WINNIPEG — Western Canadian grain farmers are expected to benefit from recent lower ocean freight rates.
The Baltic Dry Index (BDI), a measurement of ocean freight rates, has dropped significantly over the past couple of months.
The BDI was quoted at 749 points Jan. 16, up from a low of 709 points seen earlier in the month but well off November highs of 1,456 points.
“Our export customers, ultimately they care most about what it costs to pay for something landed in their ports, and so the cheaper that you can get it there, the easier it is for companies to back some of that into higher prices for growers,” Jonathon Driedger, market analyst with FarmLink Marketing Solutions, said.
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“It’s not an apples to apples, penny for penny type thing. But, it cheapens the ability to move grain around, and of course transportation costs is a huge part of getting grain into end use markets,” he added.
The lower cost also makes Canadian grain more competitive and levels the playing field with other countries who sell similar products into Asia, such as Australia.
One contributing factor to the lower shipping rates has been the drop in crude oil because it reduces fuel costs to run the big ships. However, the main thing that impacts ocean freight rates is supply and demand, according to Driedger.
“Ultimately, it’s a combination of how much shipping capacity is there, compared to how much people want to export. Things like a weakening global economy, some concerns about China and other developing markets not growing as fast, and the recession in Europe, Japan, help reduce demand for stuff in general. So, that helps maybe free up some capacity which lowers freight rates,” he added.
Though the export pace for Canadian crops, including wheat, canola and pulses, has been strong so far this year, it’s not necessarily because of the lower ocean freight rates.
“I don’t think it would be fair to make that direct a connection because there are a lot of things that impact export demand,” said Driedger. “There have been years when freight has been expensive and we’ve exported a lot of grain, so there are a lot of different moving parts.”
According to data from the Canadian Grain Commission, exports of Canadian grain for 2014-15 totalled 18.956 million tonnes as of Jan. 11, up from 16.638 million tonnes at the same time a year ago.
