The Ukrainian crisis is still underway, which got us to thinking about event-driven investing. That and yucca, which I was told was traditional Ukrainian drink. It is mixed in a large communal vessel and then passed to each participant. I tried it with friends a while back and it’s worth the effort—if you aren’t going anywhere for a while. As I mentioned in my last post, I am not a big fan of short-term trades. Having said that, my opinion is that there are investable ideas that come from an unexpected change in world events such as the one in the Ukraine; if one is willing to look deeply into the potential effect on input costs and supply chains.

Using the Ukraine as an example it, and former Soviet Union countries in general, is one of the few places outside of North America that has large scale, and long established, mechanized farming; a left-over from the collectivized farms under Communism. This is one reason the Ukraine is one of the most important grain export countries in the world. Unfortunately for the Ukraine it not only might have lost access to Crimean ports via the recent referendum, many ports on the Black Sea that were not affected by the referendum often have a notable Russian ethnic presence. How this might impact future Ukrainian grain supplies and/or exports via the Black Sea is yet to be seen, but it appears that this has had somewhat of an impact on grain prices as of this writing (California’s drought also likely played a role).

Can an investor find short term opportunities in these situations? I think it is very hard not only due to high frequency trading and artificial intelligence, but also due to corporate hedging. Most companies that have high exposures to commodities hedge their exposures, often for several months out. However after a period of time those hedges expire and need to be rolled over and reflect the new, usually higher, commodity prices. It can difficult for an investor to pinpoint when that might have an impact on earnings estimates, but eventually it should occur in the out years if prices are still elevated.

Additionally uncertainty in supply due to unexpected events can cause companies to reassess supply chains and adjust their sources accordingly. The financial impact depends on a number of factors such as existing worldwide commodity stocks, existing inventories at a particular company, logistical concerns, if a substitute can be used in place of that particular commodity, and the like. It can take time to determine if and when any of these factors, combined or in tandem, have an impact on a company’s costs.

Therefore disruptions in supplies and increased commodity costs might not have a visible effect on margins for several quarters, if at all. Using our example of the Ukrainian Crisis, we might not see grain prices impacts (assuming sustained higher prices) on reported earnings numbers of companies that use those grains this year due to hedging and supply chain factors. However there might be an impact in the out-years that may not be reflected in estimates. Taking advantage of that potential discrepancy may take more time, patience, and research than many investors are willing to undertake. Herein lays the opportunity.

In the meantime do your analysis, be patient, mix up a big batch of yucca, and pass it my way.