Various factors which will affect the grain markets

Stopford ( 2009, p.1 ) says that ‘forecasting is non an impossible undertaking, but successful prediction calls for a spot of fume and mirrors. ‘ Forecasting is of import because it helps the concern to fix for the hereafter. This essay will calculate the grain transportation markets by analyzing assorted factors which will impact the grain markets. This essay will calculate for the following 3 months as current grain harvest twelvemonth coatings in June 2010. The grain trades are unpredictable, with the tunnage necessitating cargo enormously dependent on the size of crops in the bring forthing parts, and in those devouring states whose imports mostly depend on the size of their ain harvests. It is a trade where the flexibleness of sea conveyance truly counts. This essay will look into assorted supply and demand factors impacting the transportation industry by giving old statistical informations and so analyze and calculate the information for the supply and demand factors.

BACKGROUND OF TOPIC

The history of grain trade is every bit old as the birth of civilization. International cargo of grain was besides present during the ancient Greece and Roman imperiums. In the modern yearss grain trading dramas an of import function in the planetary economic system and authoritiess have a particular claim over the grain. Grain has an economic and political importance and is besides one of the major issues while policy devising ( Atkin, 1995 ) . Grain in kernel agencies wheat, maize ( Maize ) etc. Soya bean is besides considered grain as categorised in International grain codification. Soya bean market will non be considered in this essay. Grain is shipped chiefly my ready to hand size and panamax size ships, really seldom turtle ships are used. ( Atkin, 1995 and Genco Shipping, 2010 ) There are chiefly five large participants in the grain industry such as Cargill and they account to about three-fourthss of the universe grain cargo ( Atkin, 1995 ) . Grain is traditionally exported from America and Argentina while importing states are Japan, Middle East states. Grain trade paths have changed in recent times because of industrialization and engineering promotion. The alterations in trade paths are because of handiness of information from taking indexs and bargainers can calculate the grain production. Some of the cardinal prima indexs are the Baltic prohibitionist index which gives the contemplation of the cargo rates of trade goods ( Iron ore, coal, grain ) that are shipped around the universe. Another good index for grain is the IGC grain cargo index ( FAO, 2009 ) . It is similar to BDI but is calculated merely for grain lading. Ingrain trading information is available on the FAO, Grain council, UNCTAD and USDA web sites.

Beginning: Baronial group, 2010

Prediction AND ANALYSIS OF GRAIN MARKET

Forecasting transporting market is concerned with the hereafters of the markets as a whole. Forecasting looks at the external environment in which a transportation company operates. The chief aim is to analyze the universe grain market and fix a prognosis for the following three months. Overall supply and demand factors statistical analysis will be done and how these factors will impact the cargo rate markets will be analysed ( Stopford, 1997 ) .

Prior to doing an analysis it is really of import to understand the concern rhythm of transporting industry. As per Stopford, 1997, p.42 it is a ‘process by which the market co-ordinates supply with alterations in demand by agencies of familiar rhythm of roars and slacks ‘ . When calculating the transporting market apprehension of concern rhythm is really of import. There are four phases of rhythm as shown in the diagram ( Stopford, 1997 ) . Traders should understand the phases of transporting rhythms and consequently plan their determinations.

Phases in Dry Market lading rhythm

Beginning: Stopford, 1997

Cardinal Indicators Baltic Dry index ( BDI ) is a cardinal index for majority trade and is an economic index for future trades. The concern rhythm is analysed by utilizing the BDI. BDI shows for all dry majority ladings and for all trade paths. Another cardinal index is the Grain Freight Index ( GFI ) . It takes into consideration merely grain ladings. It is composed of 15 major grain paths, stand foring the chief class trade flows. Cape size vass are non included merely ready to hand size and panamax vass are included in the computation of GFI. ( FAO, 2009 )

