Grain market turmoil bad news for already depressed shipping sector

By Jonathan Saul, Reuters

LONDON — Falls in global grain trade after searing droughts in Russia and the United States will bear down hard on a depressed dry cargo freight market and pile pressure on ship owners, already reeling from a four-year slump. The seaborne cereal trade accounted for at least 10 percent of total dry bulk commodities transported last year and has traditionally provided a seasonal earnings boost for ship owners. But the worst U.S. drought in more than half a century and persistent dryness in other major grain-producing countries including Australia is already weighing on cargo business. “The grains freight market is very depressed at the moment and ship owners are leasing their ships if they can for peanuts just to cover costs,” a Europe-based grain trader said. Fears had grown of a repeat of the unrest and hunger seen in the 2007/08 food crisis as benchmark prices of corn, soybeans and wheat soared this summer.

Food officials are now saying there is no need for panic on the recent spike in global prices, but with lower crop estimates, less grain will be transported.

“The weaker volumes are pushing down freight rates amid oversupply in general. Owners have positioned their vessels to take advantage of the seasonal upswing which is now unlikely to materialize. This is leaving charterers spoiled for choice,” said Peter Sand, chief shipping analyst with trade association BIMCO.

The Baltic Exchange’s main sea freight index, which tracks rates to ship dry commodities and is a bellwether of market sentiment, fell this week to 661 points, its lowest since February’s 647 points, which was the biggest drop since 1986. “If you have a bad market when a better market was expected, not only working capital gets depleted, but also there is emotional distress to compound the anxiety and pain,” said Basil Karatzas, chief executive of consultancy and brokerage Karatzas Marine Advisors & Co. “There is no catalyst in the near future for freight and people are starting to get more serious about selling vessels as you can’t afford to keep bleeding cash in this market.” Last month world cereal body the International Grains Council slashed its global trade forecast for wheat and coarse grains in 2012/13 July/June to 249 million tons from 269 million in 2011/12.