Dry Bulk Market: Grain Flows Could Be Affected by El Niño

With climate change a reality, the ongoing grain season of high demand for dry bulkers, could be impacted. In its latest report, shipbroker Intermodal said that “last week, the Australian Bureau of Meteorology predicted that there is a 70% chance that the El Niño phenomenon will occur in the Pacific Ocean during the remainder of 2023, affecting countries in the region. The El Niño phenomenon does not have a stable pattern in terms of when it occurs, but it does occur every few years and can last from 9 to 24 months. This climate pattern consists of higher ocean surface temperatures and changes in rainfall patterns, which can lead to extreme rainfall or extreme drought”.

According to Intermodal’s Research Analyst, Mr. Fotis Kanatas, “on top of this, Australia’s Department of Agriculture, Fisheries and Forestry (DAFF) is forecasting a 34% drop in the country’s winter crop production to 44.9 million tones, with wheat production in particular falling 34% to 26.2 million tones for the 2023/2024 season. This comes after a historic year in terms of profitability, with the value of wheat production and wheat exports reaching record highs of $15bn and $14.2bn respectively”.

“Australia mainly exports grain to Asia, with half of its exports unloaded in Southwest Asia, in countries such as Indonesia, Vietnam and the Philippines. In recent years, the country has dramatically increased its exports to China. In 2022, they shipped 4.7million tones of wheat to China, while year to date, the volume amounts 3.4million tones which is already 72% of last year’s volumes and with 6 months to go”, Mr. Kanatas added.

“In terms of major wheat players, production is expected to increase in the United States and European Union and Canada. For the United States, the WASDE report expects wheat production in 2023/24 to be 45.32 million tones, slightly higher than this year’s 44.90 million tones. Canada will also see a larger increase in production, with expectations for 2023/24 at 37 million tones, 9.4% higher than this year’s 33.82 mmt. The European Union is expected to produce a slightly higher 140.50 mmt in 2023/24, compared with 134.34m mt in 2022/23”, he said.

Intermodal’s analyst concluded that “looking at China’s wheat imports in recent years, it is easy to see that the country’s largest wheat suppliers are Australia, followed by Canada, France and the United States. If we assume that Australian production will fall by almost 34% next year, exports to China may be affected and could trigger a change in the pattern of this particular trade. Other exporters may step in and take market share from Australia, which may be beneficial for tone-mile growth as the other top exporters, France, Canada and the United States, are further away than Australia, supporting freight rates”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide