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Dry bulk shipping investors' must-know mid-2014 overview

Part 7
Dry bulk shipping investors' must-know mid-2014 overview (Part 7 of 11)

Why grain and soybean trade could rise in the 2nd half of 2014

Grain and soybean trade

Although the grain and soybean trade makes up a smaller share of the dry bulk trade in terms of volume (~10%), grain and soybean are some of the more inefficient cargos to load. So they still have important implications for dry bulk shipping companies such as Diana Shipping Inc. (DSX), Paragon Shipping Inc. (PRGN), Safe Bulkers Inc. (SB), and Navios Maritime Holdings (NM), as well as the Guggenheim Shipping ETF (SEA).

Soybean and Grain SA ExportEnlarge Graph

Today, most of the agriculture crops are also shipped from North Americas, where crop output is high. Because plantation and harvest seasons differ between countries in the Northern Hemisphere and Southern Hemisphere, exports alternate throughout the year. Grains and soybean exports from the United States generally rise from September and peak in November, while exports from Brazil and Argentina tend to rise in March and start leveling off in July or August.

Slow start

As the chart above shows, April’s exports from the two key suppliers stood at 12 million tonnes, compared to the 16 million tonnes last year that had caused severe port congestions. This year, grain and soybean exports from Argentina and Brazil are off to a slow start. In part, this was because of economic problems in Argentina and its depreciating currency, the peso, which have encouraged farmers to hold their crops and sell them at a later date.

China had canceled some soybean contracts, as the crush margin became unprofitable. The “crush margin” refers to the profits that processing plants can make by converting soybeans into soybean oil and soybean meal. Demand for soybean meal was weak over the last few months, caused by bird flu and falling pork prices in China, which are largely due to faster supply growth.

Because of these factors, shipping rates for Panamax and smaller-class vessels have remained quite weak. But these factors don’t usually last long, and crush margins have historically recovered from negative territories within a year—as soybean prices fall, or soybean oil and meal prices rise. If weather co-operates, we should see higher U.S. soybean exports as farmers take advantage of high soybean prices.

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