U.S. Wheat Associates (USW) market analyst Casey Chumrau says lower freight rates are making U.S. wheat even more attractive around the world, helping to grow exports of U.S. wheat. USW believes the combination of lower wheat prices and cheaper rates are resulting in a great value for importers buying high quality U.S. wheat.
"The ocean freight industry is still struggling to overcome the slowdown caused by the global recession in 2008 and 2009. There is still too much capacity and not enough freight demand to fill it. As a result, ocean rates have decreased significantly since September 2011, including a sharp decline starting at the beginning of 2012," says Chumrau.
Chumrau points out the rate from the Pacific Northwest to Egypt is down 30% from a peak of $47 per metric ton (MT) in mid-September, according to estimates provided by freight traders. The Baltic Dry Index (BDI), which measures the cost of shipping bulk commodities, is down 58% this year. The index closed on Feb. 27, 2012 at 730, compared with the pre-recession record high of 11,793 on May 20, 2008.
Jay O’Neil, senior agricultural economist at Kansas State University’s International Grains Program, believes freight rates have hit close to market bottom and will remain, with some fluctuation, near current values for most of 2012. In fact, he thinks it will be 2014 before vessel owners see any real relief.