Beginning: FAO, 2009

CURVE OF SUPPLY AND DEMAND IN TRAMP Transportation

Transporting industry is a derived demand. There are assorted factors which affect the transportation markets. The supply demand theoretical account explains the assorted factors which affect the transportation industry. The graph below shows the supply and demand curves in hobo transportation. Demand for transporting grain in short term is in-elastic as grain is a basic necessity. But if the monetary value of transporting additions so in the longer run the importer looks for alternate options ( Volk, 2002 ) . Supply is chiefly related to figure of ships in the market, and available ships for transporting lading. Normally in line drive trade the supply curve starts off with minimal rate and in good market conditions where supply of ships is less than demand the curve rises, but it remains at that place for a short span ( Volk, 2002 ) . Analysis of these supply and demand factors is really indispensable to understand the transportation market and fix a prognosis.

Beginning: ( Volk, 2002 ) .

The graph shows the relationship between demand and supply in grain trading. Increase in demand during bad market conditions ( D1 to D2 ) does non hold influence on cargo rate ( P1 and P2 ) as sufficient tunnage is available. The addition in demand ( D3 to D4 ) leads to a important rate addition ( P3 to P4 ) ( Volk, 2002 ) .

Analysis OF DEMAND SIDE FACTORS

The universe economic system – The universe economic system plays a really of import function in act uponing the ships demand. There is a really close relationship between states going wealthier and addition in demand for grain conveyance by sea. Hence apprehension of the planetary economic system is of import to judge the tendencies in the grain trade. ( Stopford, 1997 ) .The universe GDP is increasing every twelvemonth and as per statistics from IMF in 2008 the universe GDP increased by 3.0 % and in 2009 it decreased by -0.8 % . In the emerging economic systems like China 8.7 % and India 5.6 % GDP growing is tremendous and the states are developing fast ( IMF, 2010 ) . As can be seen from the diagram below, as the states develops economically the demand for trade goods traded by sea additions. It is a cyclic procedure where the addition in seaborne trade helps the states to economic growing and the universe markets grow. More over globalization has besides resulted in growing of seaborne trade. ( Stopford, 1997 ) .

Beginning: Writer generated

China and India besides have a really high population. The capacity of developing states particularly China and India to devour basic grocery such as staff of life have increased. Hence it has straight affected the planetary ingestion of grain and hence the addition in trade ( Atkin, 1995 ) . As states get wealthier they besides tend to alter their dietetic forms. The demand for meat is increasing every twelvemonth. This is straight impacting the coarse grain trade ( USDA, 2008 ) . Almost 70 % of coarse grain ingestion is in the signifier of carnal provender ( Atkin, 1995 ) .

Seaborne trade good trades Grain histories to about 7 % of the universe seaborne trade as per Clarkson ‘s ( 2008 cited in Scott, 2010 ) . Grain trade is driven by production and ingestion tendencies in different countries of the universe, by the local conditions conditions and harvest outputs and altering form of nutrient ingestion. Grain is besides used for doing staff of life or pasta or provender to animate beings to bring forth meat ( ICS, 2004 ) . Grain is grown really widely around the universe. In the northern hemisphere there is USA, Canada European brotherhood and in the southern hemisphere there is Argentina and Australia. Hence crops are harvests reach seaborne trade throughout the twelvemonth ( Genco Shipping, 2010 ) . Most of the grain grown in China and India is used for local ingestion and hence it does non impact the seaborne trade. States like USA produce grain for exporting stock up the grain in SILOS which besides helps the grain trade to flux throughout the twelvemonth ( Atkin, 1995 and IGC, 2010 ) . World ‘s grain trade has increased over the old ages, as per current information the trade has increased from 215 million dozenss in 2005/06 to 239 million dozenss in 2007/08 ( FAO, 2009 ) .

Beginning: Clarkson 2008 cited in Scott 2010.

There are seasonal fluctuations due to climatic conditions and difference in productiveness of dirt ( Atkin, 1995 ) . Seaborne grain trade is besides affected by natural catastrophes, temblors such as one in Haiti in 2010. Other Factors such as a drouth or inundation in China may coerce the state in the one or other twelvemonth to import grain from the USA ( Volk, 2002 ) . Over the old ages the grain production is associated with instability in production. This is consequence of extended spread of high output seeds and cultivation engineering. This has resulted in husbandmans in different parts are exposed to similar jobs like fertiliser monetary values, harvest disease ( Atkin, 1995 ) .

