Wheat Letter Blog Archive - Page 39 of 104

A Deep Dive into Ocean Freight Market Factors

The recent run-up in ocean market freight rates is causing heartburn for the world’s grain importers. Vessel rates bounced up on Nov. 22, but a shipbroker quoted in a Reuters report expects dry bulk spot rates to stabilize in November and December “before a seasonally soft first quarter of 2022.”

That would be some good news for wheat importers, but rates remain very high. That is one reason why U.S. Wheat Associates (USW) asked Jay O’Neil, HJ O’Neil Commodity Consulting, to record an in-depth analysis of the ocean freight market as part of its 2021 Crop Quality Report. His presentation is posted online at https://cropquality.uswheat.org with all by-class written and video reports and other special topic presentations translated into several languages.

Demand and Inefficiency

In his report, recorded in mid-October, O’Neil discussed the physical make-up of the global ocean freight fleet. He noted that grain carrying vessels make up about 13% of global seaborne cargo, so its rates “follow the lead” of larger coal and iron ore vessel rates in the Capesize category. Those rates have spiked in recent months due to higher demand, primarily from China, pulling grain rates up with then. O’Neil also described how China’s high demand for grain and oilseed imports has lifted freight rates.

The pandemic is adding cost because it is taking longer to load and unload vessels.

“We have about 16% of the world global dry bulk fleet tied up waiting to unload at various ports,” O’Neil said in October. “That creates inefficiency that requires more ships to carry the same amount of cargo.”

The 13-year high in dry bulk freight rates is partially tied to vessel turn-around slowed by the COVID-19 pandemic, said ocean freight consultant Jay O’Neil.

Vessel Capacity Lagging

For many years following a much more significant price spike around 2008, rates remained somewhat stable at relatively low levels. As a result, “we have not been building many vessels for the last 13 years,” O’Neil said. “Now we don’t have enough ships to carry all the new cargo demand, so we have this spike.” The ship-building process takes years, he noted.

Yet there is what O’Neil described as a “huge inverse between the nearby market and the forward market. Those who need to purchase vessels are paying whatever they have to pay in the nearby market but are not much interested in paying those high rates for freight several months in the future.”

O’Neil sees bulk ocean freight demand growing faster than fleet growth into at least 2023. He noted a two-year backlog in container and tanker vessel production that limits capacity to build bulk vessels. Risk management through a hedge on rates in the Freight Forward Agreement markets is an opportunity for buyers, he said.

Volatility Ahead

There are other unseen factors affecting future bulk ocean rates, O’Neil noted, including global economic conditions and management of vessel emission standards. He also offered a look at container market factors.

“One constant is volatility in the freight markets will continue to plague us,” he said. “If you are a cargo buyer, timing (of purchases and risk management) is going to be very important.”

USW reports ocean freight market rates and weekly changes in the Baltic Index each Friday in its Price Report.

November 22, 2021/by Steve Mercer

USW Announcements

U.S. Wheat Associates Renovated Website Increases Focus on Crop Quality

U.S. Wheat Associates (USW) recently launched its renovated website, www.uswheat.org, with an updated look, improved organization and an expanded Crop Quality section including unique, individual pages for each of its six wheat classes.

“The pandemic has highlighted challenges and changes in how people communicate and consume information across the globe,” said USW Director of Communications Amanda Spoo, who supervised the update. “So, as we adapt, it is important that our outreach continues to reflect the reliable service our customers have come to expect from U.S. Wheat Associates and the long-standing trust they have in U.S. farmers. The new website maintains its strong focus on the importance of the U.S. wheat farmers we represent and provides customers expanded access to the vital information and resources they need when making their purchasing decisions.”

Crop Quality Focus

The expansion of the site’s original Crop Quality section includes unique, individual pages for all six wheat classes and the existing Harvest Report. Users can access these new pages via the “Crop Quality” tab in the main menu across the top of the website. This section provides users with general wheat class information and additional detailed information about the 2021 U.S. wheat crop. In addition to access to the full 2021 USW Crop Quality Report, available in seven languages, users can access individual regional class reports, an overview of U.S. wheat inspection practices, and more.

