Bloomberg Audio Studios, Podcasts, radio News. Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway.
And I'm Joe Wisenthal.
Joe, can I tell you something. It's slightly embarrassing.
This could field many things that but go on.
Okay, So I had a self realization the other day. I think I might have prepper tendencies.
I didn't know that.
But that doesn't totally surprise.
Like.
You're like, yes, you're a paranoid. This makes total So the reason I had this realization we recorded an episode recently on the big surge in cocoa prices, and a few days after that episode came out, I was like, hmm, I should buy some chocolate just in case. So I went on Amazon and I bought like an industrial size package of milk chocolate. And I was like, I'll just keep it in the pantry. It'll be really convenient. It'll be there for emergencies. I'm sure I won't eat it
at like ten PM when I'm craving something sweet. I'll just keep it there for a long time. And so I ordered it, and then you know what happened.
Tell me the rest.
Okay, So, The first thing that happened was I never got the chocolate, which is kind of weird for Amazon, like they just never fulfilled the order, and the supplier was like, oops, we don't have enough chocolate, I guess. But then secondly, as soon as I did it, prices of cocoa started falling.
This was the market saving you from a bad trade basically, And so you put in an order right at the top. You know, sometimes you need a little luck in life, and now you can buy the dip.
That's right. I was fully refunded at the top of the market, and now I can buy it when it's slightly more reasonable. But I have to say, I'm looking at the chart of cocoa futures right now. So they searched above eleven thousand, and then they came back down. Let's see, we're about eight thousand, yeah, right now. So
it's been something of a roller coaster ride. And the thing that I don't really understand is when I look at coverage of the cocoa market at the moment, there seems to be consensus that supply is going to be an issue. So I know, Bloomberg published a survey of traders where basically everyone was saying that they think prices are going to go higher. Yeah, we could see over fifteen thousand dollars later this year, but in the meantime
prices are sliding. So there seems to be a disconnect there totally.
Well, look, I mean, even if the fundamentals are say, okay, this market is in deficit or you know, all these growing conditions, like at some point, as they say, you know, trees don't grow to the moon or trees to the sky, to the sky, whatever it is, so at some point like you can have like solid bullish fundamentals in the price. I mean, it really is crazy because last you know, December, we were looking at four thousand, so we're still you know, double so far this year.
Yeah, well, I have to say we do, in fact have the perfect guest. We're going to be speaking to someone who timed the big cocoa trade a lot better than I did personally in my pantry. But we're going to be speaking with Pierre on durand he is of course the founder of on Duran Capital Management. We're going to talk cocoa and a bunch of other commodities. So Pierre, thank you so much for coming back. On all thoughts.
Hi, thanks very much my pleasure.
So maybe to begin with talk to us about how you got interested in Coco, because my understanding is you put a big trade on a long position earlier this year. It paid off massively, But this isn't a sort of normal type of trade for you. This is something that was a little bit different.
Yes.
Well, generally my background is more in energy trading, but I've traded quite a bit of metals as well a little bit of agricultural products. But I have one and thatst was very good and told me generally, per you should look at Cocoas I'm like, okay, I don't know anything about it, tell me, And it gave me a really good presentation that was really interesting. So then we really digged in really deep together to really understand the
fundancials market. And basically we have a massive supply shortage this year. I mean we see production down seventeen percent relative to last year. Most analysts out there have it down eleven percent, but that's because they tend to be very conservative. They have a lot of clients and they don't want to worry the world, so they commu relatively conservative estimates. But really tracking the exports from the main exporters, many ivory coasts and Ghana that we put them together
about sixty percent of worlds production. We see basically ivory cost exports down thirty percent here to date I mean seedon to date and down forty one percent. So just those two countries together since the start of the season, which is the first of October, are down eight hundred thousand tons.
And now we have the what.
You call the mild crop that is starting, but that we present only twenty percent of the balance of the season for West Africa and that's not going to be enough to really change the deficit that we have this year.
So we have a deficit of eight.