The seaborne trade of grain besides depends upon which portion of the universe is good crop of which type and quality of grain ( Atkin, 1995 ) . Majority of the produced grain harvest is used for domestic ingestion as is the instance with India and China. States such as USA and Australia produce grain merely for exporting ( Atkin, 1995 ) . As per statistics from IGC entire grain production for twelvemonth 07/08 was 1697 million dozenss out of which merely 239 million dozenss was traded in the universe market ( FAO, 2009 ) .

Grain statistics is calculated for the harvest twelvemonth get downing from June every twelvemonth. Hence the information available for prediction will be merely till June 2010 because of the crop season. ( Scott, 2010 ) As grain production depends upon so many factors it is hard to acquire an mentality in future because of the current turning season in the Northern hemisphere which is influential in prediction of grain. International grain council publishes its grain prognosis merely after June every twelvemonth ( Scott, 2010 ) .

Average haul Demand for sea conveyance is straight related to distance over which the lading is shipped. Sea transport demand is measured in metric ton stat mi.

Ton stat mi = Tonnage of lading shipped ten Average distance over which it is transported

Beginning: UNCTAD, 2009, p.30

As seen from the above tabular array the universe seaborne trade for grain in ton-mile has increased over the old ages from 475 billion ton-mile in 1970 to 2,029 billion ton-mile in 2008. The mean draw for grain has increased over the old ages which are straight impacting the demand for ships ( Platou, 2010 ) . ‘Transport of grains and soya beans were besides longer in 2009, chiefly due to increased Asiatic sourcing from Atlantic exporters ‘ . ( Platou, 2010, p.22 ) .

Political events and Agricultural policies Political events indirectly affect the demand for conveyance of grain ladings. The impacts of wars will impact the trade for a short term. Political trade stoppage such as, The grain trade stoppage, introduced by the United States on the USSR after the invasion of Afghanistan, reduced Russian grain supplies by about six million metric tons in 1979/80. This affected a alteration in the grain trade as Russia had to purchase grain from other states such as Canada, Australia and EU ( Tarrant, 2002 ) .

Agricultural policies in states besides affect the universe grain market. Policies made straight impact the production of grain and it besides protects the husbandmans from the universe market conditions ( ATkin,1995 ) . India had imposed a grain export prohibition because it wanted to utilize the produced grain for its internal market. India which is the 2nd largest manufacturer of wheat is now be aftering to raise the prohibition on exports because this twelvemonth wheat end product is traveling to be more than required for local ingestion. Hence in the involvement of the state India will open its grain markets to the universe. ( Classical transportation intelligence, 2010 ) .

Key participants in grain trade There are five major international grain trading companies. These participants account to three-fourthss of the grain shipped internationally. Hence these companies have the power to pull off the physical flow of grain from husbandman to consumer ( Atkin, 1995 ) . The transporting portion of grain is really complex and is besides really hazardous. Grain is traded highly widely and therefore informational web demand to run on a planetary graduated table. The large grain companies have information systems which provide them information from every state. Their agents are located in every important grain bring forthing, exporting, and importing state, supervising the conditions, economic tendencies, harvest conditions and political development. Hence the economic sciences of graduated table deter new entrant from come ining into the grain market. Hence these large companies can be influential in impacting the markets ( Atkin, 1995 ) .

Analysis OF SUPPLY SIDE FACTORS

The supply side factors chiefly consist of the ships which are available and operating in the market. The supply of ships is chiefly controlled by four determination shapers, Ship proprietors, charterers, bankers and assorted regulative governments which make regulations. The supply of transporting capacity depends upon the judgement made by these participants. To understand this first we will discourse the supply side factors and how they are influence by the cargo rates.

