbreak of African swine fever. And probably actually even now they have about half of the pigs in the world that's used for pork production. And interestingly, if you watch the news, they probably won't specify this but. But at one point both parties came to the negotiation table and coincidentally it just happened that South America, the only large supplier of soybeans to the world and to China, apart from North America, started Going into a drought and possibly China started realizing that, well, if South America goes into a drought, I'm going to have to come back for U.S. soybeans and for U.S. food. And that's something that kind of shapes where we end up going from a geopolitical sense. From a trade war perspective, there are sometimes there are specific reasons why things happen, and one of them is actually food. And for an. For a food insecure country, it's incredible, incredibly important. One interesting story I want to share is that you started talking about Germany in World War I. Towards the end, they.

[A]

So when Germany is this ersatz potato and stuff that they were.

[B]

No, not quite. But when the conflict started, they started going from one country to another and confiscating their food. So one of the first things they did when they go into a new country, they go to their food reserves, take their food reserves and utilize them for themselves. And eventually they started running out of options and they went to where present day Ukraine is and they started confiscating reserves there of food. And towards the end of the war, they started stretching their military thin because they had to either defend the food reserves in Eastern Europe and in Ukraine that they confiscated and then sending troops to the west to fight against the Allies. And they knew that, that if they reduced the amount of troops defending what they confiscated in Eastern. So say in Ukraine, one, the Russians, Ukrainians could take it back. Two, the Austrians, who were actually probably just as hungry as the Russians and the Ukrainians, they might take it themselves, even though they were on the side of the Germans. And eventually that was one of the things that spread them too thin and they started losing ground and eventually they lost the war. So food plays an incredibly critical factor in, in who actually wins wars in the end, especially broader ones.

[A]

Yeah, it's Napoleon's old adage, right? You know, armies march on their stomachs. But okay, so the final third of the book is very much sort of COVID as prologue to then Russia's invasion of Ukraine. And I think there's still the books to be written about the commodity stories and even the energy transition stories behind that. And obviously Ukraine is a very, you know, has always been the breadbasket of the Soviet Union as key reasons why Putin wanted it reconstituted as part of Greater Russia. It's a difficult. Well, the book does a great job of explaining and showing how the markets changed through that period from 2020 all the way up to today. One of the things that kind of struck me is one of the things that's different today versus World War I and World War II is that now commodities are also an asset class. There's lots of of money that's flowing from institutional investors, long only funds. All this stuff that is very much driven by sentiment. It's acting as an asset. And therefore when Covid, you know, prior to Covid you had that African swine flu. As you mentioned, commodities prices, agricultural prices were low, wheat was low. China just lost, you know, a significant portion of its, of its herd, hog herd. But when Covid, when the lockdowns happen and lots of money immediately flies out of these commodity funds, prices drop. And it's only when kind of the physical fundamentals of actually, as you point out in the book, logistics start to seize up and actually productivity craters as people just aren't showing up not only to farm, but also to process this food. Can you tell us that story and perhaps give us your perspective on what that idea of commodities as an asset class, that kind of the fact that now you've got got very fast money in it means for this kind of story and how predictive it can be of some of these crises.

[B]

Yeah, and I feel like usually I can tell a bit of a story on different topics, but here it's just a bunch of facts that are kind of wrapped together. So I've tended to see when interest rates start going lower, that's when there's a lot more speculative funds that flows into agricultural asset classes. Also possibly from an inflationary hedge perspective. I remember hearing a lot about that during COVID or after Covid, when inflation was going higher, they were investing in what physical assets. There's different views on what impact speculative funds and investment funds have on agricultural commodity prices. One of the views can be that they actually drive where commodity prices go. I don't think that's necessarily the case. Maybe in the very short term they tend to jump onto trends and the result is that you have this money pushing prices higher and lower than probably they would have been if these funds weren't involved. But they don't really pick the direction. They, when they see prices going up, they jump on and the trend moves higher than it should and vice versa when it's going lower. That's what I just tend to see. The kind of, the interesting thing is that it's not like investing, oh look, it's probably gets out of my expertise. But it's not like investing in stocks because if you're investing in say futures of wheat or soybeans or whatever else, you can't move away from physical fundamentals for long, because eventually you can actually take delivery of those commodities and go into the physical market and sell them in the physical world. So you can't have a massive disconnect between futures prices that got pushed up by speculative funds and what happens in the physical commodity space. I think that's an interesting point. So at a fundamental level, the actual supply and demand, the genuine supply and demand of commodities over the short term has to drive prices.