Hundred thousand tons from those two countries, and then looking at all the other countries we have, I think the some are slightly positive, some are slightly negative, but basically we get to a deficit of eight hundred thousand tons this year. And so that's the first time we have such, you know, such a decline in supply, and that's very hard to.
Make it fit.
So at first you eat into current inventories until you run out of inventories, and then the price can go anywhere. So when we look at okay, what makes the price of coco right? It's always about supply, supply versus demand. But what has been capping the price between two thousand and five hundred dollars a ton and three thousand dollars a ton. It was not demand, because demand it's extremely inelastic.
I mean you can study that historically when you have a visession or note, when prices go up a lot or not, I mean demand journally goes up. And that's because the amount of in dollar terms, that people consuming cocoa is very small. I mean I did the back of the enveloped calculation the other day. I meant at basically ten thousand dollars a ton, even though it's four times the more recent historical prices, out of a market of five million tons of demand per year. You know,
you have like eight billion people on the planet. So in ave wage, it means that people consume one point seven gramps of coco per day, which at ten thousand dollars a ton, which isn't one point seven cents per day. Okay, at the average person, many people eat nothing and a few eat ten times at a month's.
Tracy, I was going to say, I can personally attest that my chocolate demand is very in a last.
But yeah, but you know, let's say if you eat even one tablet, right, so one hundred and twenty five grams a day, every single day for the wood yet, which is quite a lot, right of a high high content of real cocoa. Because you know your milk and milk chocolate you have like less than ten percent coco in it, So the price can go up ten times. Your tablet is only a double in price. It's not
going to react very much to the cocoa price. But if you take a high content, high chocolate content like a tablet one hundred and twenty five grams, that mean that you probably have maximum of fifty grams of cocoa bin s equipment in it.
I means probably a lot less.
Then you get to an expense of fourteen dollars per months at current prices, which is an increase of ten dollars per months relative to when we had a more normal price. So it means that demands like four more reasonable chocolate lovers, that increase in price in cocoa just corresponds to two to five dollars per months. So people are not going to eat less chocolate because of So it means that prices really are are capped by the
amount of supply you get. So if you can't get enough supply, the price can go up a lot until we get more supply. And when do we get more supply, Well that in part due to the weather. If you have much better weather then you get you might get a more and more supply of coco bin the next year. But we have some issues that are also structural. So when we look at the wisons for this large decline in production this year, I mean a lot of the
wisons are actually structural. I mean we can look at four weasons why coco bit production has gone down a lot this year. I mean, first I should give like a little bit of background of why cocoa is so concentrated in West Africa. I mean, it's mainly because it requires very specific temperature, rainfall, and humidity conditions, and that's why most of the production is concentrated around a certain latitude.
So seventy percent in West Africa, and then you have a twenty one percent in Many Latin America and five percent in Asia and Oceania. So the main reasons why we lost a lot of productions. This year is number one. Weather, so some of it due to El Nino. We had a bili period of time when it was too hot and period of time when we had way too much rain. Second is climate change, So climate change is every year shifting the weather patterns generally unfavorably for coco productions.
Then you have two disease.
You have one called the black pot disease that that come from a fungus and it took hers mainy during the rainy season. It's spread by brent splash so big it can't go when it's dry. And then you have a virus called the Swolen shoot disease. It's not a new disease. It was discovered in nineteen thirty six. It's transmitted by millibugs, but it dequisits cocoa yields a lot
so bili. A tree that has that Throlen shoot disease loses twenty five percent yield within the first year and fifty percent within two years, and the tree dies within three to four years. And we've had like actually a spread of that disease like over the last year. And then also we had less usage of fertilizers mainly in Ivory Coast due to high fertilizer prices and also shortages due to the Russian invasion of Ukraine. So you know, everything is linked. So some of it might be solved
if we get better weather. I mean for next year, we should have laminar and not Alninius, so that should help at the margin, but we still have issued with climate change. We still have issues with black pot disease and swollen three disease, and there's no indication that we get more usage of fertilizers in Ivory Coast because actually the farmers are still getting relatively low prices and they're still struggling to make ensmit. So a lot of those supply issues are actually structural.