World fleet Historically grain lading is carried onboard general lading ships. By the late 1950 ‘s bulk bearers appeared into the transportation market. Finally there where ships built which could transport grain lading. These ships building was such that they had self paring holds which would do them safer to transport grain in majority. The usage of big majority bearers was instrumental in growing of majority trade. For grain transit ready to hand soap and Panama ships are usually used, but on some occasions cape size majority bearers are besides used ( Stopford, 1997 ) . There has been rapid alteration in the size of the majority fleet and with new engineering and designs such as self un-loaders coming up investors have to do complex determination when telling new ships. As can be seen from the tabular array the majority merchandiser fleet has grown from 276 m dwt in 2000 to 418 million dwt in 2009 ( UNCATAD, 2009 ) . The panamax ships have increased from 65.4 m dwt in 1999 to 121.1 m dwt in 2009 while the ready to hand soap market has increased from 45.3 m dwt in 1999 to 91.9 m dwt in 2009. ( Clarkson ‘s, 2010 cited in Scott, 2010 )

Beginning: ( Lloyd ‘s Register – Fairplay cited in UNCTAD, 2009 )

Fleet productiveness Fleet productiveness is calculated to understand the status of the current markets. The fleets runing public presentation alterations in response to market conditions such as E.g. If market is favorable so a grain bearer ship after finishing its laden ocean trip can transport cargo during its return ocean trips. This will increase the productiveness of ships. As can be seen from the graph below the ton-mile per deadweight of the majority fleet has non changed over the past twosome of old ages. This is chiefly because of good market conditions in the last three old ages.

Beginning: UNCTAD, 2009, p.94

Ship constructing production New ships added into the fleet plays an of import portion in the supply and demand markets. This helps to level out the demand or it can besides do glut of ships. New ships added into the market do non make a short term consequence but it is a long term consequence. For ships to be built and to present clip taken is every bit much as from 6months to 4years. Hence orders for ships are placed as per the estimation demand for lading. During the majority bearer edifice roar in mid-1980 ‘s majority bearers had developed a dominant function in ship building, which resulted in overrun and excess of ships. The dry-bulk market new constructing market has been relatively stable as compared to the oiler markets ( Stopford, 1997 ) . The graph below shows the bringing of new build ships over the old ages has increased and was at its extremum in 2007 and 2008 when the market was dining. This besides shows that investors can be driven by market sentiments and purchase ships in the current booming market at sky high monetary values and fail to understand that ships will be delivered after 2 to 3 old ages clip.

Beginning: UNCTAD, 2009.

Trashing The fleet size besides depends upon trashing and loss of ships. Trashing besides balances the size of fleet in the market. Trashing of ships is chiefly depended upon the market conditions and besides factors such as age, scarp monetary values, current net incomes of ships, and alteration in ordinances ( Stopford, 1997 ) . Trashing of ships is usually a determination made in involvement of the concern. The hereafters market is besides taken into consideration when doing such determination ( UNCTAD, 2009 ) . As seen from table below per centum of scrapping of ships was really less in the flourishing period from twelvemonth 2005 to 2008 as compared to old ages 2000 to 2004. This clearly shows that trashing is chiefly distinct harmonizing to market conditions.

Beginning: UNCTAD, 2009. * Vessels over 10000 dwt

Freight rates Freight rates influence the supply of sea conveyance. The transportation concern depends upon freight rates and it is the ultimate market regulator. ( Stopford, 1997 ) In grain trading cargo rate plays an of import function in the selling concatenation of grain market. Grain is a bulky and low value trade good, hence transit costs account for a significant portion of the monetary value of grain. The ocean cargo rates for grain are variable and volatile. They are non co – related with the monetary value of grain. This is chiefly because grain monetary values rhythms are chiefly driven by conditions conditions, agricultural policy and general economic development ( Atkin, 1995 ) . While freight rates are derived by market conditions, supply and demand factors. One of the chief factors of grain market is unlike other ladings where geographical parts are defined grain imports are done by a scope of states with changing capacity. Hence grain markets are chiefly spot charter markets, where cargo rates are fixed on topographic point. Normally in grain trading hobo soft-shell clams are hired on a ocean trip charter footing. Freight rates are determined by the overall balance in supply/demand of vass and lading ( Atkin, 1995 ) .

