Photo: Flickr CC via bagsgroove
Now, it’s possible that Mother Nature will surprise the monoculture cropland country with unexpected rains this next week, and it’s possible that such rains could revive crops much more than the current gloomy forecasters expect, but it’s also possible that the Midwest is in for a long overdue drought season, and then the question is will policy-makers adjust the ethanol mandate to stave off bad PR related to high food prices, high commodity prices, failing livestock operations, and a sinking U.S. export market? In a week, or two, we’ll know more.
Here in Boulder the fire has been out for many days and the monsoon season has started. There have been flood warnings and our own basement is “wet”. July rainfall far exceeds June’s now.
Next, is this week’s news and it starts out with a Must-Read. Kudos to the DesMoines Register for the story.
Members of the Des Moines Occupy movement announced plans to protest the World Food Prize events this fall. Instead of “pro-corporate agribusiness recipients who support GMO crops and the use of harmful pesticides and chemicals,” the prize should honor people “who advocate sustainable, safe, local agriculture in the U.S. and abroad,” the group said in a statement. … corporate agribusiness has gone beyond controlling food supplies to also controlling “governments, laws, and patents. …”
● In pictures: Rainforests to palm oil (Mongabay)
● U.S. soybean futures surged to an all-time high price and corn rose due to fears that continued dry conditions in the U.S. Midwest crop belt would further threaten yields. Sizzling temperatures abated in the Corn Belt over the weekend, but rains this week were expected to miss the areas that need it most. (Reuters)
● Last summer, during the height of the drought, West Texas farmers kept watering their cotton crops despite knowing they wouldn’t grow. They needed to do so to qualify for federal crop insurance. … Some farmers using advanced watering technologies, like drip irrigation, did produce cotton on irrigated land, sometimes with record yields. (TexasTribune)
● Corn and wheat prices may be trading close to ten-month highs but contrary to public opinion many farmers are not reaping fat profits. The stark reality is that growers’ margins are razor thin and many are even losing money because food crops are priced well-below the cost of production, former Australian farmer Paul Hickey explains. (CNBC)
● Delayed Rains Strain India Economy – Unusual Monsoon Season Threatens Vital Crops in Parts of the Agricultural Northern States, Aggravates Power Shortages (WSJ) Please note that the “Weather Maps” tab above includes an India drought map.
● In times like these, a Nebraska farmer can be really grateful for his center pivot — and for the Ogallala Aquifer that feeds it. … About two-thirds of the state’s corn crop is irrigated. (Omaha W-H)
● The drought in Arkansas with agriculture there “in crisis mode” (Couriernews)
● The historic Texas drought caused the Ogallala Aquifer to experience its largest decline in 25 years across a large swath of the Texas Panhandle, new numbers from a water district show. The 16-county High Plains Underground Water Conservation District reported this week that its monitoring wells showed an average decline last year of 2.56 feet — the third-largest in the district’s 61-year history, and three times the average rate over the past decade. (Texastribune)
● “Oil palm is such a lucrative crop that there is almost no way to stop it,” says William Laurance, a forest-conservation scientist at James Cook University in Cairns, Australia. Indonesia, the world’s largest grower of oil palms (see ‘Palm sprouts’), is expected to double production by 2030. (Nature)
● In fall 2013, Perdue will open a new soybean processing plant, the culmination of two years of work. The Lancaster County, Pa., plant is being spearheaded by the poultry giant’s agribusiness division, which focuses on procuring and distributing grains. (Delmarvanow)
● The Pentagon is pushing ahead with a $420 million effort to build refineries to make competitively priced biofuels, despite anger in Congress over the price the Navy paid for alternative fuel to test a carrier strike group this month. (Reuters)
● Chris Clayton writes about the important subject of bulk shipping. Dredging Up the Potential of a Post-Panamax World (DTNprogressivefarmer) Post-Panamax vessels make up 16% of the world’s container fleet, but account for 45% of the fleet’s capacity. By 2030, those largest vessels will make up 62% of capacity. And more on the shipping subject from Reuters: The Baltic capesize Index has fallen by two-thirds in the past 3 months to its lowest in more than 2 years. Rates for supramax vessels were faring slightly better, though the Baltic’s supramax index has dropped by a quarter in the last 3 weeks.
