How the Ukraine conflict affects South America’s commodity market

The importance of commodity prices for South American economies has been made abundantly clear over the last decades.

The booming 2000s were largely fuelled by one of the strongest surges that the sector had ever seen, raising the value of some of the region’s main exports, which allowed for higher public spending, more imports, and a general increase in living standards.

But commodities reached their peak between 2008 and 2012. The U.S. financial crisis took oil down first, with agricultural and mining products eventually following and hitting local businesses and governments in the process. Balance sheets shrunk, deficits and debt soared, and political instability became the order of the day.

By the time Covid hit, commodities were at a 100-year low when compared to U.S. stocks. But the trend has since started to reverse, bringing a much-needed sigh of relief to the troubled region. 

The money dishes out by central banks across the globe for bailouts, aid, and stimulus packages in 2020, coupled with the post-Covid re-opening, led to the so-called “reflation trade,” in which investors moved their cheapened currency to stocks and commodities as an anti-inflationary hedge and a bet on growth, sending their prices higher.

International conflict is now adding fuel to that fire.

Russia, the third-largest oil producer in the world, could see its energy deliveries slowed down as tensions with Ukraine escalated into a direct attack on Kyiv this week. Ukraine, meanwhile, has massive arable lands and is one of the world’s major cereal exporters.

The Brent global benchmark topped the USD 105-per-barrel mark on Thursday — the first time that has happened since 2014.

Ukraine’s two largest agricultural exports, corn, and wheat, also jumped in commodity markets, gaining 4 and 13 percent respectively this week — the latter’s bigger gains possibly...