AGRI-BULK TRADE AND THE COVID-19 RECESSION


2020/1 is not 2008/9

Despite their different origins, the economic fallout of the current pandemic is frequently compared with the recession of 2008/9, with most observers anticipating a more prolonged and severe outcome this time round. But one sector of the world’s trading system that appears relatively unscathed and is cur-rently out-performing its 2008/9 predecessor, which experienced price spikes, shortages and trade re-strictions is trade in agri-bulks. The complex supply chains underpinning trade in foodstuffs have, de-spite worries about panic stockpiling, travel prohibitions on immigrant crop pickers, withdrawal of credit facilities to farmers and mass closures of restaurants and cafes, so far remained robust in the face of mass shut-downs elsewhere in the global economy.

USA Soybean Exports Update

Despite their desire to diversify export markets, China remains the key destination for USA soybeans. In the four years 2013-17 shipments to China represented around 60 per cent of all USA exports before soybean shipments fell dramatically from 32mt in 2017 to a mere  8.2mt in 2018 (just 18 per cent of all exports) as trade tensions took hold. As part of onward negotiations between China-USA last year, shipments rose to 23mt (43 per cent of all exports)  in 2019 but though China has largely complied with agricultural purchases from USA as part of Phase 1 of the trade agreement buying USA soybeans to date has not really featured as part of their pledge; preferring instead to purchase the USA’s frozen chicken and pork meat.

We estimate that to date in 2020 USA has exported just 4mt soybeans to China (40 per cent down on 2019 figures) which represents the biggest ever annual disparity with Brazil who have shipped a record 35mt to China by the end of May. This in part explains why USA exports are running at record lows and why the USGulf in particular has seen so little enquiry for bulk carriers this year. According to official customs data to April the next largest USA export markets are short haul trade to  Mexico 1.5mt, Egypt 1.4mt and Japan 1mt with almost all USA’s regular importing countries registering yoy falls. Bangladesh with 0.5mt is the only market where USA has registered a significant yoy export gain to date in 2020.

The USDA estimates that USA soybean production for the crop year 2020/21 will rise 15mt to 112mt(the switch back to soybeans from corn this year perhaps being a result of the collapse in the domestic ethanol market) so hard pressed USA farmers(whose average net farm income now comprises around 35-40 per cent from central government subsidies) will be hoping that China resume soybean purchases from USA by Q4.

Sharp improvements in the freight market have seen HRP’s USGulf/China freight index increase from us$31.00 a month to stand at US$40.00 today whilst Nopac/China has risen from US$16.00 to US$22.00 during the same time period.

EU Wheat Exports

EU wheat exports have risen exponentially this growing year (July 2019 – June 2020) with total  shipments likely to come in at a record 35mt(up by 13.5mt yoy), overtaking Russia (with about 33mt) as the world’s leading wheat exporter. The EU’s dramatic increase is based on strong wheat production, at 155mt last season, rising demand especially from North Africa and more recently Russia’s decision to limit export quotas to 7mt in Q2 this year. Rising commodity prices from September to February together with a spike in April (on the back of Russia’s announcement on quotas)  provided further incentive to sell overseas.

France at over 12mt is comfortably the largest exporter, with continental neighbour Germany rising sharply to nearly 5mt. Poland and the Baltic states of Lithuania and Latvia also registered substantial yoy export growth whilst the Black Sea States of Romania(5.2mt) and Bulgaria(2.3mt) have taken advantage of reduced Russian exports to increase market share to Egypt and Turkey in particular.

Poor harvests last year in North Africa together with rising demand has provided the biggest yoy boost with Algeria importing around 5mt, Morocco doubling imports to 2.5mt and Egypt also above 2mt. Saudi Arabia the second largest export market for the EU received around 3mt (+25 per cent yoy). With food security of paramount importance in 2020 demand for EU wheat has also come from further afield, with China purchasing nearly 1mt from January-April, its first significant imports of wheat from EU, Nigeria similarly importing close to 1mt over the same period up ten fold on last year, whilst Iran at 0.9mt has also re-entered the market for EU wheat. The onset of some of these longer haul trades has seen Panamax tonnage this year carrying 31 per cent of all EU exports compared to 17 per cent just 2 years ago. Handysize ,which still dominates the African trades, dropping from a 55 per cent share of the market in 2018 to 36 per cent this year, the balance carried on Supra/Ultramax.

Looking forward, the USDA expects EU wheat production to fall by around 14mt due to unfavourable planting and growing conditions. Exports are projected to fall between 8-9mt though not by as much as might have been expected as some of the EU’s domestic requirement for feed grain will switch to barley which by contrast is expected to yield a bumper harvest. (Howe Robinson Research)

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