● India, the world’s second-biggest wheat producer, risks losing more than 6 million metric tons of grain to rain and pests as the country lacks warehouses to stockpile crops that have risen to records for six years. (Bloomberg)
● In Syria, food prices have tripled in parts of seven provinces where the livelihoods of farmers and livestock herders are at risk of collapse because the wheat harvest is being delayed by a shortage of diesel, needed for machinery. (World Food Programme)
● Agri Machinery Expo in the Philippines – The DA figures show that only 0.52 horsepower is used per hectare in the Philippines. On the other hand, progressive countries like Japan and Korea have high power inputs of 7hp and 4.11 hp per hectare, respectively. (MB.com)
● Americans Are Eating More And More Chicken The USDA predicts that Americans will consume 1.7 percent more poultry next year (82 pounds per person) and decrease red meat consumption by 2.2 percent (54.5 pounds per person). (Business Insider)
● Fish and Soybean Farmers to Shake Hands? (Triple Pundit)
This chart shows that first time ever, the EIA Monthly coal- and natural gas-fired generation is equal (in April 2012)
● Recently published electric power data show that, for the first time since EIA began collecting the data, generation from natural gas-fired plants is virtually equal to generation from coal-fired plants, with each fuel providing 32% of total generation.
● There are strong seasonal trends in the overall demand for electric power. In April 2012, demand was low due to the mild spring weather. Also in April, natural gas prices as delivered to power plants were at a ten-year low.
● With warmer summer weather and increased electric demand for air conditioning, demand will increase, requiring increased output from both coal- and natural gas-fired generators.
Port Near Shanghai China Receives Large Grain Imports
This short video shows the soybean processing facility near Shanghai which became operational in 2009. Two panamax ships can be unloaded at the same time at this port which receives 30 shipments a year of corn and soybeans. This serves as a great example of how agricultural trade with China is changing and necessary infrastructure is advancing. Closest port providing soybeans to Shanghai? Pacific Northwest.
FAO Food Price Index Fell for the 3rd Consecutive Month
The FAO Food Price Index (FFPI) headed down another 1.8 percent from May and is the lowest since September 2010. After the third consecutive month of decline, the June value of the FFPI is 15.4 percent below the peak reached in February 2011.
Ocean freight rates affect the cost of imported food commodities. As food commodity prices increased leading up to the 2008 peak, dry bulk freight rates rose even more rapidly, increasing more than 350 percent between January 2006 and November 2007. High oil prices, increased demand for ocean shipping, and slow growth in the availability of dry bulk shipping vessels were the major factors contributing to higher freight rates. By the end of 2008, ocean freight rates had plummeted more than 90 percent as a result of lower oil prices, reduced demand associated with the global recession, and an increase in the number of ships.
In the 12 months preceding February 2011, dry bulk freight rates did not increase or contribute to higher prices for imported food commodities. While ocean freight rates at the end of April 2011 were somewhat higher than in February 2011, they were still less than a fourth of the peak levels reached in 2007 and 2008, largely reflecting the increase in shipping capacity.
Though the amount of bulk shipping being done is increasing annually, the build out of vessels is making competition fierce and may result in some scrapping by those unable to make a profit in the industry. To put grain bulk shipping into perspective for the industry, here are some stats from World-grain:
- The grain trade contributes less than 10% to total annual global ton-mile demand for bulk carriers.
- In the next four years the dry bulk fleet is expected to grow by some 2,900 new vessels, for a net gain of about 30% to 40%.
- More volumes moving on U.S.-Asia and South America routes will continue to see grain’s contribution to global ton-mile demand grow.
- In 2009, ton-mile demand (for grain) totaled 1,109 billion ton-miles. This was forecast to have risen to 1,310 in 2010 and is expected to climb again in 2011 to 1,407 billion ton-miles.
Note that iron ore and coal are the two main commodities shipped in the dry bulk market by volume.
- In 2010, India imported over 80 million tonnes of coal from Indonesia.
- In 2009, China imported close to 628 million tons of iron ore.
- In 2010, China imported 164.83 million tons of coal.
- Brazil’s mining company, Vale estimates its annual iron ore production will hit 311 million tonnes in 2011, increasing output to 522 million tonnes by the end of 2015. (Australia is still the largest supplier of ore to China.)
Enter the giant Chinamax vessel in 2011:
Greatly adding to global dry shipping supply competition is the new Chinamax. The 400,000-tonne dry bulk carrier introduced this year will cut the cost of iron ore freight into China from Brazil, and these vessels will also be used for coal shipments in the future.
Brazil’s Vale mining company is planning to build 80-100 Chinamax vessels to drive down shipping rates so that the differential between Brazil-China freight and Australia-China is minimal. This competition may drop capesize rates to 1977 levels of $10,000 to $12,000 per day, according to Reuters. These giant carriers may reduce shipping by 50% for Vale to $7 a tonne.
Ports that can handle this size vessel, other than Brazil, include Rotterdam, Oman, and Malaysia. Ore will be transferred to capesize vessels from these large ports to be distributed to China and the Middle East.
(Hyundai) cape size vessel
Capesize vessels are typically above 150,000 long tons deadweight (DWT), and ships in this class include oil tankers in the Very Large Crude Carrier (VLCC) and Ultra Large Crude Carrier (ULCC) classes; supertankers and bulk carriers transporting coal, ore, and other commodity raw materials. The term “capesize” is most commonly used to describe bulk carriers rather than tankers. A standard capesize bulker is around 175,000 DWT, although larger ships (normally dedicated to ore transportation) have been built, up to 400,000 DWT. The large dimensions and deep drafts of such vessels mean that only the largest deep water terminals can accommodate them.
Post Panamax (Nord Dorado)
Post-Panamax or over-Panamax denote ships larger than Panamax that do not fit in the canal, such as supertankers and the largest modern container ships. The ‘largest oil tanker in the world’ — whichever ship held the title at the time — has not been able to transit the Panama Canal at least since the Idemitsu Maru was launched in the 1960s; she was about 150,000 deadweight tons. U.S. Navy supercarriers are also in the post-Panamax class; the Nimitz class aircraft carriers are 1,092 ft (332.84 m) long overall with a beam of 134 ft (40.84 m), while the flight deck is 252 ft (76.81 m) wide.
Also see previous posts:
At What Oil Price Does it Pay to Ship Agricultural Products?
ADM Invests Big in Uruguay Port
photo: wikipedia ~ Nueva Palmira, Uruguay
Archer Daniels Midland Co is investing more heavily in South American grain shipping. Within two years they plan to handle 2.8 million metric tons of goods at the Nueva Palmira port in Uruguay.
Archer Daniels Midland Company (NYSE: ADM) announced the construction of a port terminal at Nueva Palmira, Uruguay, to meet corn, soy, wheat and soybean meal demands in Europe, Asia, Latin America and Africa. Located in the Zona Franca (specialized trading zone), the terminal will be the only facility at Nueva Palmira with the ability to load large, post-Panamax and Capesize vessels.
“As crop production in Paraguay, Bolivia, Uruguay and Brazil continues to increase, this new port terminal will be an integral part of regional export operations and will enhance our ability to connect the South American harvest to homes all over the world.”
ADM’s Nueva Palmira port terminal will have a storage capacity of 180,000 metric tons. ADM’s terminal is expected to handle 2.8 million metric tons of goods in its first year of operation, and it will employ approximately 100 people. Construction will begin immediately and should be completed in 22 months.
Note that the post-panamax and cape-size vessels which will be using the port, can carry more than 100,000 tons at a time. Nueva Palmira has become Uruguay’s main grains and oilseed exporting port.
Will Martin, who writes the blog “Peak Oil Proof Your Portfolio,” has an amazing new post up speculating on how Australia will fare in future, in light of peak oil and climate change. Because he has a background in oil rig sales, he knows of what he speaks when he discusses vulnerabilities in shipping at higher and more volatile oil prices, so I chose a small portion of his section, “Sea Transportation” to excerpt. This subject is of utmost importance when trying to imagine how our future Ag trade might become impaired due to decreasing oil supplies. The writing also has a section on agriculture, which you might want to check out.
With oil at $100 per barrel, the cost for a Norwegian company to ship a 40-foot shipping container of lingonberry jam from Norway to the UK would be about $350. The cost for an Austrailian company to ship a 40-foot shipping container of vegemite from Austrailia to China would be about $6,600. With oil at $200 per barrel, shipping the lingonberry jam would only cost $650 while shipping the vegemite would cost $12,200. The average shipping container holds about $300,000 worth of goods (with a $100,000 standard deviation). With profit margins of less than 2% in the food industry, the $6,000 profit for the Australian company shipping vegemite to China quickly disappears as oil prices rise, while the Norwegian company will continue shipping lingonberry jam to the UK at a profit.
International shipping freight prices have fallen, of late, due to an excess of supply having been built out. Read here: Cheap freight, behind unusual crop deals, to stay. Costs of shipping corn from the US Gulf to the German port of Hamburg, for instance, have tumbled by 24% to $28 a tonne over the past year, and to China by some 21% to $58 a tonne, increasing the feasibility of transporting grain over greater-than-usual distances to importers. Today’s lower rates are an aid to all food importing nations, helping to offset the higher fuel prices.
Currently, ten percent of world oil production is used for ocean transport. When you consider that modern grain production is closely tied to fossil fuel costs and when sea transport costs are added, rising fuel prices have sobering thoughts and implications.