In 1972, the Soviet Union represented 15% of the world’s GDP and consumed 18% of the world’s food.
By the early 1970s, the Soviets were facing a food crisis. There had been a crop failure caused by unusual weather. Frost killed the winter crop and the summer turned to drought.
Corn, soybean and barley reserves were almost empty. The government in Moscow was not just responsible for feeding the Soviet Union, but the entire Eastern Bloc.
Belousov was a soft-spoken government official who was asked to solve the crisis. He avoided vodka and publicity, qualities rare among Russian bureaucrats today.
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He decided that a deal with the US, the Soviet Union’s adversary, was the only solution. The US was the world’s breadbasket, which produced one-third of the world’s grain.
In the summer of 1972, Nicolai Belousov stepped off a plane in New York’s JFK airport. The city was glitzy and prosperous. Soviet visitors had never seen skyscrapers over 100 stories tall. The Twin Towers of the World Trade Centre had just become the world’s tallest buildings.
There was an underbelly of crime and violence. Belousov avoided the subway.
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Within three weeks, his team had contracted US$705 million worth of American grain. This was roughly one quarter of the entire US wheat crop at rock-bottom prices.
The deal was elegant in its simplicity. Belousov’s team met the major American grain houses. They were Continental, Cargill, Cook and Dreyfus.
Belousov met separately with each company. No single firm grasped the scale of Soviet demand. Each company thought it was winning a large but manageable order. Each was actually draining the American grain reserve. Food prices doubled in the next year.
Belousov then boarded a plane for Moscow via Amsterdam and was never heard from again. The Americans spent the next decade arguing about who was to blame. The deal was called the Great Grain Robbery, which was a pun on a train robbery in Britain a decade earlier.
This transaction was followed by the Yom Kippur War in October 1973. The Arab states imposed an oil embargo. The oil shortage worsened the food shortage. Corn prices tripled between 1972 and 1974, causing hunger and disease.
Belousov died in obscurity, but there are echoes of his grain deal today. The war in Ukraine has impaired one of the world’s great breadbaskets. Ukraine and Russia together accounted for roughly 30% of global wheat exports before 2022. The Middle East may once add fuel to the fire. The blockade of the Straits of Hormuz could cause a shortage of fertiliser. One-third of the fertiliser passes through it.
Belousov left no memoirs and gave no interviews. The commodity traders that profited from it are around. Three names occupy the same position that Continental, Cargill and Dreyfus held in 1972.
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Archer-Daniels-Midland (ADM) sits at the fulcrum of American agricultural production in Chicago, Illinois. When grain prices surge and supply routes fracture, ADM’s margins expand. During the 2008 food spike, ADM’s grain merchandising operating profit rose ninefold to US$366 million from US$46 million a year earlier.
Bunge Global is even more directly exposed to the arbitrage that emerges when disruption creates price differentials. Its South American origin network provides a natural hedge against US-China trade tensions. It is trading at half its 2008 valuation.
Wilmar International, listed in Singapore, is Asia’s largest agri trader. It processes a third of the US$70 billion ($89 billion) palm oil market. It is the heart of China’s soybean supply. Despite its origins in a shophouse in Chinatown, it has a revenue of US$40 billion. It is trading at 10 times P/E, according to Bloomberg consensus, which is well below the agri trading average of 17 times.
Belousov flew home via Amsterdam with the deal of the century in his briefcase. He was never profiled or photographed, as he operated in secrecy. Investors have a better chance of profiting from grain traders than of unearthing deals.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era
