Grain trade could provide additional support to the dry bulk market

Grain trade could provide additional support to the dry bulk market

DDespite the latest developments regarding Russia’s withdrawal from the UN Grain Agreement, it appears that the fundamentals of the maritime grain trade are favorable to shipowners. In its latest weekly report, shipping broker Intermodal said “the global grain trade is extremely tight, with headwinds from the ongoing war in Ukraine, river problems in the US, parched fields in Argentina, a food crisis world and fears of a global recession. However, given the current grain market snapshot, it should not be ignored that although the outlook is rather bleak, there are positive indicators that underpin or could bring some relief to the grain market”.

According to Intermodal research analyst, Ms. Chara Georgousi, “Europe is forecasting the smallest maize crop since 2007-08 with production forecast down 21% year-on-year. European demand for imported maize has increased despite a poor harvest, which has boosted imports not only from Brazil but also from Ukraine via the Black Sea corridor where uncertainty remains about its continuation. According to the USDA’s monthly report, US corn production has been hit by lower yields, while low water levels in Mississippi will delay the movement of US corn to export terminals. US soybean production and exports, although slightly reduced, are heading for a record high. In Argentina, the pace of planting is suffering from the drought caused by La Nina, in what could be the third consecutive year of losses for the country”.

“A poor production outlook for 2022-23 and increased competition from the Black Sea and Canada are expected to lead to loss of market share and lower exports in 2022-23. Canadian wheat production 2022-23 is forecast at 33.5 million tonnes, supported by recent rains which have improved soil moisture, while exports are estimated at 24 million tonnes, +53.85% in year-on-year, supported by favorable weather conditions. A gradual return to a steady export pace over the 2022-23 period, however, could lead to rail congestion and logistical problems, as rail capacity becomes extremely scarce after the harvest season. Shipments from Ukraine are still 36% lower year-on-year. The grain export outlook for Ukraine is in focus these days, as it is due to expire in mid-November. Officials are in the midst of negotiations to extend it. If this fails, Ukrainian sales could be blocked again during the war. Meanwhile, Asian buyers are eyeing Australian wheat amid fears of a grain corridor closure. The Conab report predicts a record Brazilian soybean crop of 152.4 million tonnes for 2022-23, +21% year-on-year. Last year’s harvest was the second largest harvest on record despite drought issues. The record harvests come as traders reflect on the weaker state of U.S. export demand, in part due to a strong dollar. Soybean exports forecast at 95.87 million tonnes next year, +22.5% YoY, amid higher supply, rising demand and expected lower shipments US in 2022-23,” said the Intermodal analyst.

Ms Georgousi said that “China could start importing maize from Brazil as early as December, as part of efforts to reduce dependence on the United States and replace supplies from Ukraine. While Brazil is the 2nd largest corn exporter, China has hardly ever bought from the country for the past 9 years due to phytosanitary issues. This decision threatens the United States’ share of Chinese purchases. Estimates of Russia’s wheat crop jumped to a massive harvest of 100 million tonnes, under favorable growing conditions during the summer. A recent drop in the country’s wheat export prices, coupled with a reduction in wheat export duties, should make Russian wheat more competitive than other origins, meaning exports could likely pick up. In conclusion, after several months of the fertilizer crisis, an upward combination of falling gas prices in Europe and swelling global fertilizer stocks should keep prices under control and stimulate global demand. Exports should also increase, at least partially”.

“Overall, a strong soybean crop in the United States coupled with a record crop in Brazil will provide tailwinds to the global grain outlook. In terms of demand, we should see an increase based on population growth, but supply should be tight. According to the USDA, cereal production is expected to fall to 36 million tonnes, -1.3% year-on-year, in marketing year 2022-23. Meanwhile, as uncertainty looms over the Black Sea Corridor, we should expect a shift in global grain trade over the next marketing year as disruptions continue,” concluded the Intermodal analyst.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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