May Big flows

Food Flows

As the planting season is underway across the Northern Hemisphere, the US Department of Agriculture reports:

The global wheat outlook for 2024/25 is for slightly lower supplies, increased consumption, modestly higher trade, and reduced stocks. Supplies are projected to decrease 2.2 million tons to 1,056.0 million with production projected at a record 798.2 million tons, but lower carry-in stocks for several countries, most notably China and Russia, more than offset higher global production. Increased output for India, China, Australia, Kazakhstan, Canada, and the United States is expected to more than offset reductions for Russia, the United Kingdom, the EU, and Ukraine. Projected 2024/25 world consumption is raised 2.0 million tons to a record 802.4 million… The global rice outlook for 2024/25 is for rising supplies, trade, consumption, and ending stocks. Supplies increase year to year on record production at 527.6 million tons that more than offsets lower beginning stocks. The record global crop is primarily driven by increases for India, China, Bangladesh, and Indonesia. Global consumption is projected at a record 526.4 million tons, mostly on higher use by India, the Philippines, Indonesia, and Bangladesh offsetting a reduction for China. With production and consumption gains projected in many of the same countries, global trade is forecast up only slightly at 53.8 million tons, still lower than levels of trade before India first imposed restrictions on rice exports in 2022. India remains the leading exporter at 18.0 million tons, 2.0 million higher than in 2023/24 but below its record volume of 22.0 million tons in 2021/22, as ongoing export restrictions are expected to limit shipments. Projected 2024/25 world ending stocks are 176.1 million tons, up 1.2 million from a year earlier and would be the first increase in global stocks since 2020/21.

The transition from El Nino to La Nina weather patterns is expected to impact agricultural outputs (here and here). Agweb asked Eric Snodgrass, science fellow and principal atmospheric scientist for Nutrien Ag Solutions to forecast US outcomes: “… I’m expecting warmer than average temperatures,” Snodgrass says. “Most of that coming in warmer overnight lows though, based on what I know now. And a lot of that is predicated on the collapse of El Niño to neutral conditions and eventually into La Niña.” Whether it turns into a hot and dry summer or a much wetter forecast than some are anticipating, Snodgrass says he was burned by weather prediction models last growing season, so he’s skeptical to rely on those again. However, he does think La Niña could open the door for a very active hurricane season this year.”

Energy Flows

For reasons related to both supply and demand, according to Bloomberg’s CL1 Index global price patterns for crude oil remain toward the bottom of the range at play since Russia invaded Ukraine (here) despite plenty of middle east turmoil. See first chart below. For the last six years the United States has been the largest petroleum producer. US fossil fuel flows are, however, vulnerable to hurricane hits (here and here). “NOAA is forecasting a range of 17 to 25 total named storms (winds of 39 mph or higher). Of those, 8 to 13 are forecast to become hurricanes (winds of 74 mph or higher), including 4 to 7 major hurricanes (category 3, 4 or 5; with winds of 111 mph or higher). Forecasters have a 70% confidence in these ranges.” Both the European TTF (more) and US Henry Hub benchmark prices for natural gas futures are quivering about lower end levels (TTF slightly higher while US prices remain well below $3.00 per MBTU for now).

The recently released summer reliability report for the North American grid highlights “strong supplies of natural gas” as reinforcing significant increases in renewable generation of electricity. The most troublesome challenges for grid reliability relate to an even faster increase in demand. According to the NERC assessment, “Most areas are forecasting increases in peak demand compared to last summer. The extent that demand forecasts have increased and the drivers affecting growth vary by area. In ERCOT, SPP, and British Columbia, the increases are among the highest and build on similar growth from the prior year. New data centers and cryptocurrency mining facilities are contributing to higher demand forecasts in ERCOT this summer… While resource additions in Texas, primarily solar PV, are outpacing demand increases, energy risks are growing during the hours when solar output is diminished. Further, transmission development is straining to connect new resources and deliver electricity supplies to growing load areas.”

Freight Flows

In late April port congestion increased across East Asia. S&P Global reported:

Market participants have reported congestion at China-based ports, Singapore, Port Klang, Jebel Ali and Columbo — with the last three being key transshipment and intermodal hubs in light of the Red Sea crisis — leading to carriers also dumping containers at Singapore in an attempt to catch up with and meet schedules.” The main port giving us issues is Ningbo as one of our main transshipment ports in China is only releasing bookings that have historically been supported at origin, making it difficult for new customers to secure shipments,” a carrier source said. Sources reported a two-to-three day delay in berthing at Port Klang and Singapore and a five-to-six day delay at Jebel Ali. During normal circumstances the same ports see berthing on arrival or delays of up to only half a day.

These and other upstream patterns have now predictably moved downstream, especially into the Western Mediterranean. In mid-May Loadstar reported:

“If we focus on the first 14 weeks of 2024, capacity on Asia-Med is up by 8% year on year already, whereas it’s down 3.1% on Asia-North Europe,” Xeneta’s Peter Sand told The Loadstar recently. “West Med transhipment ports are as busy as ever, and may already be exceeding peak productivity levels,” he continued. “The port of Barcelona handled 48% more transhipment teu in Q1 24 than last year. According to Xeneta data, we can clearly see the attractiveness of this trade, from a carrier perspective.” The additional attention is having a knock-on effect on wait times, which at Barcelona have increased to 3.53 days. According to Xeneta’s short-term market averages, rates from Singapore to Barcelona were climbing again, from a lull in March, up 10% at the beginning of this month, close to levels last seen at the outset of Red Sea diversions in January.” (More and more and more.)

While shipments between East Asia and Europe have usually seen the highest relative impacts (more), all ocean shipping prices have increased as more ships have longer sailings and experience more port congestion on both ends of shipping routes. See second chart below. The Wall Street Journal recently reported, “We expect the Red Sea diversions to continue for the rest of the year and volumes are coming in stronger than anticipated,” Vincent Clerc, chief executive of Danish-shipping major A.P. Moller-Maersk, said in an interview. “All shipping lines have adjusted their networks around Africa more or less permanently.” The WSJ also noted, “…with U.S. consumer demand staying strong and the Red Sea remaining inaccessible, transport costs with retailers no doubt continue going up.” The National Retail Federation said earlier this month that America’s top dozen ports handled 1.96 million containers in April, up 10% compared with a year ago and 2% from March, pointing to a strong trend for imports in the third quarter, the busiest season for shipping as retailers stock up for the year-end holidays.”

As recently noted, demand will ultimately decide how much push-capacity remains strained (and premium priced). The Cape Route is plenty wide. Panama Canal flows are beginning to recover. Without the Red Sea crisis, ocean carriers would have had excess capacity. The no-Suez delays are now almost business-as-usual for carriers, even as port operators and land-side carriers scurry to catch up. Other than a big slice of Germans, many more Europeans are edging toward spending more. (More and more and more.) If record-breaking Memorial Day air travel is a leading indicator, US consumers are still in the mood to buy. This week’s April PCE will be especially interesting and the May number even more.

Generic 1st ‘CL’ FutureCL1:COM (USD/bbl.)


May 28 Update: Less than 24 hours after my post above, the FT published a Deep Dive headlined: “The Mounting Strains on Global Shipping”. It is well written. Data is coherently organized + information is given context = knowledge abounds. The author concludes, “Kuehne + Nagel’s Aldwell warns that this year’s peak shipping season could prove very difficult if it arrives without a resolution to the Red Sea issues. That is particularly the case, he says, if European consumer demand revives as inflation falls back, interest rates are cut and cost of living pressures ease. “If we’ve got these long transit times and we see the consumer come out and start buying again, I think we have opportunities for some challenges there,” Aldwell says. “That’s for sure.”