Amid the negative economic news about rising unemployment and corporate losses last week was one bit of good news.
The Baltic dry index, which tracks the cost of ocean shipping for bulk commodities, rose last week to almost 1,500, its highest point in three months, indicating a possible revival of commodity demand.
The index had reached record level of 11,793 in May just before the commodity boom went bust. It plunged through autumn, bottoming in late December at the lowest level in 20 years.
The Thompson Reuters news service reported that a probable reason for last week’s increase was Chinese demand for iron ore. The country has worked through large stocks purchased in expectations of hot demand that collapsed when the credit crisis swept out of the United States to the rest of the world. With the stocks used up, China is buying ore again.
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China’s stock markets also had a good week because investors believe the economy is strengthening and banks are making more credit available.
But there are also worries that the ship booking and economic activity is simply a short-term aberration in a longer term down trend.
China was also in the news last week when authorities raised a drought emergency alert to level 1 for much of the Northern Plains, the area of eastern China, south from Beijing to the Yangtze River. It is the key winter wheat region.
There was adequate moisture to establish the fall-seeded crop, but there had been almost no precipitation until this week.
The moisture this week is expected to be inadequate, less than 25 millimetres, and the China National Grain and Oils Information Center said Feb. 9 the dry pattern is expected to persist the rest of this month. March moisture is expected to be normal to slightly below normal.
However, a large part of the crop is irrigated. The vegetation index map that accompanies our special report on pages 76-77 shows little crop stress in the area.
The government has pledged subsidies to help farmers irrigate their fields, limiting the drought’s effect. Also, the government has spent a lot of money to buy wheat from the bumper 2008 harvest to put into storage for emergencies, limiting the need to import wheat if the crop is damaged. The government is said to hold 60 million tonnes of wheat.