Other Highlights

The Newsroom features our new home base for USW’s blog “Wheat Letter,” news releases, original video content and more.
Market Information is home to a familiar set of reports, including the popular Price Report, the Price Charting Tool, Supply and Demand and Commercial Sales.
Working with Buyers describes the type of activities USW conducts with its customers, the six U.S. wheat classes and their uses, wheat industry terms, as well as U.S. wheat grade and non-grade factors. The Ask the Expert page allows site visitors to confidentially seek answers to questions about contract specifications, wheat quality, milling and end-product uses, and flour quality. Included in this section is access to our interactive U.S. wheat export supply system map.
The Office Locations section, focused on USW’s 15 office locations and the countries they serve, was expanded to provide more information and resources for customers based on the needs of that region and direct access to local USW representatives.

Other important sections of the site include Policy, Who We Represent and Our Story.

Learn more about USW and its mission here.

November 17, 2021/by Steve Mercer

Wheat Industry News

Recent news and highlights from around the U.S. wheat industry.

Speaking of Wheat. “Durum presents the greatest challenge in terms of balancing global import requirements with global export availability.” – Rhyl Doyle, director of export trading at Paterson Grain, Winnipeg, Manitoba, quoted in a Reuters article covering Italian pasta makers’ fears about a global durum supply shock.

Brazil Approves GMO Wheat Flour Imports. Reuters reported Nov. 11 that Brazil’s biosecurity agency CTNBio has cleared imports of flour from Argentina made with genetically modified wheat. Reuters wrote that the agency’s decision, the first of its kind in the world, “applied only to wheat flour, after Brazilian millers threatened to boycott Argentine grains.”

2021 Fusarium Head Blight Disease Impact Update. The U.S. Wheat and Barley Scab Initiative recently announced publication of its 2021 Fusarium Head Blight Disease Impact Update. In general, drought held back the severity of the plant disease with only isolated problem areas. Read the full announcement here.

USW Publishes Latest Supply and Demand Report. USW updated its monthly World Wheat Supply and Demand Situation Nov. 9 following the release of USDA’s World Agricultural Supply and Demand Estimates (WASDE) report. This month world wheat trade estimate for 2021/22 was raised to a record 203.1 MMT even in the face of reduced exportable supplies. Read the USW report online here.

Subscribe to USW Reports. USW publishes various reports and content that are available to subscribe to, including a bi-weekly newsletter highlighting recent Wheat Letter blog posts and wheat industry news, the weekly Price Report and the weekly Harvest Report (available May to October). Subscribe here.

Follow USW Online. Visit our Facebook page for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter, video stories on Vimeo and more on LinkedIn.

November 11, 2021/by Steve Mercer

Board of Directors

U.S. Wheat Industry Leaders Meet in Kansas City

The boards of directors of U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) met jointly November 8 to 10, 2021 in Kansas City, Mo. Each organizations’ board includes wheat growers assigned to represent state wheat organizations. These U.S. wheat industry leaders meet together two times each year.

The work at a joint board meeting includes committee meetings specific to USW and NAWG as well as Joint International Trade and Wheat Breeding Innovation Committee meetings. There is a combined board meeting as well as individual board meetings.

At their joint session Nov. 10, U.S. wheat industry leaders heard a very interesting speech from Ms. Esther L. George, President and CEO of the Federal Reserve Bank of Kansas City, which is one of 12 regional Reserve Banks that, along with the Federal Reserve Board of Governors in Washington, D.C., make up the nation’s central bank. The “Fed” as it is known works “in the public’s interest by supporting economic and financial stability.” Pres. George outlined several factors that are contributing to rising inflation in the United States specifically but also affecting the global economy. One of those factors is the dramatic disruption in global supply chains that have pushed up shipping costs and interrupted normal production and distribution of goods.

“Supplier delivery times have slowed dramatically, not only for manufacturers but also for service providers,” President George said, “in part as shipping times from Asia to the West Coast have doubled, and transit costs have skyrocketed.” While a text of Pres. George’s speech is not available, her recent speech at an energy conference includes many of the key points from her presentation to U.S. wheat leaders.

Other Interesting Speakers

On Nov. 10, Mr. Daniel Whitley, Administrator of USDA’s Foreign Agricultural Service (FAS), spoke to the USW board of directors about the long and successful public-private partnership between “cooperator” organizations like USW and FAS. He also noted the significant expected increase in U.S. agricultural exports for 2021/22 to more than $175 billion in value, which includes an estimated $7 billion in U.S. wheat exports.

USW Chair and President with Daniel Whitley

FAS Administrator Daniel Whitley (center) with USW Chairman Darren Padget (left) and USW President Vince Peterson (right) at the 2021 Fall USW Board of Directors meeting Nov. 10 in Kansas City, Missouri.

Joining the USW directors virtually, Greg Borossay, head of Maritime Business Development at the Port of San Diego, Cal., previewed expansion plans that will introduce bulk freight loading capacity, including for grains. In addition, he described progress on a U.S. Pacific Coast Marine Highway project to create barge service between San Diego and marine ports in central and northern California, Oregon and Washington state.

Global Wheat Supply and Demand Focus

Even more specific to U.S. wheat exports, USW Vice President of Overseas Operations Mike Spier provided a very thorough review of the supply and demand factors affecting global wheat trade. Focusing on the run-up in wheat prices, Spier noted that U.S. wheat ending stocks declined by 50% in just five years. He also noted that the ratio of wheat ending stocks to “disappearance” (domestic consumption plus exports) among global wheat exporting countries is now at 13%, a level not seen since the global wheat supply shock of 2007/08.

USW Vice President of Overseas Operations Mike Spier provided an overview of global and U.S. wheat supply and demand factors at the USW Board of Directors meeting Nov. 10.

USW and NAWG directors will meet jointly again in January 2022 in Washington, D.C.

November 11, 2021/by Steve Mercer

Wheat Quality

2021 USW Crop Quality Report Now Available for The World’s Wheat Buyers

This year has once again provided its share of uncertainty for wheat producers, handlers and buyers. We have seen challenges from drought, variable trade policies and the ongoing global pandemic. Through it all, the entire U.S. wheat industry remained fixed on providing the highest quality wheat for almost every customer need, backed by transparent pricing, trusted third-party certification and unmatched service before and after the sale.

As a key part of its commitment to transparency and trade service, U.S. Wheat Associates (USW) has produced its annual Crop Quality Report that includes grade, flour and baking data for all six U.S. wheat classes. The report compiles comprehensive data from analysis of hundreds of samples conducted during and after harvest by our partner organizations and laboratories. The report provides essential, objective information to help buyers get the wheat they need at the best value possible.

The 2021 USW Crop Quality Report is now available for download in English, Spanish, French, Italian, Arabic and Portuguese. Chinese translations will be available soon. USW also shares more detailed, regional reports for all six U.S. wheat classes on its website, as well as additional information on its sample and collection methods, solvent retention capacity (SRC) recommendations, standard deviation tables and more. View and download these reports and resources here.

New Resources

USW continues to provide unique ways for our customers to experience and gain more knowledge about the 2021 U.S. wheat crop. New this year, USW has expanded its Crop Quality page on its primary website to include unique, individual pages for each of its six wheat classes. When viewing the website, users can access these new pages via the “Crop Quality” tab in the main menu across the top of the website.

For a second year, the pandemic has changed other traditional parts of the USW Crop Quality outreach effort. At https://cropquality.uswheat.org/, customers will find a variety of pre-recorded presentations covering 2021 U.S. wheat crop quality data and analysis, as well as several special topics in English or captioned versions in several different languages.

As always, USW local representatives are ready to help customers review their purchase specifications to receive the best value possible. For more information, please contact your local USW office here.

Continue to look for 2021 USW Crop Quality updates on Facebook, Twitter and LinkedIn.

November 8, 2021/by Amanda Spoo

Market and Crop Analysis, Michael Anderson, Wheat Production and Harvest

Wheat Exporting Countries Control Just 18% of Global Stocks

By Michael Anderson, USW Market Analyst

As the U.S. wheat 2021/22 marketing year reaches its halfway point, U.S. Wheat Associates (USW) summarizes market factors affecting global wheat supply and demand with its farmer board of directors. The data comes from USDA’s October reports, which will be updated on November 9. We want to share some information here, focusing on key wheat exporting countries.

USDA pegs 2021/22 world wheat production at a record 776 million metric tons (MMT), up 1.0 MMT from last year and 2% above the 5-year average of 757 MMT. Total global supplies are forecast to reach 1,064 MMT, 1% less than last year.

Significantly lower production is expected in the United States, Canada, Russia, Kazakhstan and a slight drop in Australian production, all exporting countries.

Among wheat exporting countries, the United States, Canada, Russia, Australia, Kazakhstan and Australia saw wheat production decline for 2021. All wheat exporting countries now hold 18% of world wheat stocks.

USDA estimates 2021/22 world wheat ending stocks will reach 277 MMT, down 4% from last year and 2% less than the 5-year average. A closer look at stocks held by exporting countries reveals that USDA now expects exporters to control just 18% of world wheat stocks, including Black Sea exporters. When exporters hold so few stocks, a bullish market and volatility result.

Following are USDA estimates for selected exporting countries, except where noted.

United States

U. S. wheat production will total 44.8 MMT, down 10% from last year and 15% below the 5-year average;
Persistent, severe dryness significantly cut hard red spring (HRS), soft white (SW) and Northern durum production;
Total U.S. wheat exports will reach 23.8 MMT in 2021/22, 12% less than last year and 10% less than the 5-year average.

Canada

Canadian 2021/22 wheat production will reach 21.0 MMT, 40% lower than last year and 35% less than the 5-year average of 35.4 MMT;
Spring wheat production is projected to decrease 40% on the year to 15.3 MMT due to extended dry weather Agriculture and Agri-Food Canada (AAFC) reported;
According to Statistics Canada, Canadian durum production is forecast to be 3.5 MMT in 2021/22, 46% less than last year on significantly drier growing conditions;
Total Canadian wheat exports will decrease 43% from last year to 15.0 MMT, 36% less than the 5-year average.

Russia

Total 2021/22 Russian wheat production decreased 15% on the year to 72.5 MMT;
According to SG, Russian planted area was down 1%, and average Russian wheat yield decreased 10% from last year to 39.55 bu/acre;
The imposition of a government export tax has slowed international demand for Russian wheat;
Total Russian wheat exports will fall 9% from last year to 35.0 MMT, 2% less than the 5-year average of 35.6 MMT.

Ukraine

USDA estimates total Ukrainian wheat production rose 30% from 2020/21 to 33.0 MMT;
SG predicts the total Ukrainian average wheat yield was up 18% from last year to 66.7 bu/acre;
Total Ukrainian wheat exports will rise 39% from last year’s record to 23.5 MMT in 2021/22.

Australia

Australian wheat production will fall 5% on the year to 31.5 MMT, although this is still a large crop with significant exportable supplies;
Increased average yield was lower despite a 7% increase in harvested area of 34.1 million acres;
Total Australian exports will be 23.5 MMT, 0.5 MMT down from 2020/21.

European Union

Total European Union (EU) wheat production is up 11% on the year to 139.4 MMT;
SG estimates that total EU non-durum wheat will be 129.5 MMT, up 9% from last year;
Heavy rain during harvest in both France and Germany challenged milling wheat quality and, as a result, 65% of EU non-durum wheat, or 80.8 MMT, meets millable grade;
Total EU wheat exports will increase 20% on the year to 35.5 MMT, 20% above the 5-year average.

Argentina

Total Argentinian wheat production will rise 14% from last year to 20.0 MMT following good growing conditions this season;
Total Argentinian wheat exports are expected to increase to 13.5 MMT in 2021/22, 23% more than last year and 8% greater than the 5-year average.

USDA expects 2021/22 world wheat trade to fall slightly from last year’s record to 200 MMT. If realized, that would be 6% greater than the 5-year average of 189 MMT. Total global wheat use is forecast at 787 MMT in 2021/22.

According to USDA’s trade forecast, the United States will have a 12% market share in the world wheat trade at 23.8 MMT, in line with last year’s market share.

November 5, 2021/by Steve Mercer

Hard White, Wheat Quality

Good Performance in Limited Exportable 2021 Hard White Supplies

2021 hard white (HW) wheat samples show good quality performance in milling, dough properties and finished products, including pan breads, Asian noodles and steamed breads. The Pacific Northwest (PNW), California and Southern Plains composites all show good bread baking potential according to their respective protein contents. For Asian noodle applications, 60% extraction patent flour is recommended to improve noodle color while maintaining noodle texture. For steamed breads, it is recommended that high protein HW flour be blended with a portion of soft white (SW) flour to improve product quality.

Production of the 2021 hard white crop is 0.71 MMT, up 13% over last year. Much of the increase is due to additional seeded acres and good production in Kansas, Colorado and Nebraska. Spring seeded HW was down due to the drought, which trimmed yields in southern Idaho.

2021 Crop Highlights

Grade average for six of the eight composites is U.S. No. 1. The low- and med-protein Southern Plains composites graded U.S. No. 2 due primarily to low test weights.
Test Weight ranged from 58.4 to 63.2 lb/bu (76.9 to 83.1 kg/hl).
Wheat Moisture ranged from 8.9 to 11.7%
Wheat Protein ranged from 11.0 to 13.7% (12% mb).
1000 Kernel Weight for the Southern Plains low- and California high-protein composites are 20.1 and 28.6 g, respectively. All others are greater than or equal to 30.0 g.
Kernel Characteristics include kernel hardness averages 42.5 to 84.2 and kernel diameters 2.46 to 2.71 mm.
Falling Number averages 349 sec or higher for all composites.
Laboratory Mill straight-grade flour extractions range 69.8 to 73.1%, L* values (whiteness) 91.2 to 92.1, flour protein 10.0 to 13.0% (14% mb) and flour ash 0.45 to 0.53% (14% mb).
Wet Gluten contents range 25.1 to 29.8% depending on flour protein content.
Amylograph peak viscosities are between 553 and 1051 BU for all composites.
Farinograph absorptions range 52.4 to 62.9% and stability times 7.3 to 35.1 min, exhibiting medium to strong dough characteristics. HW farinograph absorption indicates more tolerance to overmixing.
Extensograph at a 135 min rest shows maximum resistance in the range of 294 to 1203 BU, extensibility 6.2 to 18.4 cm and area 58 to 183 cm². The Southern Plains low- and med-protein composites were 294 and 528 BU, respectively, and all other composites were greater than or equal to 885 BU.
Alveograph ranges are P (38 to 120 mm); L (83 to 137 mm); and W (107 to 393 (10-4 J)).
Damaged Starch values are in the range of 3.9 to 5.6%.
Lactic acid SRC values range from 86 to 153%, indicating weak to strong gluten strength. The range shrinks to 116 – 153% if the Southern Plains low-protein composite is removed from the set.
Bake Evaluation for all composites shows acceptable to good baking performance relative to protein content, with bake absorptions in the range of 57.6 to 67.8%, loaf volumes of 742 to 950 cc, and crumb grain and texture scores of 6.0 to 8.0 points.
Chinese Raw Noodles (white salted) L* values at 0 hr of production and after 24 hr of storage at room temperature are acceptable for the Southern Plains low- and med-protein composites. The sensory color stability scores for PNW and Southern Plains low- and med-protein composites are similar to or better than the control noodle of 7.0. Cooked noodle texture is softer for the California med-protein composite.
Chinese Wet Noodles (yellow alkaline) sensory color stability scores are slightly to moderately worse than the control for parboiled noodles from all composites. The cooked noodle texture is similar for all composites. Overall, this year’s HW samples will produce noodles with acceptable color and texture if low ash patent flour is used.
Steamed Bread results show higher protein composites have larger specific volumes with total scores equivalent to the control flour. Blending 25% SW flour with high protein HW flour may improve overall steamed bread quality.

Buyers are encouraged to review their quality specifications to ensure that their purchases meet their expectations.

U.S. Wheat Associates (USW) has posted more about the 2021 hard white crop here.

2021 Crop Quality Data on Other U.S. Wheat Classes

Hard Red Winter
Hard Red Spring
Soft Red Winter
Soft White
Northern Durum
Desert Durum® And California Hard Red Winter

November 3, 2021/by Amanda Spoo

Wheat Industry News

Recent news and highlights from around the U.S. wheat industry.

Speaking of Wheat. “We have all lost a colleague and a friend this week. Craig Morris truly was an outstanding person who dedicated his life to improving wheat quality and being an innovator. He loved his work and had a passion for it that is rare and was truly a gift to the wheat and pulse community.” Alecia M. Kiszonas, PhD, Cultivar Development Manager, USDA-ARS Western Wheat & Pulse Quality Lab.

U.S. Wheat Associates (USW) Submitted Comments to the Office of the United States Trade Representative (USTR) for the annual National Trade Estimates (NTE) report on October 27. USTR uses these comments to develop that office’s annual NTE report released in the Spring. The NTE report allows the U.S. industry to highlight trade challenges impacting their industry to the U.S. government. USW highlighted key barriers for wheat exports, such as sanitary and phytosanitary (SPS), export subsidies, and excessive domestic support. Read USW’s NTE submission for 2021 here.

Mississippi River Supply Chain Recovering. World Grain recently reported that downbound grain barges and unloads have slowly ramped back up since late September following substantial damage from Hurricane Ida. The article suggested this is a “timely recovery” as grain harvest in the Midwest was imminent. Soybeans and other grains typically move through the center-Gulf at New Orleans, whereas hard red winter wheat shipments for export move through the Texas Gulf, which saw minimal damage from the hurricane. Read more here.

Change in the Weather. The U.S. Drought Monitor reported on October 26 that a recent series of recent storms provided above-normal precipitation across much of the West, including the Pacific Northwest, California … across eastern portions of the northern and central Plains, the southern Great Lakes … and a band of precipitation from southeast Kansas to eastern Kentucky. While helpful, the rain has not knocked down drought conditions that persist across western U.S. wheat growing regions.

U.S. Wheat Associates Publishes Commercial Sales every Thursday, documenting wheat export sales-to-date by country and class for the current marketing year compared to the previous marketing year on the same date. The report includes a 10-year commercial sales history by class and country. USW sources data from the USDA Foreign Agricultural Service Weekly Export Sales Report. Read the latest report on the USW website.

Subscribe to USW Reports. USW publishes various reports and content that are available to subscribe to, including a bi-weekly newsletter highlighting recent Wheat Letter blog posts and wheat industry news, the weekly Price Report and the weekly Harvest Report (available May to October). Subscribe here.

Follow USW Online. Visit our Facebook page for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter, video stories on Vimeo and more on LinkedIn.

October 28, 2021/by Steve Mercer

USW Announcements

U.S. Wheat Industry Mourns Loss of Dr. Craig Morris

Dr. Craig Morris.

Earlier this week, on Monday, October 25, 2021, the U.S. wheat industry lost a highly respected colleague. Dr. Craig Morris was the director of the Western Wheat Quality Laboratory in Pullman, Wash., for more than 30 years, influencing the quality of wheat in the Pacific Northwest (PNW).

Morris had a significant impact on the region’s wheat breeding program, the Wheat Quality Council and outreach to the overseas milling industry. Everyone knew “Craig” because he was passionately engaged in whatever meeting or wheat event he was attending. Craig was most at home when he was talking about wheat and its magical quality and versatility.

Earlier in 2021, U.S. Wheat Associates (USW) asked Morris to take overseas buyers on a virtual tour of the Washington State University Plant Growth Facility as part of the PNW Wheat Quality Summit. He was in his element, passionately explaining how the 49,000 square foot facility would revolutionize wheat breeding and assuring that PNW farmers would have the highest quality wheat in the world. Most notably, Morris was a steadfast promoter of soft white wheat quality through the Wheat Quality Council, helping to include overseas wheat buyers in the variety evaluation process.

Dr. Craig Morris in 2017 with a Korean milling team

In 2017, Dr. Craig Morris (pictured center) led a blind udon noodle sampling with a Korean milling team to highlight the U.S. soft white wheat variety (Ryan) and a soft durum variety that Craig bred himself.

The wheat family around the world will deeply miss him.

By Steve Wirsching, USW Vice President and West Coast Office Director

Header Photo Caption: Dr. Craig Morris (pictured third from the left), previously traveled with USW for its annual Crop Quality seminars to Taiwan, Korea and Japan. USW’s Steve Wirsching said, “Everyone already knew Craig from their trade team visits to the Pacific Northwest, and he did a great job explaining the SW and Club wheat crop. Craig is pictured here during a trip to Korea in the middle with a big smile.”

October 28, 2021/by Amanda Spoo

Market and Crop Analysis, Michael Anderson, Rail Transportation

Freight Markets Ride the Waves of Uncertainty

Look at a line graph that tracks freight markets over the last two years and you may mistake it for the very waves the vessels traverse on the open ocean. Up and down the vessel goes, and so have the rates.

The Baltic Dry Index (BDI), an assessment of the average cost to ship raw materials such as grains, coal and iron ore, hit a 13-year high on October 7 at 5,650, yet three weeks later, it climbed down 28% to 4,056 on October 27.

Disruptions and More

The effects of COVID-19 have turned the traditional flow of sea commerce upside down. And as economies reemerge from the pandemic-induced lull, logistic obstacles have abounded. “Global Supply-Chain Problems Escalate” and “Cargo Piles Up at Ports” are just two of the headlines outlining the shipping industry’s challenges. Disruptions to the supply chain, port congestion, and logistical challenges all add to the run-up in freight markets.

Grains, including wheat, are traditionally shipped using bulk carriers like Panamax, Handymax and Capesize vessels that contain large cargo holds to segregate grains. Cargo ships, the more familiar vessel for the trans-ocean shipping of retail items, only carry small volumes of grain. However, as extraordinary times created the need for more extraordinary efforts, the massive U.S. retailer Walmart recently chartered a dry bulk cargo ship to carry merchandise to circumvent global supply chain disruptions. Other retailers may do the same as the holiday season approaches.

Idled Vessels

That would not be a bargain because 16% of the world’s dry bulk fleet is waiting to unload at various ports around the world, with 6% of those vessels waiting at Chinese ports. The inefficiencies caused by loaded vessels idling outside ports translate directly to tighter supply despite higher demand and, thus, higher prices. Dry bulk shipping rates were below $20,000 per day last January but rates, led by Capesize vessels, hit $85,000 per day in September. Grain buyers still must ship wheat and pay the higher prices, pushing up all rates across dry bulk carriers.

Global import for grain has also increased year-over-year. For example, China’s demand for grains has equated to around 25% of worldwide demand. Looking back, in the mid-2000s, the number of dry bulk carriers outweighed the demand for such vessels. However, an economic boom in China starting around 2006 saturated the dry bulk market leading to greater demand and a soaring BDI. Eventually, shipping companies added to their fleets, and the added capacity helped freight markets to stabilize. Then the global financial crisis reduced the demand for such vessels and slowed shipbuilding. Now a new spike, starting in 2020, has driven demand up again and daily rates for dry bulk shipping. The nearby market remains high while the forward market is much lower, creating a significant inverse. Exporters who need to ship now must pay the higher prices.

Doubled

Importers in South Korea, the fifth-largest U.S. wheat customer, based on a 5-year average, has seen freight rates double from US$40 per metric ton (MT) in 2020 to around US$80 per MT dollars today, said C.Y. Kang, Country Director for U.S. Wheat Associates (USW) based in Seoul. Kang also noted that the BDI Index in 2020 averaged 1,064 while this year it has averaged 2,941, a 176% increase. Egypt, the world’s largest wheat importer, has suspended the 15% price advantage it offered the state shipping line as GASC, the Egyptian state commodities buyer, tries to find ways to lower the overall cost of wheat imports.

High oil prices are also keeping freight rates elevated. On Tuesday, oil futures hit their highest levels since 2014 but started to slump Thursday, hitting their lowest level in two weeks at $80.58 as U.S. crude inventories rose more than expected. One market analyst said that energy prices are unlikely to weaken for the remainder of the year as supply remains restrained, but demand returns to the 5-year average. Oil sold for around $15 per barrel in April 2020 versus today, a 431% increase.

Seeing the Top?

Jay O’Neil, a commodities consultant, has outlined all today’s obstacles in the export freight supply chain in a video presentation that will be available to U.S. wheat customers in early November. On top of long lines at ports, there is a shortage of vessels, containers, skilled labor at ports, warehouse workers, a 30% shortage of truck drivers, railroad cars and even chassis to attach containers to train cars. In his presentation, O’Neil says that despite the logistical mess, which could extend into mid-2022, the dry bulk market is likely to have hit its top.

As these circumstances change globally, logistical headaches may ease as more workers return and more consistent patterns resume. For now, though, the tight supply of vessels and the consistent appetite for grains is helping keep the global dry bulk business at historic levels.

Stay up to date on U.S. wheat market information at https://www.uswheat.org/market-information/.