Kenji Baugham
May 27, 2022

In the first two articles, I discussed the origins of and issues with the just-in-time (JIT) production model, and the potential for economic instability it poses. I also made an analogy to biology, comparing the evolutionary success of the coyote to the axolotl, which has faced a recent population collapse and is now possibly extinct in the wild. A key difference between the survival strategies of these species is the high level of adaptability of the coyote compared to the niche vulnerability of the axolotl. Now we are going to pivot a bit to look at how this relates to a few commodities.

Let's look first at cobalt. More than 60% of cobalt production comes from a single country: the Democratic Republic of Congo (DRC). The DRC is a politically unstable region, and much of the cobalt mining there further suffers from a lack of safety standards that result in injury and death as well as widespread child labor. These factors all contribute toward questionable sustainability and reliability of cobalt exports and prices going forward, as well as social pressures against it. At the same time, global demand is expected to rapidly increase in the coming years due to an ever-increasing need for rechargeable batteries that depend on cobalt as a production input. This part of the economy is lacking in robustness and resilience. It carries with it a very high risk of supply shocks and price volatility. We have seen elements of this vulnerability over the last year, with cobalt prices nearly doubling. If cobalt supply were to collapse in DRC due to some type of catastrophic shock, there are no viable alternatives that can meet the existing, let alone future, demand. We can at any time face a sudden and insolvable crisis with cobalt.

Neon has a similar lack of diversity, and the 70% of the world's neon produced in Ukraine is currently in a very questionable state. Cobalt and neon are axolotls with endangered supplies, unstable environments, and uncertain futures. Industries that depend on neon for semiconductor production and cobalt for rechargeable battery production have already been facing supply problems for several years running, and they run the risk of continuing to face challenges as long as these types of dependencies remain.

JIT supply practice for volatile commodities like these only serves to compound the problem for manufacturers. As a possible result of the recent supply chain problems, we are now seeing the beginning of a race to control the source of supply. Chinese manufacturers have been moving to buy up the few existing cobalt mines, potentially giving China a chokehold over key industries and setting the stage for a new global economic and political battleground. With much of modern electronics sourcing on the line, the stakes couldn't be higher. A limited supply of natural resources seems to naturally coincide with global conflict. This has been a consistent driving factor behind much of human history.

Now contrast cobalt and neon with wheat. Due to the war in Ukraine in combination with dry conditions across the Middle East, experts are sounding the alarms over coming food shortages in countries that depend on these exports. However, this area of the economy overall is much more robust. It is true that Ukraine and Russia export 30% of the world's wheat, as commentators keep reiterating, but it is also true that in 2020, the actual share of worldwide production for both export and domestic consumption was closer to 14.6%. In fact, China alone produced quite a bit more wheat than both Ukraine and Russia combined. India also typically produces as much wheat as both economies combined annually. The difference in numbers is because a large amount of wheat is produced and consumed by and for domestic markets all around the world. Wheat is much more resilient to shocks, as there are a large number of both producers and consumers, as well as plentiful sources of viable substitutes, like rice. As wheat futures rise in price, there are a large number of producers ready to increase production to take advantage of the price increases. As a result, the system is much more likely to stabilize following a shock than a commodity like cobalt or neon. In the short term, we just have to find ways to minimize the impact through the current growth/harvest cycle before it is likely to naturally start self-correcting. Wheat is the resilient, ubiquitous, coyote.

All of these issues beg the question: Have we been sufficiently pricing in resilience and diversity into our valuation of companies and commodities? Should we be paying more attention to markets having a healthy number of competitors, sources, and markets, as well as businesses that maintain more insurance against shocks? Can we develop new tools to better evaluate the health of an "economic ecosystem?" There are few solutions to the problem of commodity scarcity, and I would wager that as long as value is fundamentally driven by quarterly reports, JIT isn't going anywhere. Even so, perhaps it is time to find more ways to step back, take a longer view toward economic systems, and incentivize tempering the extremes of JIT. Maybe we should give a little more valuation to businesses and economic sectors that engage in intelligently targeted future proofing, such as holding strategic reserves of key, vulnerable supplies. Further pricing in risk in advance could perhaps smooth out some of the wider swings in prices and supply that result from an economy that has for decades prioritized the here and now over long-term sustainability.

1. Roser, Christoph, et al. “What Is ‘Just in Time.’”, 8 Mar. 2022,
2. Hadwick, Alex. “The End of Just-in-Time? | Reuters Events | Supply Chain and Logistics Business Intelligence.” Reuters Events, 3 July 2020,
3. The Emerging Cobalt Challenge. RCS Global,
4. "Crops and livestock products". FAOSTAT. Retrieved 2022-04-21. Item - Wheat; Country/Region - World + (Total); From Year - 2020; To Year - 2020
5. Mukul, Pranav. “Explained: Why the Russia-Ukraine Crisis May Lead to a Shortage in Semiconductors.” MSN, The Indian Express, 12 Mar. 2022,
6. Searcey, Dionne, et al. “A Power Struggle Over Cobalt Rattles the Clean Energy Revolution.” The New York Times, 7 Dec. 2021,

Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss.
© First Quadrant, LLC, 2022. Intended for Institutional and Qualified Eligible Persons Use Only. The views expressed are the views of First Quadrant, LLC, only as of the date shown and are subject to change without notice based on market and other conditions. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice, recommendation, or solicitation of any particular security, strategy or investment product. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of domicile. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

Related Posts