Bloomberg reports that corn, wheat in Chicago rebound as importers rush for supplies.
(emphasis mine) [my comment]
Corn, Wheat in Chicago Rebound as Importers Rush for Supplies
By Jae Hur
Feb. 12 (Bloomberg) -- Corn, soybeans and wheat rallied for the first time in three days as importers including Japan, South Korea and Egypt sought supplies before freight costs jump further.
South Korea issued tenders to buy 165,000 metric tons of corn and 55,000 tons of soybean meal for feed production today. Japan bought 132,000 tons of milling wheat, including 86,000 tons from the U.S, and Egypt plans to buy at least 55,000 tons of wheat. Grains were also supported on concern port congestion may delay wheat shipments from Australia.
“Overseas buyers are concerned about surging import costs following sharp increases in freight rates,” said Tomokazu Amano, research team chief at Mitsubishi Corp. Futures & Securities Ltd. in Tokyo. “They are likely to rush for purchases while corn and soybean prices stay at current cheaper levels.”
Corn for March delivery was up 0.5 percent at $3.705 a bushel in electronic trading on the Chicago Board of Trade as of 2:24 p.m. Singapore time. The most-active futures are down 54 percent from a record $7.9925 on June 27.
Soybeans for March delivery gained as much as 0.5 percent to $9.8325 a bushel before trading at $9.79. Futures have declined 40 percent from a record $16.3675 on July 3.
The Baltic Dry Index, a measure of shipping costs for commodities, rose for a 17th straight day as demand to ship coal and iron ore boosted capesize vessel rates to a four-month high.
Freight Jumps
The index rose 4.1 percent to 2,055 points yesterday, according to the Baltic Exchange. The gauge has more than doubled this year after collapsing a record 92 percent last year as demand for raw materials fell and the world economy slumped.
Wheat for March delivery added 0.4 percent to $5.4525 a bushel at 2:22 p.m. Singapore time after falling 2.3 percent yesterday. Prices have tumbled 60 percent from a record in February 2008.
Wheat exports from Australia, shipping its biggest crop in three years, may be delayed because of port congestion after the nation opened the market to multiple traders. [Australia' s “biggest crop in three years” was from 2008, last year. 2009' s crop is likely to fall dramatically due to drought]
There are at least 19 vessels waiting to load grain from ports in Western Australia, the biggest exporting state, according to Bloomberg calculations. CBH Group, the state's biggest grain handler, told customers it can't take orders for February or March and temporarily halted April bookings, Colin Tutt, general manager of operations, said in an e-mail.
"If it lasts longer, this will help support Chicago wheat prices as buyers may have to turn to the U.S.," said Park Yang Jin, business department senior manager at Daehan Flour Mills Co., Korea's largest milling wheat importer.
Here is more info on oversea shipping rates from the Wikipedia' s explanation of the Baltic Dry Index.
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).
The supply of cargo ships is generally both tight and inelastic - it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the California desert. So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. So the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, crude oil, metallic ores, and grains.
My reaction: Global droughts are forcing countries to import more from further away, driving up the cost of shipping dry commodities overseas.
1) Overseas buyers are concerned about surging import costs following sharp increases in freight rates.
2) The Baltic Dry Index, a measure of shipping costs for commodities, rose for a 17th straight day as demand to ship coal, iron ore, and grains boosted capesize vessel rates to a four-month high. The gauge has more than doubled this year after collapsing a record 92 percent last year.
3) There are at least 19 vessels waiting to load grain from ports in Western Australia, the biggest exporting state
4) CBH Group, the state's biggest grain handler, told customers it can't take orders for February or March and is temporarily halted April bookings.
5) If Australian shipments are delayed much longer, it will help Chicago wheat prices as buyers will be forced to turn to the US.
My reaction: Demand for commodities, especially grains, is boosting freight rates. This is likely to continue. For example brazil, one of the world' s largest importers of wheat, usually gets its supply shipped over land from its neighbor, Argentina. However, since Argentina is suffering from its worst drought in half a century, Brazil will be forced to buy its grain from far overseas (US or Europe), which will boost vessel rates.