This was already a really fascinating answer in particular just all that point about how if a commodity just does not take up more much wallet share, then the then you know, yes it can go up, but you don't get that same sort of demand destruction as if it were really creating a big financial burden on the end consumers. Something I'm curious about with Coco is, you know, when I think of like oil, we are just like we're swimming in data about oil. There are multiple big, well
funded international statistical agencies of the track. You can get inventory data easily. There's OPEC, there's et cetera. With Coco, and I'm curious. You know you said your analysts brought it to your attention in January. In my mind, I imagine that there is less robust information and it's more scattered, et cetera. Maybe I'm wrong, but does that present more opportunities to identify moments where there's something going on in the market and traders and analysts aren't seeing it.
You know, we managed to get in us a relevant data act. You need to understand what's happening. You have some concertants that are specialized, and if we mount, the have a team doing surveys of the main producing regions to understand and then they work on their forecast on how much the same production will go. So actually you have some specialists, so actually we get enough data to understand how.
So what did your analysts? What did your analysts see or how is your analyst able to see something in the supply and demand situation that he felt and you felt was not being identified by the analyst to cover this closely?
I think it's mainly an understanding of how much prices have to move to balance the market. You know, people sometimes people can trade that market for like twenty years. They've been used to a range of prices and they believe, okay, the top of the range is a high price for apple, but they don't really ask themselves what makes that price right? And sometimes taking a step back can help. I mean, what makes the price is mainly the fact that in the past you would have a supply repounce if prices
were going up. But if now you get you don't get the supply repons or the supply response takes four or five years, then you need to have a demand response. And a lot of people look at prices in nominal terms. So you hear people saying, oh, we're at all time high prices in coco, but that's because they look at
prices in nominal terms. Previous high in nineteen seventy seven was five five hundred something dollars a ton of nineteen seventy seven dollars, which is equivalent to twenty eight thousand dollars a turn of two days dollars. So we're still very far from previous highs, and so you have to look at a bit more history and understand in the past, halgh prices reacted to a shortage, how long it took to recover to product shortage to actually solve itself, and
what's different today. So there's there's a ratio that we look at that most people look at. It's actually the inventory to grinding the ratio, So it's a measure of inventory to demand. What we call grinding is basically industrial companies that take the coco bins and they want to make chocolate with it. So it's a process and some
of them may the hand product chocolate tabacci. Some of them sell back the product to other chocolate makers, and so basically a typical grinder would take cocoa bins and make cocoa butter and powder with it, and the prices of both those elements also went up even more than cocoa bins, which means that actually we probably had some distalking everywhere on the.
In the chain.
So it looks like demand when we look at the chocolate makers, the hand demand for chocolate didn't go down at all. It looked to be flat on the year. Grindings look to be down see three and a half percent this year. Despite the fact that the hand demand is the same in volume, which means that they've been distalking cocoa bins actually, and so we had like distalking everywhere at the hand chocolate level, at the cocoa bins, at the cocoa butter and cocoa powder level. So we
had this talking everywhere on the chain. And now we have the largest deficit ever on top of two previous years of deficit, and you look like next year we will have a deficit. So we're in a situation where we might actually run out of invantries completely. I mean, this year, we think we will end up with an inventory to grinding ratio, so inventry at the end of the season of twenty one percent. For the last ten years,
we've been between thirty five and forty percent roughly. At the previous peak in nineteen seventy seven, we were at nineteen percent and that's what drove us to twenty eight thousand dollars a turn of two day's dollars. If we have another deficit next year, then we might go down to thirteen percent. So I don't think it's actually possible. That's when you will have real shortage of cocobine, you can't get it, and that's when the price can really explode.
And so understanding that you have to slow down demand and we know that the demand can't will be slowed, so that's when you can.
Have an explosion.
