Coronavirus pandemic tests global agriculture supply chain, stokes food security fears

New York — The Atlantic basin’s strongest season for dry bulk time charter rates is traditionally the fourth quarter, but 2020 has proved that nothing can be taken for granted.

With European and US grains seasons coinciding in Q4, spot tonnage typically gets hard to come by as ships in the Black Sea and North Atlantic carry grains cargoes into the Pacific. With demand for ships high and supply low, freight rates are usually pushed up to yearly zeniths.

This year though, the ongoing (and sometimes volatile) trade tensions between China and the US and a below-expected wheat harvest in Europe and Southern Russia, means market talk is whether Atlantic dry bulk markets can expect their usual yearly payday in the run up to 2021.

Black Sea continues to weaken

In the Supramax markets, Q4 is typically strongest on the US Gulf Coast and in the Black Sea. Wheat, corn, and soybean cargoes underpin demand for the smaller-deadweight ships, and charterers seek out the most fuel-efficient vessels for these long-duration exports.

Ultramaxes –- the 60,000-66,000 dwt modern, economical design -– are preferred wherever possible as rising global prices of IMO-compliant 0.5% sulfur marine fuel (VLSFO) make fuel consumption critical to traders’ arbitrage calculations.

From the Black Sea and the EU, 50,000-55,000 mt wheat cargoes to Southeast Asia or the Far East are typically common throughout Q3 and Q4. However, lower-than-anticipated EU yields and increased demand for the larger Panamaxes and Kamsarmaxes in the Black Sea have meant Supramax grains inquiry for Q3 has been well below the market’s expectations.

According to S&P Global Platts Analytics, Russia is set to become the world’s largest wheat exporter this season as difficult weather conditions marred wheat crop prospects in the EU, most notably in France and the UK.

Time charter earnings for a 57,000 dwt Dolphin-type Supramax in the Black Sea have trailed Q3 2019 by an average of 12.5% through Q3. However, as demand continues to weaken across Europe, there could be a slower Q4 for the Supramax/Ultramax sector.

Looking further ahead, dry weather in southern Russia was expected to facilitate planting of winter grains for the 2021 crop, Platts Analytics grains analyst Victoria Sinitsyna said.

“Weather forecast models indicate some sporadic rains in Southern and North Caucasus Districts in the first week of September, but on average precipitation is likely to remain below normal at least until mid-September,” Sinitsyna said.

US exports strengthen despite trade tensions

Despite the trade tensions, US-sourced agricultural products have continued to flow steadily from West to East. So far in the 2020-21 marketing season -– that began June 1 -– China’s total commitments for US wheat have remained ahead of both Mexico and Japan, traditionally large buyers of US wheat.

China’s commitments reached 1.47 million mt for 2020-21, inching to a five-year high, according to a Platts analysis of USDA data. Similarly, US soybeans inspected for export in the week ended Sept. 10 were 1.284 million mt, an 8% drop from the previous week, but 92% above the same week in 2019.

That is good news for Supramax and Ultramax vessels off the US Gulf Coast. In 2019, the New Orleans-to-Kashima, Japan, 50,000 mt grains route fell dramatically from Sept. 20 through to Nov. 5 — $53/mt to just $38.50/mt -– as the political-economical rhetoric between the US and China escalated.

But with grains exports appearing to return to pre-COVID, pre-tariff levels, Q4 2020 is looking healthier for the US Gulf Coast dry bulk markets.

New Delhi — The US soybean crop condition rating remained steady on the week amid recent rains in some parts of the corn belt, which improved the soil moisture in the week ended Sept. 19, market sources said.

As of Sept. 20, the US soybean crop condition remained at 63% of the total rated good to excellent, which is nine percentage points more than the same period a year ago, data released on Sept. 20 by the US Department of Agriculture showed.

The USDA’s report was a surprise to agro-analysts, who were expecting ratings for soybean crop quality to fall at least one point on the week, industry sources said.

A steady US soybean crop rating is expected to pressure the prevailing climb in soybean prices.

November soybean futures are already trading around the multi-year high of over $10/bushel, and is steadily progressing towards $10.50/bu in the coming weeks, an analyst said.

The climb in futures markers have also supported port loading basis prices. S&P Global Platts assessed SOYBEX FOB New Orleans for November loading at $423.47/mt on Sept. 21, up 14% month on the month.

Meanwhile, 27% of the crop was rated fair, up a point from last week. The remaining 10% was rated poor or very poor, down a point from the last week, the USDA data showed.

So far, 59% of the planted soybean crop have dropped leaves, up from 37% last week and ahead of the prior five-year average of 50%, the data showed.

Measurable harvest has begun in 17 of the top 18 production states, with a national average of 6%, in line with the five-year average, the report said.

Dry weather is expected to prevail for the coming weeks as well, which signals swift soybean harvesting in the core regions of the Midwest.

The drier pattern in the Plains, southern and western Midwest, Delta, and Southeast will favor corn, soybean, and cotton harvesting, weather agency Maxar said Sept. 17. Rains in the northeastern Midwest should result in only minor harvest delays for corn and soybeans, it added.

The USDA surveyed 18 soybean producing states in the country, which accounted for 96% of the soy acreage for the 2019-2020 (September-August) marketing year.

Soybean planting generally begins by mid-April in the US, with sowing starting in the Midwest late April after the winter freeze and wet soil.

The USDA has forecast the country’s soybean yield at 51.9 bu/acre, up 9% on the year, and output at 117.38 million mt in 2020-21, up 22% year on the year.

New Delhi — Persistent dry weather in the Midwest is expected to support soybean harvesting in 2020-21 marketing year (September – August), the US Department of Agriculture said Sept. 18.

Typically, US soybean harvest starts in early September and rains can delay the process.

“In the Corn Belt, cool, dry weather favors corn and soybean maturation and early-season harvest efforts,” the USDA said.

September also brings the possibility of frost damage to the soybean crop in the northern Corn Belt region, a US climatologist said. However, the August heat made sure that the beans mature quickly this year, she added.

US soybean experienced extremely dry August and drought-like conditions emerged in major soy producing state of Iowa, which impacted the crop’s ratings.

As of Sept. 13, the US’ soybean crop condition has fallen by two percentage points week on week to 63% of the total rated good to excellent, which is an abrupt decline of ten points within a month, data released on Sept. 14 by the US Department of Agriculture showed.

Dry weather is expected to prevail for the coming weeks as well, which signals swift soybean harvesting in the core regions of the Midwest.

The drier pattern in the Plains, southern and western Midwest, Delta, and Southeast will favor corn, soybean, and cotton harvesting, weather agency Maxar said Sept. 17. Rains in the northeastern Midwest should result in only minor harvest delays for corn and soybeans, it added.

A swift soybean harvest is expected to pressure US soybean futures price in coming days, which has been trading at multi-year high recently on strong China demand.

Soybean sales are at 1.188 billion bu, compared to 410.8 million a year ago, with majority of purchases done by China, according to the latest USDA’s trade data.

November futures have risen over $0.355/bu week on week – the first time since the beginning of US-China trade dispute that prices have traded higher than $10/bushel, an agricultural analyst said Sept. 18.

The USDA has forecast the country’s soybean yield at 51.9 bu/acre, up 9% on the year, and output at 117.38 million mt in 2020-21, up 22% year on year.

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