Prairie farmers to benefit from lower ocean freight rates

(PortOfChurchill.ca)

CNS Canada — Western Canada’s grain farmers are expected to benefit from recent lower ocean freight rates as the Baltic Dry Index (BDI), a measurement of such rates, has dropped significantly over the past couple of months.

The BDI was quoted Friday at 749 points, up from a low of 709 points seen earlier in the month, but well off November highs of 1,456 points.

“Our export customers, ultimately, they care most about what it costs to pay for something landed in their ports, and so the cheaper that you can get it there, the easier it is for companies to back some of that into higher prices for growers,” said Jonathon Driedger, market analyst with FarmLink Marketing Solutions.

“It’s not an apples-to-apples, penny-for-penny type thing. But it cheapens the ability to move grain around, and of course transportation cost is a huge part of getting grain into end-use markets,” he added.

The lower cost also makes Canadian grain more competitive and levels the playing field with other countries that sell similar products into Asia, such as Australia.

One contributing factor to the lower shipping rates has been the drop in crude oil values, as it reduces fuel costs to run the big ships. But the main impact on ocean freight rates comes from supply and demand, according to Driedger.

“Ultimately it’s a combination of how much shipping capacity is there, compared to how much people want to export. Things like a weakening global economy, some concerns about China and other developing markets not growing as fast, and the recession in Europe, Japan, help reduce demand for stuff in general. So, that helps maybe free up some capacity which lowers freight rates.”

Though the export pace for Canadian crops, including wheat, canola and pulses, has been strong so far this year, it’s not necessarily because of lower ocean freight rates.

“I don’t think it would be fair to make that direct a connection, because there are a lot of things that impact export demand,” said Driedger. “There have been years when freight has been expensive and we’ve exported a lot of grain, so there are a lot of different moving parts.”

According to data from the Canadian Grain Commission, exports of Canadian grain for 2014-15 totaled 18.956 million tonnes as of Jan. 11, up from 16.638 million tonnes at the same time a year ago.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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