And remember that these commodity futures you need to have, they're actually physically settled, right, so if somebody wants to take delivery, they have to converge with the price of the physical. If you have no physical somebody wants to take delivery, the price can go anywhere. So it's a dangerous commodity too short, right, if you have no physical
against it. And actually, you know, sometimes we with knew that the fonts have been pushing coco prices is actually completely untrue because the farms have been selling since February. They actually went from a length of one hundred and seventy five thousand lots, so that's one point seventy five
million tons of coco lands. I think it was around like September last year in average or orbitarlier to twenty eight thousand lost to eighty thousand tons at the moment, so they sold more than eighty percent of their lands actually, and the people who've been buying a future from the fonts its producers because they're producing a lot less than they expected. So what has been happening in the cocoa market is that you had a reduction of what we call the open interest, where both the longs we use
their lands and the shorts we use their shots. And then we get into a market where you have less liquidity because you have less exposure.
You have less longs and less less shorts, and then the volatidity increases.
So in the past, when when people were comfortable being let's say, having a one hundred loss position, now because it moves more than ten times more than in the past, we're going to have like a ten lots position, right, So the market became more due to the fact that we had a massive move and we have a massive deficit, so everybody reducing their positions, and because of the increased volatility, we have less less activity and that's what makes the point more volatile.
That way, this is something I find fascinating. So the way the financial markets sort of interact with the underlying real commodity and how that ends up influencing price. Given the dynamics that you just laid out, where because of you know, structural changes in the market, both in coco and then also in the way it's traded, This new volatility making people maybe less inclined to short and leading
to decrease trading volumes. Are you still long Coco in this environment or have you, like a lot of other people, backed off at this point.
Well, you have to be careful about the sizing of your position because it's something that is clearly less liquid than the commodities I'm used to, which are you know, for apple oil or natural gas. So it's a lot less liquid and in a market like that, it's a lot more volatile.
Right. It's not always volatile.
But when you have a large deficit and low inventory, it moves a lot. So you have to calibrate your position to be able to take a fifty percent move against you on the way right.
So that's what you have to do.
It doesn't mean that you have to be out completely, because I still think that there's more upside than downside. I think we still have the potential to go above twenty thousand dollars a turn later this year or next year, versus on the downside. Maybe we go from if you look at a December contract. It's at toughly seven thousand dollars a ton today, maybe we go back down to five thousand, right, so you have like a two thousand dollars turn downside versus thirteen to fifteen thousand dollars or
maybe more upside. So it's still worth having some lands, you know, in terms of probability. But now I mean it could go down. The probablity that it goes back down is not zero. But for that you need a lot of things need to go out. You need like a bumper crop in West Africa next year, and it means you need to have the perfect weather in West Africa from now to the end of the year in order to have a really good cop for next year.
And it might happen, but it might not happen, right, You need to get extremely lucky for that to happen. So I think the balance of probabilities are still that we will have a deficit next year on top of the very large deficit this year. We believe we have eight hundred thousand tons deficit out of five million ton
market size, right, so it's a very large deficit. If we have the production going back up roughly ten percent from this year to next year, we still have a deficit of three hundred thousand turns or so next year. That brings us to thirteen percent stock to grinding ratio, which which would be much lower than what we had in nineteen seventy seven. So we still have I think a high probability of having much much higher coco prices.
You know, even if they go there, we might have big drops like we've seen the last months or so the last two weeks, but we might make new hide and then have big drops again and then make new heihs or if over the next four months we realize that we're going to have from all the surveys we get every months in Ivory Coast and Ghana that the crop next will be amazing, then the policies we'd probably come off from here towards you know, I don't know,
five or six thousand dollars a turn, but they're not going to go back down right away to two thousand, five hundred dollars a ton because we need We have very low inventories, so we need to rebuild stocks everywhere in the supply chain.
These inventories. So you've been talking about the stock inventory, the grinding ratio or the stocks to grinding ratio within the sort of cocoa or chocolate supply chain. Who are the holders of the stocks and how do you get there? Like how is that data collected?
So basically you have the exchange. So first you have exchange stocks, so we have weekly data in European exchanges and the US exchanges. So in the US NAPPLE everything's held on exchange pretty much, so everything in exchange. In Europe only twenty percent of the the inventories on exchange. Twenty percent of the European stocks are on exchange. The others are really with with chocolate makers or that they
need to hold stocks directly to make the chocolate. And then you have then you have some also obviously at the producing regions. So and that's something that we can see the inventories at the port in Ivory Coast and Ghana, so the main exporters. You can actually follow the amount in inventory there and then the West. What we don't know is inferred statistically, right, so there's a bit of noise in what that that total amount of inventory would be.