Prediction OF GRAIN Trade

World economic system The universes GDP as per statistics from IMF shows 3.9 % addition for the twelvemonth 2010 ( Clarkson ‘s, 2010 cited in Scott, 2010 ) . This is more due to the growing in emerging economic systems which is expected to lift by 6 per centum. Advanced economic systems are expected to lift by 2 % in 2010. Due to strength in demand from emerging economic systems trade good monetary values are expected to lift a spot ( IMF, 2010 ) .

Global Population is traveling to turn at an false norm of about 1.1 per centum per twelvemonth. Population in developing states are traveling to increase more than the population in the developed states. With fast industrialization and urbanization of developing states and addition in immature population in developing states the demand for grain is traveling to see and upward tendency ( ERSUSDA, 2008 ) .

Seaborne trade good trade Grain production will be chiefly dominated by USA followed by Argentina which is the 2nd largest and so Canada and Australia. The universe chief grain exporters and importers are shown in the graphs below. Exports of grain will be dominated by USA where as Imports will be chiefly from the Asia/Pacific part followed by Latin America Africa and Middle East ( Genco Shipping 2010 & A ; IGC, 2010 ) . As per International grain council for the harvest twelvemonth 2009/10 wheat and coarse grain trade may fall by 17.6 million metric tons or 7 % to 230.8 million dozenss ( Scott, 2010 ) .

Beginning: IGC, 2010

Beginning: IGC, 2010

Beginning: IGC, 2010

Wheat and Corn ( Maize ) are the major grains which are traded in the planetary market and they account for about 89 % of the universe grain trade ( IGC, 2010 ) .

Wheat and Coarse grain mentality

Wheat harvest production has touched a record high in Russia, Algeria and Australia. Besides universe wheat stocks in the five major exporting states have forecasted an eight twelvemonth high. As per estimations wheat imports will be reduced due to good crop in importing states such as Middle East and North Africa ( Scott, 2010 ) .

World ‘s maize crop will stay unchanged for the twelvemonth 2009/10. The jutting maize trade for 2009/10 ( October-September ) is at 84.9 million dozenss which is lot lower than 2007/08 which is 101 million dozenss. Imports by Vietnam and China are increased somewhat but it is non traveling to impact much in the universe trade ( USDA, 2010 ) . The maize trade is traveling to increase because of more cargos to Canada, Brazil and Syria. Exports from Argentina and Brazil are traveling to increase due to good crop. This is traveling to impact the USA maize exports which will be less this twelvemonth ( IGC, 2010 ) . Furthermore USA is utilizing maize for industrial intent to bring forth ethyl alcohol which will besides hold an impact on its maize exports ( USDA, 2010 ) .

Grain imports into Asia ( Excluding Japan ) are besides expected to be somewhat lower in 2009/10 by 2 % . Pakistan ‘s imports may fall by about 87 % as compared to last twelvemonth due to good domestic crop ( Scott, 2010 ) . European Union imports will besides be down by 20 % because of good domestic harvest handiness. Middle East imports are besides expected to be lower by about 19 % ( Scott, 2010 ) .

Japan imports over the old ages are demoing a downward tendency which will go on for the staying portion of the twelvemonth. South Korea ‘s wheat and coarse grain imports may be 9 % higher as there is addition in demand for provender grain ( Scott, 2010 ) .

Overall wheat and coarse grain trading is traveling to see a diminution till the terminal of June 2010. This consequence is chiefly because of less demand for wheat in the market.

As per Scott ( 2010 ) planetary seaborne trade for grain will pick up from Mid-2010 onwards. Domestic harvest in the Northern hemisphere is the cardinal influencing factors, because of the current growth season it is really hard to calculate grain trade after June 2010.

Policy effects Due to lifting nutrient monetary values of grain over the old ages some states have adopted protective policies to back up their local husbandmans and their consumers. Some exporting states have made limitations on export of grain to back up their internal market. Argentina, Russia and Kazakhstan have imposed revenue enhancement on grain particularly wheat and maize exports. China went a measure further they eliminated the subsidy which was given for grain exports and have levy a revenue enhancement for grain exports. Argentina and Ukraine have established measure limitations on wheat exports.

As export states have taken protective steps to cut down lifting grain monetary values in 2008, importing states have besides taken steps to cut down grain monetary values. States such as Indonesia and Serbia have reduced their import duties on wheat imports. This lessening in export measure by states and import states subsidizing revenue enhancement on imports will make a rush in demand in grain market. But lifting fuel cost for transporting grain will increase the monetary value of grain ( USDA, 2008 ) .

World fleet As per Clarkson ‘s the universe ‘s fleet is traveling to increase by 11.4 % in 2010 as compared to the last twelvemonth. The ready to hand soap market is traveling to increase by 14.2 % in 2010 from cherished twelvemonth and the Panama market is traveling to increase by 7.59 % in 2010. ( Clarkson ‘s 2010 cited in Scott, 2010 ) This is traveling to make and flood of ships in the market. Due to the big figure of ships in the new edifice order books, but low cargo rates and demand for ships it is acquiring increasing hard to project the growing of fleet in front ( Platou, 2010 ) . Port congestion is non likely to impact the grain market in the current economic conditions.

Beginning: Platou study, 2010

As seen from the graph the glut of ships and falling demand is impacting the use rate of majority bearers. As most of the grain trading is done in the topographic point market the glut of ships is traveling to impact the cargo rates ( Singh, 2009 ) . The ready to hand size market will non be affected by much because the growing of ready to hand size is limited. The figure of Handy size ships built in 2010 will be higher but that is likely to be offset by trashing of ships ( Clarkson ‘s 2010 cited in Scott, 2010 ) . Ship Owners are besides change overing individual hull oilers to bulk bearers because of alterations in ordinances in oiler markets. This is besides traveling to increase figure of ships in the market ( Scott, 2010 ) .

Shipbuilding As per Clarkson ‘s new ships fall ining the universe fleet are traveling to increase the fleet by about 61.9 million dwt by 2010. This is a really important rise in deadweight to the universe fleet ( Clarkson ‘s cited in Scott, 2010 ) . The ships whose bringing was delayed in 2009 are besides traveling to hit the shores by 2010. Hence that may besides ensue in rise of tunnage ( Fairplay, 2010 ) As per estimates the new edifice which has been ordered have to be cut back by 40 % so that the supply will equilibrate the demand side by 2012 ( Platou, 2010 ) .

Trashing As per Clarkson ‘s ( 2010 ) cited in Scott ( 2010 ) an estimated on 11 million dwt dozenss of ships will be scrapped in the twelvemonth 2010. But trashing of ships is chiefly a map of net incomes hence it will largely depend upon the cargo rates earned by ships ( Platou 2010 ) . In the ready to hand size market in 2009 5.3 million dozenss was scarped and this tendency is traveling to follow in 2010. ( Scott, 2010 ) .

CONCLUSION/RECOMMENDATIONS

The grain trade is traveling to see a diminution in the harvest twelvemonth 2009/10. This diminution is chiefly because of good wheat crop in most parts of the universe, coarse grain trade will be following old tendencies. In add-on to good reap the excess of ships in the market is traveling to take down down the cargo monetary values in the grain topographic point markers. Rising fuel monetary values may hold an consequence on cargo rates which may countervail the inexpensive cargos offered by ships. In the close hereafter grain trade paths will stay the same. The production of ethyl alcohol from maize will impact the grain exports from USA, but good crop in Argentina and Brazil will invalidate the consequence.

The universe wheat production has a current excess in the market which will take down down the monetary value of wheat. Hence it is likely that in malice of excess wheat and less demand from importing states, importing states may take advantage of low monetary values and will import more wheat and increase their wheat stock.