Stock markets took a beating last week and monthly unemployment data showed another 650,000 Americans lost their jobs in February.
Dark news indeed.
But the Baltic Dry Index is rising again, an indication that international commodity trade may be slowly recovering.
The Baltic Dry Index tracks the cost of ocean shipping for bulk commodities.
It peaked in May 2008 at 11,793 but then collapsed to its lowest level in 20 years in December.
It recovered to about 1,500 in mid February and as of March 9, it hit 2,262 points, the highest since October.
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Normally, a rising index signals increasing movement of commodities such as iron ore used to make steel and greater steel production signals growing world economies.
But it is still too early to say the rising index means the global economy is rebounding.
Increases in the last few days were based on grain shipments, not ore. With South American grain harvest advancing, buyers from China and elsewhere are booking ships to move soybeans and corn from Brazil and Argentina.
That is good for agriculture but doesn’t signal that China and other economic tigers are firing up their heavy industry. That is what is needed to propel economic activity and get people working again.
Another good thing for agricultural commodity prices was the recent run up in oil prices. As of March 9, crude hit a two-month high of $47.07 US per barrel in New York. The rally supported grain and oilseed prices, but it was based on the Organization of Petroleum Exporting Countries talking about reducing output to lessen the glut on the market, not on evidence of rising demand. Again, we’d rather see evidence of reviving demand because that would generate a more sustainable rally and raise hope that the wider economy has stopped its decline.
And speaking of energy, American ethanol producers were heartened by agriculture secretary Tim Vilsack’s statements March 9 that he’d back increasing the ethanol-gasoline blend rate above the current 10 percent cap.
He thinks it would be easy to get environmental approval to raise the cap to 12 or 13 percent.
The ethanol industry wants to raise the cap to help boost demand and break through the so-called blending wall.
The U.S. consumes about 140 billion gallons of gasoline a year and a 10 percent blend cap limits ethanol production to 14 billion gallons. However, not every gallon of gas is blended so the effective blending wall is about 12 billion gallons. America already has about 12 billion gallons of ethanol production capacity and if it hopes to grow once the economy revives, it must increase the 10 percent blend cap.
