Dry Bulk Market: Mixed Sentiment on Grain and Soybean Trades
The dry bulk market is experiencing mixed sentiment concerning grain and soybean trades. According to Mr. Yiannis Parganas, the Head of Research Department at Intermodal, there are both positive and negative factors affecting these trades.
In the wheat trade, the United States has witnessed conducive weather conditions in the Northern Plains, leading to significant improvements in spring wheat planting and emergence. Current forecasts suggest high rainfall in most U.S. spring wheat regions, which would greatly benefit crops entering the critical heading stage. These conditions could have a positive impact on harvest activity over the next 3-4 weeks. Wheat exports are estimated at 20.1 million tons, and while June has seen slower activity, it is expected to pick up from September onwards. This will support both the Kamsarmax and Ultramax sectors. Argentina’s wheat production for the 2023/2024 season is also expected to increase by 7 million tons compared to the previous season. However, exports have been slower than anticipated, with only 1.5 million tons exported so far out of a forecasted 4.7 million tons. A boost in exports is expected in the coming quarter.
In Russia, high inventories could support the beginning of the new marketing year from the third quarter of 2023, with an estimated export volume of 45.3 million metric tons. The increased wheat trade activity in Russia could contribute to a strengthening of rates in the third quarter. However, negative factors such as unfavorable weather forecasts and decreased production in the Black Sea region, Australia, and North America are weakening the sentiment. The total supply of wheat for the upcoming season (2023/2024) is projected to be 5.0 million tons lower than the previous season due to limited ending stocks. Uncertainties surrounding the Black Sea grain initiative and the recent destruction of the Ukrainian Kakhovka dam are also raising concerns about the availability of wheat supplies from the Black Sea. Ukraine has the potential to export a total of 16.5 million metric tons for the whole marketing year, peaking in late Q3. Australia is facing the risk of dry weather and above-average temperatures from July to October, posing significant risks to wheat production, which is projected to be 26.2 million tons for the 2023/2024 season, reflecting a substantial decline of 13 million tons.
Moving on to soybeans, the projected global soybean production for the 2023/24 season is estimated to reach 407.2 million tons, marking an 11% increase compared to the previous season. Brazilian soybean exports are playing a significant role in supporting overall activity. In May, Brazil recorded a record-high export volume of 13.7 million tons, surpassing the five-year average by 23.2%. The positive momentum is expected to continue, albeit at a slightly slower pace, with the second quarter being the peak period for soybean exports. In contrast, the seaborne exports of U.S. soybeans during the 2022/2023 marketing year have been underwhelming. By now, 42 million tonnes have been exported, with 14.4 million tonnes left to be exported in the next two months. This potential export activity could bolster Panamax and Supramax trade in the region in the short-term. In the 2023/2024 marketing year, competition from Brazil could lead to beginning stocks of more than 123 million tons in the U.S., while supply will be constrained to 53.8 million tons due to rising competition from South America and the appreciation of the US dollar. In general, soybean exports are expected to be supported by a record supply from Brazil, while production in Argentina is lower due to severe drought conditions, and exports from the US are decreasing. It is worth noting that waiting times in Brazilian ports are generally longer compared to ports in the US, potentially offsetting the decline in supply.
In conclusion, the global grain trade is gradually gaining momentum after a period of lackluster activity. However, concerns remain due to underperformance in certain loading regions, which may exert pressure in the second half of 2023 and into 2024. While grain trade activity may not fully counterbalance the effects of easing congestion levels and potential declines in mineral and coal demand, the market remains cautiously optimistic.
