June 2008  
 Food Outlook
  Global Market Analysis

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Special features

Statistical appendix

Market indicators and food import bills




Contributed by the International Grains Council (http://www.igc.org.uk )

Ocean freight market (November 2007 – May 2008)


The steep rises in dry bulk freight rates recorded in the second half of 2007, supported by heavy demand for minerals and grains and led by the Capesize sector, came to an abrupt end in December when rates for larger vessels plummeted. This was attributed to a slowdown in chartering activity, concerns about China’s reduced demand for iron ore and excess tonnage capacity in the Panamax sector, especially in the Pacific. However, the market rebounded in February, as renewed demand for raw materials again lifted Capesize rates, coinciding with strong activity in grains and soyabeans. Bad weather and port delays, especially in Australia were also supportive. In March, farmers in Argentina blocked shipments of soyabeans, forcing some companies to declare force majeure or switch vessels to the United States. When, in April, the blockade was suspended, chartering activity picked up, absorbing most of excess tonnage in the area, but uncertainty remained about future action by farmers. The Baltic Dry Index (BDI), having set a new record of 11 033 on 29 October 2007, dived by as much as 49 percent to 5 615 at the end of January, largely due to the collapse in Capesize rates, bouncing back to 10 354 by mid-May. During the same period, the IGC Grain Freight Index (GFI),1/ which does not include Capesize vessels, fell less steeply, almost recovering to its end-2007 peaks.

In the Panamax sector, timecharter rates eased in January and February from their previous highs due to a build-up of surplus tonnage and declining freight futures. The volume of grain shipped from South America was below expectations due to export restrictions for wheat in Argentina. At one stage, timecharter contracts for four to six months dropped to around USD 63 200 daily, bouncing back by mid-May to around USD 85 000. Recent three-year deals ranged between USD 46 000 and USD 54 750 daily. The Atlantic sector strengthened thereafter on solid demand for grain and soyabeans out of South America and the United States’ Gulf. Over the six months to May, the grain rate from the United States’ Gulf to Japan showed a net rise of USD 24.00, to USD 125.00/tonne. Transatlantic round trips in May were quoted at about USD 100 000 (USD 75 500) daily. Pacific voyage rates were further boosted by large shipments of iron ore from India to China.

After plunging in early 2008 due to China’s reduced demand for minerals and port disruptions, Capesize rates not only reclaimed losses but surpassed previous highs in response to renewed strong demand, particularly in the period market. Since October, the Baltic Exchange’s average of four Capesize timecharter rates, having touched the bottom in January at USD 107 000 daily, registered an overall rise of 10 percent to USD 189 024. The benchmark iron ore rate from Brazil to China recently traded at about USD 96.75/tonne (USD 82.50/tonne).

Due to continued strong demand for grains and oilseeds, the Handysize sector was less affected by bearish freight market sentiment at the start of the year. Rates in the Pacific were initially affected by port disruptions caused by bad weather, particularly in Indonesia and Western Australia, but from March onwards, rates again strengthened, especially out of South America. The grain rate from Brazil to the European Union (Antwerp-Hamburg) climbed by USD 14.00 between November and May, to USD 96.00/tonne. Pacific rates were supported by solid demand for nickel ore and coal, boosting rates between Southeast Asia and China. Gains were also noticeable for iron ore trips from the Indian Ocean to China. In the timecharter sector, recent business for charters of two to three months ranged between USD 49 000 and USD 52 500 daily.

Food Outlook


1.  The GFI distinguishes grain routes from mineral and other dry bulk routes also included in more general dry bulk indices such as the Baltic Dry Index (BDI). The new GFI is composed of 15 major grain routes, representing the main grain trade flows, with five rates from the United States, and two each from Argentina, Australia, Canada, the European Union and the Black Sea. Vessel sizes are adequately represented, with ten Panamax rates and five in the Handysize sector. The GFI will be calculated weekly, with the average for the four weeks to 18 May 2005 taken as its base of 6 000.

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GIEWS   global information and early warning system on food and agriculture