But you have some some firm that has specialized in it that will come up with an estimate of the number, So they'll they'll do some surveys, they'll they'll, they'll they'll do some cost validation to make sure that the numbers at are at the end.
Out of curiosity and just widening this out to a few other commodities, have you observed any similar dynamics in something like coffee, which has been getting a lot of attention recently, or orange juice. I ran into some guy called Mortimer who was telling me that Brazil is supposed to have a bad harvest this year.
That's possible.
I haven't followed orange juice. I mean, we looked at coffee quickly. It looked less. It looked interesting as well, because you get big losses in production from Vietnam. But we didn't look We didn't see from far something that was so exciting, so we didn't try it.
Orange juice, we haven't.
I don't know, but I would say that generally the shift in weather patterns due to climate change are going to bring some structural stories into soft commodities, and so we'll.
Have to look.
At more and more of the soft commodities because it's not only going to be from one year to another. You're going to have like that everything could change due to random change in weather.
You have this underlying climate change that.
It's also a trend that really impact production of the time, and so we have to identify the communities that will be impacted by that.
Tell to us a little bit more about Obviously we've had you on in the past primarily talk about oil and as you mentioned in the beginning, entering and you're not you don't trade egg as much. There's sort of a different space for you other than the size of the market. And I guess you know, as you mentioned, it's all physical delivery futures. What are the other dynamics that are different when you go from trading a commodity like oil, which is gigantic and liquid, to a commodity like cocoa.
Well, you have to follow the I mean cocoa I think is less complicated than the grains because in the grains, your weather can impact productions so quickly. But sus for cocoa, it does impact production, but it takes you five years to you know, when you plant a cocoa tree for I mean three to five years for that coco tree to give you cocoa beans. This is for grains, you get it right away, so you get like a slower
production responsor. It should be when you have a big supply issue and that you have issues due to climate change, you should have like a.
Large move than four coins.
So it should make it easier in a way to have a positions that you can hold for longer that are a bit more structural.
Than four coins. I would say that's my understanding at least for now. And there's enough data too.
I mean enough data meaning like if we we get like a bit more more data on how the new crops are doing many many in iboricos and cana to have a good understanding of what the crop will be, the production will be the following year. So I feel like we have enough data to understand in which direction we're going. Versus the grains, I feel like the grains can they move up and down a lot?
Then you can't. It's more complicated.
You have to look at a lot of like tiny details versus coco where you have many one mega major producer and another very large one.
Speaking of climate change, can we talk a little bit about copper, because this is all so a commodity where I feel like there was a lot of discussion about it being in structural short supply as the world moves towards electrification. But then over the past couple of years prices went down, I guess because of concerns over the outlook for economic growth, and just relatively recently so starting sort of February of this year, prices are going up again.
What's your thesis when it comes to copper.
I think coppers should go up a lot Bleakly. We are going from biky Over the last let's say fifteen twenty years, we were in a market where demand was going about half a million turn a year and supply was going half a million ton a year in average. Right, if you look at long term averages, it was over time a balance market. We had times where it was tight, times where it was in a bit of a surplus, many during the pandemic or during financial crisis, but overall
it was a balance market. Now, due to the energy transition, we're obviously as we have to electrify the world, we have new demand from electrification of transport, so it means that not only to make the electric vehicles, but also to supply more electricity.
Overall in the world.
For that energy transition, so you have to work on the grid to have more renewable and renewables take a lot more copper than like nuclear plants or like fossil fuel generated electricity, so like solar panels and windmills take a lot more copper. And also all the data centers take a lot of copper. So we have that third in power demand that we need a lot of copper.