[A]

Always, always wins. Yeah, yeah. I just think it's that sort of. We often kind of the narrative would be, you know, Russia's invaded Ukraine. That presumably means that, you know, wheat will no longer flow from that region. Prices should immediately go up. But actually, kind of in those short. In the very short term, you see the opposite as you kind of get this money taken out in a flight for safety. We saw that in carbon markets, so even that in oil. But then kind of it goes the other way. Right. It very quickly can those fundamentals kick in. It's just a. I guess a nuance that wasn't around in 1939.

[B]

Yeah. So when. When Covid started, you did see a decline in price, because back then, it wasn't so much like concern over geopolitics. A lot of the geopolitical concern started probably during and right after Covid, not at the very beginning or before. So when Covid started, the concern was more that there's going to be a decline in demand because. Well, one thing we haven't talked about on this podcast is biofuel. So it's. It's fuel made out of crops. It's lower emitting. And that's where a lot of the. The biofuel industry has come from. Governments in North America, in Europe, they've tried to reduce emissions in the transport sector. One of the ways they do that is by using crops like corn, like soybean oil, to create fuel. And when Covid started and we all were sitting at home, the demand for fuel went down. And then the demand for this biofuel that gets mixed in our fuel tanks also went down. And so the demand for things like corn went down. And then if you go one chain further, if there's suddenly an abundance of corn, even if wheat doesn't go into biofuels, it impacts wheat as well, because you can feed wheat, you can feed corn to animals. So when Covid started, you saw this sudden decline in demand and prices went lower. And you very rightfully say that when there is upheaval, whether it's a natural disaster or it's a geopolitical event, there is a flight to safety, especially when there's a lot of unpredictability and that money flows towards things like US Treasuries and away from what they see as more speculative assets.

[A]

Hello, I'm David Hunt, founder and managing director at Hyperion Search. Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and E mobility. The energy transition and the talent that delivers it has been our passion since day one. To find out more, visit hyperionsearch.com or listen to my Leaders in Clean Tech podcast, available on all platforms. Again, I encourage people to go read the book and you know, I don't want to spoil it for people with the joy of reading through these, the minutiae of these, these market moves, but I guess zooming back out when you kind of, there's some sense now, which is somewhat of a tragedy, that the sort of the Golden Age of 1990-2009 was this period when actually the geopolitics and war was relatively absent in a lot of, you know, when you looked at your average commodity desk, your major, major sources of intelligence was coming from things like weather and climate and those types of things. And now we're starkly back in a world where actually geopolitics, political risk, you know, the intelligence that you require to be able to, to access and understand those markets in some ways I would argue reverted back to the mean, the normal over the last 300 years of these commodity markets existing in some form or fashion. I mean it seems today that actually as you know, as we started out, the absolute driver of short term volatility and long term change has been war and geopolitics. And that actually is perhaps somewhat has been overlooked or there's not that kind of the capacity within the markets today to really recognize that. I guess partly because a lot of the people that have now in leadership within these organizations came up through a world which was arguably much more stable and much more focused on free trade. And it was really about the economics. It was where how much and when as opposed to where from and what sanctions and what airspace do we have to avoid?

[B]

Yeah, and I think you're absolutely right. There's a lot of people who grew up in a period, including myself and if I didn't do the research for this book and I wasn't curious about geopolitics, I Wouldn't have known it myself. There's a large chunk of people, whether it's in government or in private organizations, that geopolitics isn't something they've actually looked into. And now you have this large cohort of people who are trying to understand why Trump is doing what he's doing in his, this administration's doing what they're doing and why China's doing what they're doing. And the result is, if you don't have a lot of this background, you look at it as absolute chaos and you think there's no reasoning behind this. But if you look back in history and you look at these events, you go, oh, you know what? It makes sense why America wants to start more ships. It makes sense. And it can be argued that the way they're going about it is destructive to certain sectors in the U.S. but you go, oh, it makes sense why they want certain tariffs and they want to rebuild critical industries. If you look at the amount of ships China has versus America, you go, wow, okay, who's going to be able to supply allies in the worst case scenario? Maybe it makes sense to build more ships. And if you're looking at it from the perspective of just like in the past, you've looked at GDP and interest rates and whatever else, you're like, well, this is just going to destroy what everyone's been aiming for, which is higher growth for the last 50, 60 years. And you go, well, sometimes that's not the priority. Sometimes the priority is shoring up, whether it's food security or critical minerals or shipping industries. And sometimes it's not the most economically viable thing to do.

