The Weekly Dry Bulk Ag Report:
A long report from our friends at USDA, but packed with data.
As of October 14, USDA’s Grain Inspection, Packers, and Stockyards Administration reports that 29,630 grain barges have been inspected and unloaded in the New Orleans area this year, 24 percent higher than the 3-year average. Despite the higher volumes, spot barge rates as of October 18 have been 26 to 60 percent lower than the 3-year average. This indicates an adequate barge supply for the increased demand, as rates remain competitive to attract buyers. Barge rates in the northern most portion of the Upper Mississippi River have seen some increases during the week of October 16, as demand there has increased and as the navigation season nears its winter closure (typically closed late November through late February). In preparation of the closing of the Upper Mississippi River, barges in the St. Paul, MN, area will begin their departure for southern destinations starting mid-November.
For the week ending October 13, total inspections of grain (corn, wheat, and soybeans) for export from major U.S. export regions reached 3.97 million metric tons (mmt), up 14 percent from the previous week, up 25 percent from last year, and 59 percent above the 3-year average. Soybean inspections reached 2.64 mmt, up 39 percent from the previous week. Soybean exports destined to China increased 34 percent from the previous week. Wheat inspections increased 3 percent from the past week, and corn inspections decreased 24 percent. Mississippi Gulf grain inspections increased 17 percent from the previous week, but Pacific Northwest (PNW) inspections decreased 1 percent. Outstanding export sales (unshipped) of grain were up for wheat but down for corn and soybeans.
For the week ending October 15, barge grain movements totaled 907,620 tons, 44 percent higher than last week, and up 19 percent from the same period last year. For the week ending October 15, 580 grain barges moved down river, up 44 percent from last week, 932 grain barges were unloaded in New Orleans, up 1 percent from the previous week.
For the week ending October 13, 50 ocean-going grain vessels were loaded in the Gulf, 28 percent more than the same period last year. Seventy-five vessels are expected to be loaded within the next 10 days, unchanged from the same period last year. For the week ending October 13, the ocean freight rate for shipping bulk grain from the Gulf to Japan was $30.25 per metric ton, 2 percent more than the previous week. The cost of shipping from the PNW to Japan was $17.50 per metric ton, 8 percent more than the previous week.
Strong iron ore and grain trade boosted the employment of Panamax vessels and pushed up ocean freight rates during the 3rd quarter, 2016. Starting earlier during the quarter, China substituted domestic coal and iron with cheap imported raw materials leading to high imports and strong demand for Panamax and Supramax vessels. Ocean freight rates for shipping bulk grain from the U.S. Gulf to Japan averaged $29.92 per metric ton (mt) during the quarter—13 percent above the previous quarter, but 14 and 32 percent below the same quarter last year and the 4-year average, respectively (see table and figure below). The cost of shipping from the Pacific Northwest (PNW) to Japan averaged $16.61 per mt, 7.2 percent more than the previous quarter, 11 percent less than a year ago, and 31 percent less than the 4-year average. It cost $15.10 to ship a metric ton of grain from the U.S. Gulf to Europe—10 percent above the previous quarter, but 2 percent below the same period last year and 26 percent below the 4-year average. The spread, which is the difference between the U.S. Gulf-to-Japan and PNW-to-Japan rates at $13.31 per mt was also higher than the previous quarter, but lower than what it was a year ago, and the 4-year average. An increasing spread implies that the U.S. Gulf-to-Japan rate was either increasing at a faster rate or decreasing at a lower rate compared to the PNW-to-Japan rate as indicated by strong grain vessel loading activity in the U.S. Gulf during the quarter. In fact, an average of 42 ocean-going grain vessels were loaded in the U.S. Gulf per week during the 3rd quarter, compared to 34 vessels per week during the 2nd quarter.
Based on information from Drewry Maritime Research,1 following is a summary of important events shaping the quarter. The quarter began in July with an uptick in Chinese iron ore and coal imports causing an increase in freight rates. China relaxed its monetary and fiscal policies in order to stimulate economic growth. It also increased spending on infrastructure, which resulted in higher demand for iron ore. China’s coal imports also increased as the government strived to reduce domestic coal production by reducing workers’ operating days causing an increase in production trade from the U.S. Gulf and South America during July. The rates fell slightly in August due to a disruption in coal supply from Australia, which negatively impacted the employment of the Panamax vessels. Turkey also imposed a $15 per ton tax on coal imports from non-EU countries. In addition, Egypt tightened its phytosanitary requirements on importation of wheat, raising the requirement from 0.05 percent ergot to fully ergot-free wheat. The rates increased again in September on the strength of strong grain trade.