And we're getting into a market where despite the fact that the Chinese property market will be much weaker than the last fifteen years in terms of growth, and we're seeing decline in the property in the copper demand in China for the fourthingble future, despite that, we see a market in which we're have overall one million tons of demand perier roughly of demand increased per year, and the supply goes basically by the end of next year will
be zero to negative. So we think that in terms of mining supply, we're picking in about a year like twelve to eighteen.
Months, and then we flatten and then we go down.
So best case scenario, you get like a million tons increasing demand against no increasing supply, so you get larger and larger deficit deficit every year and the price hasn't reacted yet, and that's mainly because I think there's not enough fonts at the or companies that actually trade the future's market and all positions for very long. I mean, if you look at most of the hedgephones out there, it's a bunch of leg pots that have.
Very many, many.
Teams in those big multi strategy fonts that have very tight drawdowns, so they tend to try to trade for the next few days or next week or so. They count really positions for very long, and there's not a lot of companies that can hold positions, so because the market is not really doing its job to actually give a price signal to solve that deficit, that upcoming deficit, that's a multi year deficit. Basically, it takes, you know,
to grow supply in copper. I mean, if you bring a new mind, is like more than ten years to bring its like ten to fifteen years to bring a new mind.
And everything has been relatively well explored.
So now the supply growth from copper is coming from more and more dangerous countries as well, like less and less stable countries, So you don't get that quick supply response in copper, but the demand is now and the demand is growing. I mean, we're going to build that electric grid, and we're going to build all these EVAs and also that data center. They're going to be built
at whatever the cost of copper. And remember that the price of copper is a very small percentage of the price of the end product, right, So if copper goes up ten times, I mean your m product will go up a little bit. It's not good to double in price. So if you need to have a demand response, mainly when the world is kind of obligated to go through that through that energy position, then we should get to really really large price move.
So I think there's a long long way to go for copper.
I'm interested in this because you know, we have seen this bit of a copper rally, though we're not even I don't even think we're quite at the twenty twenty one highs. But it's interesting. I'd love to hear you explain further about the connection between Okay, any any fool can look at supply and demand and say, there's this much demand for copper out there, there's this much supply
coming online, there's going to be a deficit. That seems bullish, how do you take that analysis and or take that starting premise and then think about what does a fair price look like? And so as opposed to just saying yeah, this is there's more demand that supply. How do you get to like a number that in your view or in your analyst view, looks like a number that might bring supply and demand into balance.
I mean it's going to be you know, I don't think it's just a price. It's like the whole path is important, I think. So we look at it year by yea, so we think, okay, at current prices, what would be the supply and demand balance to current prices have an impact on demand goes or not? Or what is the state of the global economy. What kind of you know, demand goes do we expect for copper and what is the supply goes?
I mean, supply goes.
Is not going to be too dependent on copper prices for the first few years. I mean a little bit to scrap. You get a bit more crap scrap metals when prices go up, so you can model for that. When prices go up, you get more crap supply that that comes as a source of supply for copper.
And then the demand.
We look at, okay, what can be priced and city what can be pushed too later or not? It's not that much to be honest, And then we get to a path for the demand. And then we look at, okay, what is what do we think the supplant demand balance.
Look looks like every year.
So for Apple this year, at current pri set, we think we're going to get about like four hundred to five hundred thousand tons deficit, and we had less than that in terms of visible stocks at the beginning of the year, so it means that we could actually run out of visible inventories by the end.
Of the year.
Now there is some extra inventories, mainly the strategic reserve, what we call the SRB in China, but if they know that we're going to we're at the beginning of a multi year deficit, they're not going to sell their strategy reserve in the first year. So then we look
at the following year. We think for next year, we also have half a million ton deficit, and actually we can't cover that with a level of inventory, so we need and then assuming we had enough inventory, we go to in twenty twenty six to invent like deficit that are more than a million tons and eventually more than three million tons in twenty thirty, and that obviously those deficits accumulate and we don't have enough inventries to actually you know, go through.
The first year.
So it means that we're going to have really large pricing is sooner than later to slow demand, and I don't know how much it would have to go by. Yeah, So basically on copper, what I mean that we're going to have to have nonel in our move sooner than later because of the large deficit we think we're going to have this year and if not this year, next year, and we don't have enough inventories to meet that deficit.
So we need to slow down demand relatively fast. And we think that demand is also very in elastic due to the fact that the price of copper as a percentage of the end product is very low, and we need to go through the energy transition regardless of the price almost so I think that's why prices can move a lot for copper. So at the end, like we don't know exactly how high they can go to we go to I think they could go up four times
over five year five year horizon. But does it mean that we go up from ten thousand to fifteen thousand this year and then twenty two thousand next year. I don't know, but I think that the kind of twice moves that I'm expecting, you know, like this that multiple in twice, not to twenty percent increase. The twenty percent increase doesn't change anything to your suppreme demand balance on a two to three highs.
So Joe asked you how you come up with the price thesis for something like copper and how you see it play out. And you know, we're mostly focusing on time scales there, but there was one commodity that I wanted to ask you a similar question on which is oil. And oil it feels to me is facing a very uncertain year in many respects. We have the upcoming US presidential election, and it feels like things could go in very different paths depending on whether Trump or Biden get
the presidency. Not necessarily in terms of US oil production, which is already quite high and I think has surprised a number of people, including possibly yourself, but maybe in terms of things like the response from OPEC or what happens with Russia Ukraine can you walk us through how you in such an uncertain moment, how you even begin to come up with a short term thesis for the price of oil over the next year or so.
Yeah, So when you look at all the potential supply disruption that we could have had at the end of thing, we didn't get any supply disruption. So if you look at in twenty twenty to twenty twenty three, we're all expecting to see at least some decline in the Russian production due to sanctions, so due to issue within Russia, and at the end, there was no supply responsor at all.
I mean, there was no subplate disuption.
Last year in twenty twenty three, we've got to sell in Iranian exports due to the fact that the sanctions on Iran were not really.
Enforced, I would say.
So we had relative to expectations, we ended up having like a lot more Russian production and Iranian production. And also last year US supply grew up more than expected for the beginning of the month of the year. So for the last four months, for five months four months, I would say US production has been disappointing. So it's been a bit lower than people expected. And that the first time in a long time. Obviously, four months is not enough to grow a trend, but it's something to
watch out for. I mean, is US shel production about to peak or not.
We don't know. We'll only know it.
After the fact, But so far it looks like US production is actually not growing too much, I mean, or at least over the last four months. With the tensions
in the Middle East. In terms of what scenario we could have to really lose supply, I would say it's only if we get an attack on Iranian oil facilities, but I don't think the US would want that, so I don't think Israel would do it, because if they were to do it, then the Uranians would probably try to blow at the Saudi facilities or close the straight of Hormoved and then we.
Get into really huge toppled disruption.
But it's a low probability event, right, It's very unlikely, but it's not impossible. But if the conflict stays between Israel and Gaza, I mean, there's no oil there, it
has no impact at all all supply. So where we could have supply disruptions is coming from the Ukrainian attacks on Russian oil infrastructure, and when you look at what they've been doing for the last six months, they have many attacks Russian behind with and that's really to try to hurt the war reforts in Russia in the SPS, not actually with it so much financially, it's more for them to not have the white amount of fuel to make enough rockets and all that, and for the Russian
people to feel like they're also there's something going on, and it's not just in a sub a whyland, But the Ukrainioans have not attacked pipelines and ports yet. I think if they really wanted to impact the revenues of Russia, they should attack the ports and the pipelines, bringing Frudel to the port and keep on blowing up pipeline and then that would really have a big impact in the revenue that Russia would get. But that would also have an impact on all places. And the US don't want
to have millions in an election year. They don't want to have the Biden adiministration is very very paranoid about having high gasoline prices before the election. So they're putting pressure on the Ukrainians to not attacks, to not attack ports. But if we get into a situation where the Ukrainians become more desperate I need.
More help than they might attack ports.
So that's where we could potentially have supplied disruptions.
In terms of yes, sorry, I just.
Real quickly, how much do you think that pressure from the ADMIN not to attack oil infrastructure is hampering the war effort for you?
Right?
Well, at the end of the day, like if that no help from the US, they would attack the old facilities in Russia. But the fact that depending on US weapons obviously they have to, right, you know, to listen to what the US say. I mean as far as they're helping. If the US stop helping, then of course they will they will go. They will go for the old facilities.
I think.
And in terms of the elections, you're asking, like Trump versus Biden, does it change anything for oil? I mean, I think it's quite marginal or nothing, I would say for US supply because despite all the talks, US productions searched under Biden, So I don't think that Trump would make it search more. I mean, it's just a question of geology and money. Actually, more than anything, I think we can't be too far from peak in US productions.
So you know, I don't think the.
US supply grows as the potential of many millions of barrels the extra So I think I think it's quite marginal for US production. But where there could be a bit of an impact for oil would I would expect Trump to and force the sanctions on Iran more Titi, so we might lose some oil from Iran, and that's but again that we probably get a bit more oil from the Saudist So.
I'm not sure. I don't think.
I don't think Trump versus Biden have a big impact on oil prices.
All right, Well, Pierre, we're going to leave it there. Thank you so much for coming back on all lots and walking us through all these various soft commodities and oil as well. Really appreciate you coming back on pleasure.
Thanks very much, thanksolling you opportunity.
Thank you Joe.
That was super interesting. I really liked hearing someone's conception of the cocoa market when they haven't necessarily been in it that much, and like how they formed that thesis and decided to actually put on the trade totally.
I thought that was fascinating. I mean just hearing him like walk through all of the different factors, whether it's climate change, whether the two diseases.
Fertilizer was one that I hadn't heard that much about.
Before totally, but makes total sense. Like when you think about it, and when he brings it up, some of
the metrics he looks at. I'm also interested in just this point, which is obvious, but I hadn't really thought about it, that you could have a quadrupling in the price of cocoa, and even if that translates into a quadrupling of the price of a cocoa bar or a chuckolate bar that you buy that in a commodity that ultimately is just not that big of a monthly expense or weekly expense for people, you might not get much
of a demand response. If you had a quadrupling of the gasoline prices, you might expect carpooling or people to take less trips or you know whatever, or subway rides. You're just not going to get that same effect the market.
That's small.
Yeah, and it was kind of interesting to hear a similar dynamic in copper as well.
Well.
The one other thing I was thinking about, just to push the an inelasticity point a little bit more, I wonder sometimes if all the headlines about cocoa prices going up, if everyone rushes out to buy chocolate in the same way I do, maybe you get like even a bit of a demand boost in those scenarios.
Or a bullwhip, right, because then everyone buys it, and then they're pulling demand from the future. And also whatever you have in your pantry, Tracy, is probably you know, it's it's hidden inventory, right, Like the statistical agencies can't see into that, so then there's more cut. Who knows whether that's an but it is a It is an interesting question.
Yeah, no one knows about my strategic chocolate reserve, Tracy.
And I never tell you about the time that I was at the top of the Patronas towers in a nightclub and I talked to a palm oil magnate.
Yes, yes, you have in Malaysia, right, yeah.
Yeah, Malaysia.
Yeah.
But it was It's interesting too because he was talking about the fact that, like palm oil is a tree based commodity, obviously, and he was describing very different market dynamics versus a field based crop, in which a field based crop you just have one person on a tractor, are combine to the whole field, the labor intensivity, the difficulty of automation when it comes to a tree based commodity versus field based commodity. There aren't many robots that
can climb trees yet as far as I know. So it's interesting think about the market structure of some of these different commodities and how different they are just depending on the growing conditions, how labor intensive, how prone they are to automation scale, et cetera.
Things like that.
We should have asked Pierre about palm oil.
We'll have to have them back for that.
Yeah, all right, shall we leave it there.
Let's leave it there.
This has been another episode of the Oudlots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Jill Wisenthal. You can follow me at the Stalwart. Follow our guest Pierre on Durant. He's at on Duran Pierre. Follow our producers Kerman Rodriguez at Kerman Ermann dash Ol Bennett at Dashbot, and Kilbrooks at Kilbrooks. Thank you to
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