Part 5

Why the global grain trade will pick up as commodity prices fall

Global grain shipment

The global grain and oilseed trade represents up to ~15% of total dry bulk shipments. These shipments primarily use Panamax vessels. When shipments rise, the shipments of global grain or oilseed rise, which increases demand for Panamax ships and has a positive impact on shipping rates. Long-term shipping rates movements in turn have a significant impact on the performance of dry bulk shippers.

World Grain and Oilseed Trade 2013-10-16Enlarge Graph

Solid trade expected this year

The USDA currently expects global trade volume to grow for the calendar year 2013, with corn, wheat, and oilseeds (like soybean) leading the way. Wheat export is estimated to rise by 12%, corn by 9%, and oilseed by 6%.

Favorable weather increases production and export supply

Generally favorable weather conditions across the globe are contributing to a favorable harvest this year, unlike the severe drought that many countries faced last year. A warmer climate in the United States drove down corn prices from $7 a bushel in July to a little above $4 a bushel as of recently. On the other side of the world, Mother Nature hasn’t been very kind to China, cutting the country’s output down with frost, heat, and floods.

While exports of corn out of the United States last year fell because of severe domestic drought, they should bounce back this year. Harvest has been a bit slow, as the cold and wet weather in the United States keeps farmers away from the field. But it will just be a matter of time before they get out there to pull crops out of the ground and send them over to the other side of the world.

Grain export to benefit dry bulk shippers

Exports of major grain or oilseed products are expected to increase by 8.65% for this calendar year compared to the last when all the data shown above combine. As crop prices are coming down—which increases the available pool of crops for export—and food inflation in China rises, imports should grow over the medium term. This bodes positively for dry bulk shippers like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Holdings Inc. (NM), Safe Bulkers Inc. (SB), and Navios Maritime Partners LP (NMM).

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