Everyone wants to know what shape the global economic recovery will be. One of the leading shipping indices is telling us it’s more like a V than anything else - in Asia at least.
The Baltic Dry Index (BDI) is a composite of dry shipping costs for the three main sizes of ships. Updated daily in London at the Baltic Exchange, the BDI fell dramatically and rapidly at the start of January this year. By the start of June it was more than 50% down.
Since the start of June however it rose almost vertically and peaked at almost 80% higher than the start of the year. It’s calmed down a little and today is 64.40% higher than the start of the year.
By comparison the crude oil tanker route from the Middle East to China - also on the Baltic Exchange - is still languishing at 63.55% lower than the start of 2020. Crude oil is still sloshing around the globe, even though the four major refiners in Asia - China, India, South Korea and Japan - imported an average of 19.7m barrels per day (bpd) of crude oil each month during February to April this year, down just 100,000 bpd from the same period last year.
Asia on strong path
China is leading the Asian "pack" towards a strong regional economic recovery. Its imports of crude oil and copper reached record levels in June. So did its imports of soybeans, which at more than 11m tonnes were 71% higher in June compared to the same month last year.
China’s soybean imports - primarily from Brazil - were stimulated by attractive crushing margins. Chinese soybean crushers booked a lot of shipments and locked in good rates.
China is stocking up on all basic commodities - its meat imports (4.75m tonnes in the first half of 2020) were also very high, 73.5% above the same period of last year.
Soybean crunch on the cards
The strength and pace of China’s imports is likely to slow after July, when soybean imports are expected to reach 10m tonnes.
In June Brazil set a new record for the value of its agricultural exports, equivalent to more than $10bn, 24.5% higher year-on-year, 65% of the increase down to China.
The rise was driven partly by a drop in the Brazilian currency but also by strong demand for sugar, meats and soybeans. China accounted for 70% of Brazilian soybean exports in June.
Brazilian soybean farmers have sold almost their entire 2019-20 soybean crop and have forward sold more than 36% of their 2020-21 crop. The USDA (US department of agriculture) estimates that by the end of January 2021 (the end of the Brazilian marketing year) supplies of soybeans in Brazil will be at their lowest in four years.
Given that China is struggling with fresh outbreaks of African Swine Fever (ASF), and that it is engaged in what seems like a perpetual need to re-stock and fatten the new pigs (on soymeal by preference), China will continue to import soybeans at a cracking pace this year.
Those US farmers who stuck by soybeans this season could well be congratulating themselves later this year for making the right call.