[A]

Do. Yeah. It also seems, you know, when you read this book, that actually is a lesson that's been well learned by the, the private agricultural sector. Right. There's a reason, in some senses, that we've got, you know, the abcds, we've got the dominance of a very small number of organizations who've absolutely been focused on ensuring they have a global logistical footprint that they control and they can operate because. And we see it as well, you know, for the most part, those types of organizations, they don't really make that, you know, they make lots of money, but that the best years are on these periods of disruption and distortion and dislocation because they have that global footprint. So you can. The agricultural industry we have today seems very much shaped by the learnings of this deeper history. And as we said offline, the same names keep popping up. And it seems those houses, some of them privately run have learned this lesson very well.

[B]

Yeah. And a large chunk of the biggest ones are privately run. And in the very beginning I talked about the importance of farm freight to entire countries. When you drill down one level to these larger companies, it's the exact same for them. The ones who survive have the most adaptability and the most flexibility. If you run into a scenario like a Covid where everything's absolutely chaotic, who are the ones who can actually shape their own. It's going to sound cheesy, but who can kind of shape their own destiny? And it's the ones that actually have control of ships. And you look at who in the world in like, like the agricultural world has that ability. And you go to the ABCDs, either they own them or they charter a significant amount of them. But there's reasons why the biggest companies that exist now, some of them are the ones that were there 100 years ago. It's that they know their stuff incredibly well. And they know that yes, there are some years where they won't be profitable and things will be too calm and no one, there won't be too much risk. And then suddenly there'll be some sort of crisis and they'll be the only ones who have the flexibility to actually make a difference and move food to wherever it needs to be moved. Or I'm sure in the metals space and the energy space, it's similar. It's those companies that have been through those crisis in the past and they've survived and they know their stuff incredibly well.

[A]

Yeah, there is quite a stark difference between the metals industry is more. Is more similar, although much less integrated. You know, your miners typically don't have significant trading downstream operations. The oil industry obviously, you know. Well, a better way of saying this is I think the agricultural sector stands out in how just privately held it is. And I think that's probably a good thing for the world that it has been so that in. And that your book points to this. Right. Actually, Covid was managed incredibly well. And very quickly processes got back to work, farmers got back to work, commodities started to flow after that initial couple of months seizure and again encourage people to read the book to understand the story. But you know, in the oil industry you've got a lot of national oil companies, a very different structure, which kind of means in some ways that you can get bigger disruptions, there's less. And in some ways this points to just how important food is. But it, it seems instructive that it's held in the hands of a few large global private companies that can really manage this stuff.

[B]

Yeah. And, and that's interesting that you mentioned it because regardless of what, what country you look at, while overall there are a lot of smaller medium sized players, there's, there's typically kind of like this handful of, of very large ones. And from a, like imagine you're looking at it from the perspective of a government, it kind of makes sense to have a handful of large ones because in a time of crisis, would you rather try organize a thousand different players for your food security or would you rather organize like four?

[A]

Well, I guess it depends which government you are. Right. Because, you know, three of those big ones are US based. But anyway, yeah, it's probably a different story. Okay. So it would be unfair and I'd love to actually get you back on the podcast and before we start the new year, how far we are through the year, we'd love to get your take on actually as an with your economist hat on where we are in the ag market. So we'll save that for a future episode, I guess, taking and again, I hope this is just ends up being a chapter in a, a much broader book or at least perhaps you could do the 19th century and lots going on there, you know. But I guess taking those general learnings, it seems like we've been discussing that the world is a much more volatile place. Is there anything that kind of is giving you pause as you look globally?

[B]

The first one is that if you want to stockpile as a large country, you can't really hide it because you're not getting commodities out of thin air. So if you just track who's buying how much, that's a good way to track where geopolitics is heading because, you know, you can read the news and you can see people shaking hands and smiling and you might think everything's fine, or vice versa, you might think everything's horrible. But if you actually look at who's buying what and if it's more than they actually need in any given year, it gives you a pretty good lens of what is happening in reality because you can't hide how many ships you have coming in or how many tons of whatever commodity coming in. So if you suddenly start buying a lot more than you need, it's a pretty good indication of what's going on. The other factor is on the perspective of large exporters, in order to survive as a large agricultural industry in an export market, you need one of two things or both. You need either to have a large shipping fleet to be able to export Your agricultural commodities. So for example Australia, we're immensely export oriented. For some states of Australia it's over 80% of our wheat or canola goes over some. So you need your own shipping fleet, but you also need a navy to be able to defend it. Because having a shipping fleet on its own during a crisis isn't enough. You need to actually be able to defend your shipping fleet. And then the second option for you if you don't have that or in addition to, is to create more of your domestic demand. So a really good example and what Australia actually ended up doing in World War at the end of World War II, it wasn't quick enough to do it beforehand, is to create its own biofuels industry. So to take, take crops that were piling up across the country and actually make fuel out of them and you kill two birds with one stone because on the one hand you actually have something to do with your crops as opposed to just piling them up and waiting for them to rot. And secondly you increase your fuel security because if you take last year Australia imported, these are mind boggling numbers. 95% of our fuel, whether that's jet fuel or road based fuel, that's insane. That exposure is immense. And if you could become a little bit more fuel secure at the same time as increasing your demand, that is what you probably want as, as a large exporter. And the third point, so we talked about how you can't quite hide anything from a food security point of view if you're a large importer and you start importing more than you need. Two is survivability as an exporter. You need your own ships and a navy to defend them or more domestic demand. And lastly, probably whether it's import or export, I want to re emphasize the importance of freight. Nothing happens without an ability to get your commodities to where they need to be or importing them as well. And as we talked about whether you're a Germany or whoever else, if you can't get enough food to feed your people, to feed your army, it's kind.

[A]

Of game over your taste. Yeah. Well, I've got two comments. One is that this is why our head of Latin America, Andrew Watson based in Brazil keeps reminding, keeps telling me to go down there because they're neutral and they have lots of food and lots of energy. And you know, in the coming crisis that seems to be quite a good place to hang out. But given this rubric. But the, the second one as well as we just had Joe Bryan on the, on the podcast Talking about this sort of intersection of the changing battlefield and electrification and energy transition. One of the challenges of course is at the moment is what's different today. And we're seeing already is these large capital assets, be they aircraft carriers or tanker fleets or supermarkets, Maxes and Panamaxes flowing around, suddenly the world's a lot more vulnerable to very low cost drones. All this piece as well. Right. So it's a, it's a complex world out there to navigate. But I think your, your points are well made. But I would definitely try to go to having domestic industries rather than relying on, on transportation if God forbid, there is a more broader global war.

[B]

One thing I want to emphasize, because I don't want to end on a super negative note, is that I have to remind people why I started looking into this book. It wasn't to forecast the end of the world. The objective of the book was for me to understand what fundamentally drove commodity markets. And I found that if you look at commodity markets at their stress, at their most stressful points, when the industries get stretched to their extremes, that is when you find out what actually at its core can drive markets and what the critical factors are that will drive the prices, like for example, freight, something that people don't look at and enough. And by analyzing commodity markets at its key stress points, you can find out and understand what's going on right now a lot easier. So, for example, around the time Russia invaded Ukraine, Australia had a third or second year in a row of record crops. And I knew that we had never produced this much grain. And just because Russia invaded Ukraine and overseas prices rose, it didn't mean that Australian prices were going to rise because, because what we had was that we had a certain amount of shipping capacity, so export capacity in our ports, and we suddenly had a massive abundance of grain around the country, more than we've ever had. And I knew that it didn't matter if prices overseas went up, farmers are going to keep bringing grain to port. And the grain traders there, they're physically not going to have the capacity to move grain out of the country. So why would they bid prices up? And that's exactly what happened. We saw this massive disconnect between prices offshore as soon as it got onto a boat. And what happened before it actually got to port, there was just all the shipping slots were full. You physically couldn't get it out of the country. And I knew that in the extreme example of World War I and World War II, when there was no shipping capacity at all, the same scenario happened.

[A]

So Understanding history is important. Right?

[B]

Yeah.

[A]

And on even more sort of positive note, you can argue that actually, you know, we'd be in a far worse place without the existence or the need for global commodity markets for. Right. The fact that you've got this specialization of certain regions grow, certain regions are wealthy in terms of oil or whatever enforces global cooperation. That does mean that actually it's much more expensive, much more challenging to go to war because of these risks. Right. So, you know, actually the global commodity markets are absolutely a force for good now. Are kind of one of the only key pieces of the global cooperation that's, you know, that holds together because. Because how vital they are.

[B]

Yeah, that's absolutely right.

[A]

Well, Dennis, it's been an absolute pleasure having you on. Obviously, I'll put links to the book in the show notes and, you know, hopefully we can have you back on again in relatively short order in the fall. Talking about the putting your other hat on as an agricultural economist and get your views on the market and where they might be heading.

[B]

I would absolutely love to. Paul, thank you so much for having me.

[A]

Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup.