Bloomberg News

Shipping Rates Drop as French Cargoes Sink: Freight Markets

June 01, 2011

(Adds handysize rates from today in second and eighth paragraphs, French wheat futures in sixth, FFAs in ninth.)

June 1 (Bloomberg) -- The 59 percent drop in French wheat shipments in the past two months means no return to panic buying from northern African nations and a 25 percent slump in freight costs in the third quarter.

Shipments from Rouen, France’s biggest grain hub, fell to 99,585 metric tons in the week ended May 25, from 242,187 tons at the end of March, port data show. Third-quarter rates for handysizes, the ships most commonly used at Rouen, will drop to $8,600 a day, from $11,486 now, said Martin Korsvold from Pareto Securities AS, whose ratings on shipping lines returned 15.8 percent in a year. Investors are anticipating no such decline in wheat, with futures on the Chicago Board of Trade, a global benchmark, predicting rising prices for at least two more years.

European farmers are contending with the driest growing season in three decades and there is drought in parts of China and the U.S. At the same time, Russia and Ukraine are easing export curbs and harvests from Egypt to Morocco are forecast to expand. Northern African nations can also rely on stockpiles built up at the start of this year as they sought to quell riots that erupted as food prices rose to a record.

“They bought enough in January and February to see them through to the harvest,” said David Eudall, an analyst at the Home-Grown Cereals Authority, an industry-funded crop researcher in Kenilworth, England. “There was no fundamental reason to buy the amounts they did, it was purely a reaction to the political situation and food inflation. It was panic buying.”

Grain Exports

Rolling four-week grain exports to northern Africa from France, the world’s second-biggest wheat exporter behind the U.S., were last at 352,220 tons, compared with 696,746 tons at the end of March, the Rouen data show.

French wheat futures rose 80 percent in the past 12 months as Russia, formerly the second-biggest wheat exporter, banned shipments after its worst drought in at least a half century. Ukraine, once the world’s largest barley exporter, imposed quotas on its sales. Those curbs spurred importers such as Egypt, which buys more wheat than any other nation, to seek supply elsewhere, driving French grain exports to a record.

Russia said May 28 its ban will expire July 1. Farmers planted 10 percent more grain this year, First Deputy Prime Minister Viktor Zubkov said. Ukraine President Viktor Yanukovych said in an interview May 24 he would lift export quotas because of forecasts for a 15 percent increase in the harvest.

Wheat Shipments

The decline in French wheat shipments is adding pressure on freight rates as shipping companies contend with an expanding capacity glut. Returns for owners of handysizes slumped 46 percent in the past 12 months, according to data from the London-based Baltic Exchange, which publishes daily rates for more than 50 maritime routes.

The rate of $8,600 predicted by Oslo-based Korsvold of Pareto Securities is below the $10,405 being priced in third- quarter forward freight agreements, traded by brokers and used to bet on future transport costs, Baltic Exchange data show.

The global fleet of 2,608 handysizes expanded 6.6 percent in a year and the outstanding order book at shipyards from China to South Korea to Japan is equal to 31 percent of existing capacity, according to data from Redhill, England-based IHS Fairplay. Shipping companies were ordering vessels in 2007 and 2008 when rates rose as high as $49,397.

Handysize rates are volatile, dropping as much as 33 percent and rising as much as 31 percent last year, Baltic Exchange data show. The vessels are defined by Clarkson Plc, the world’s biggest shipbroker, as having a carrying capacity of 10,000 to 40,000 deadweight tons. They also haul commodities including cement, timber, fertilizers, salt and sugar.

Global Trade

About 90 percent of global trade moves by sea, according to the Round Table of International Shipping Associations.

Egypt will buy 9.5 million tons of wheat in the marketing year ending in June 2012, down from 10.2 million tons this year, the U.S. Department of Agriculture estimates. Morocco’s purchases will decline to 2.1 million tons from 3.9 million tons and Tunisia’s to 1.5 million tons from 1.6 million tons, the data show. Algeria’s needs will be unchanged at 5.3 million tons.

“If the forecast ends up being anywhere near accurate, it’s a negative for ship demand,” said Peter Norfolk, an analyst at Freight Investor Services Ltd., a broker of shipping derivatives in London. “But in the global scheme of things it’s not huge.”

Egypt has enough wheat to cover its needs for eight months, Al Gomhuria reported May 22, citing Social Solidarity Minister Gouda Abdel Khaleq. The supply includes four months of local production in addition to 2.1 million tons of imported wheat, the Cairo-based newspaper cited the minister as saying.

Food Prices

Global food prices tracked by the United Nations rose 36 percent in 12 months, pushing 44 million more people into poverty since June 2010, according to the World Bank. Higher prices helped spark the riots that erupted across northern Africa this year, toppling Tunisian President Zine El Abidine Ben Ali in January and Egyptian leader Hosni Mubarak the following month.

The pace of France’s wheat sales to Algeria and Morocco in the 2010-11 marketing year may not be repeated in the next 12 months. A lack of rain and unseasonably high temperatures will cut France’s soft-wheat crop by 12 percent to a four-year low of 31.65 million tons, according to Agritel, a Paris-based adviser to farmers. The nation’s soft-wheat exports outside the European Union may drop 53 percent to 6 million tons, Agritel estimates.

EU Wheat

The EU’s wheat crop may slide to 131 million tons, from 135.8 million tons, because of growing conditions in France, Germany and the U.K., the biggest growers in the 27-nation bloc, according to the median estimate of seven analysts surveyed by Bloomberg last week.

In the U.S., winter wheat is in the worst condition since 1996, with 45 percent of fields rated poor or very poor as of May 22, according to the USDA. Even that may not spur northern African nations to accelerate their buying.

“There isn’t huge pressure on their stockpiles,” said Abah Ofon, an analyst with Standard Chartered Bank in Singapore. “I don’t think there will be panic buying.”

--Editors: Sharon Lindores, John Deane

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net. Alistair Holloway in London at aholloway1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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