Commodity Corner

from Krishna Das:

ANALYSIS-Small ships to unlock rate boon for bulk owners

By Krishna N Das and Jonathan Saul

BANGALORE/LONDON, Feb 8 (Reuters) - Dry cargo shippers with smaller vessels are shifting to more-risk, more-reward spot markets, eyeing rising demand for sugar and grains -- commodities well suited to versatile supramax and handysize ships.

Ship owners generally prefer long-term charters in a weak market. The Baltic Dry Index <.BADI> o-year lows in recent weeks but confidence has been rocked by South Korean dry bulk group Korea Line Corp <005880.KS> filing for bankruptcy protection, highlighting the risk of charter-party defaults.

"Concerns now persist industry-wide, as speculation grows as to whether faults," Deutsche Bank analyst Justin Yagerman said.

"Continued charterer defaults could bring into question many companies' above-market charters." Flooding in Australia, the world's biggest coal exporter, and weather-srupted coal shipments and dented sentiment for capesize vessels -- the giants of seaborne trade routes, typically hauling 150,000 tonne cargoes such as iron ore and coal.

Demand for grains, though, has soared. Wheat prices in the European Union, the world's No.2 exporter, a year, aided by a Russian export ban due to drought and strong demand from North Africa and Middle East countries.

Global food prices, which hit their highest level on record last month, is a mounting worry for world leaders. Recent catastrophic weather around the globe could put yet more pressure on the cost of food, an issue that has already helped spark protests across the Middle East. Egypt is the world's biggest wheat importer.

After the U.S. drought, the deluge?

An interesting fact has emerged on the U.S. drought front that will be of interest to readers of this blog.

According to the U.S. Drought Monitor, as of last week about 78 percent of the country was “drought free” — the largest percentage since the monitor began tracking such trends over a decade ago.

“This is the most drought free that the country has been in the last 10 years,” said Brian Fuchs, a climatologist with the National Drought Mitigation Center at the University of Nebraska in Lincoln.

This state of affairs is partly explained by the emerging El Nino pattern and as always with weather and farming, the blessings have been mixed.

Recent good rains have heralded the end of a scorching drought in Texas which reached historic levels in some parched counties.

But drenching rains in the Midwest grain belt resulted in the slowest harvest in 30 years.

Grain markets flashing warning signs

Another food price spike could be on the horizon, analysts told Reuters.    Consider these factors: * Grain prices, led by soybeans, have been up since March.  * South America’s crop is expected to be a disappointment. Crops in both Brazil and Argentina have a poor outlook. In fact, the U.S. Agriculture Department steadily lowered its forecast for Argentina’s soybean crop throughout the year.

* Many will be looking to the United States to come through with a big crop. But U.S. soybean stocks began the 2009/10 marketing year at a five year low. That means there’s not a lot of surplus to keep prices level if there’s any type of disruption in supply or weather calamity.

Signs of an economic recovery, which are just now beginning to be realized, would be threatened if the world were to face soaring food prices reminiscent of last year.    “It would not be what the financial media is describing today as a green shoot,” said Rich Feltes, senior vice president at MF Global Research. “It’s going to be a green shoot that’s being killed with Roundup Ready herbicide. It’s not going to be good.”