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Potentially Good News For Smaller Ships

September 17th, 2009 Michael McDonough

A potential record US harvest could help buoy rates for small to mid-size ship rates.   What was a relatively mild and wet spring and summer has created conditions for what is setting up to be one of the nation’s biggest harvests.   The U.S. Department of Agriculture is projecting a total corn crop of 12.954bn bushels, which would be the second highest on record, and a record soy bean crop of 3.245bn bushels.  Some industry analysts believe these estimates could even be conservative, without a September frost.  The weather conditions that have led to this potential harvest haven’t come without some risks; cool temperatures have pushed back harvest time by up to two to three weeks, which increases the chances of a September frost in the mid-west farm belt. As an aside, changes in the near-term weather forecast for the mid-west could have a large impact on grain prices.  Optimal conditions would be sunny 80 degree days, whereas any frost forecasts before the completion of harvest could place some upward pressure on prices.

Soy Exports

Source: USDA

So what does this have to do with shipping?  While the US experienced optimal crop conditions, other countries, like China, have faced sub-par conditions and have reduced production of soy beans.    Overall the US supplies 45% of the world’s soy bean exports.  In 2008 China imported 37.44mn tons of soy beans, which according to my calculations is roughly 1.3bn bushels, with nearly 99% coming from the US, Brazil, and Argentina.  In fact, in 1Q09 80% of China’s record soy bean imports were from the US.  Early indications on the US Gulf Coast, where most domestic grain is shipped to China have been positive.  Lloyds List, a leading maritime and transport news terminal, quoted one regional broker saying, “The US Gulf has come alive with a bit more inquiry for October, and going forward, a number of sales have been done.” He went on to say, “The Chinese have bought quite a lot of grain out of the US Gulf, and those inquiries have either been with the Chinese or the grain houses.”  This should be especially positive news for panamax rates, which are facing pressure from both decreased iron ore and coal demand.  Capesize rates are unlikely to benefit much, if at all, from this demand as they are not typically involved in grain trade.

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