Grain piling up in Canadian ports

Fri, 10/10/2008 - 4:16pm

Still think the global credit crunch is all about the TED spread and collateralized debt obligations? Think harder. Export-bound grain has started piling up in Canada as sellers have begun refusing to trust the credit lines and financial institutions linked to their foreign buyers.

The problem is that Canada's export cargoes don't get loaded until buyers can prove their ability to pay -- proof that has been increasingly hard to come by in the wake of bank defaults and shrinking credit markets worldwide. Unable to get credit lines, many buyers have left the grain market, generating big losses for Canadian shippers. Add to this the greater costs that shippers now shoulder because of delayed payments, and the picture starts looking pretty bleak. 

And Canada isn't the only country suffering from the crunch. U.S. and South American shippers are taking even harder hits. Los Angeles and Long Beach -- home to two of the biggest ports in the United States -- have already seen a 9 percent drop in imports this year. Global shipping rates are down 74 percent from last May. 

With 90 percent of the world's trade in goods going by ship, credit access is key to trade's survival. It's also key to investment in product development, which surely will fall as manufacturers face greater declines in profits. Moldy grain looks like small peanuts by comparison, but don't tell that to Canadian shippers. Grain is their country's biggest agricultural export. 

Katie Hunter | Permalink | | Comments? Login or register
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Crunch was No Shorts

by dec on Sun, 10/12/2008 - 11:52am

The shorts have been banned. The exporters don't want to pay the freight and usually quote their commodities Freight On Board, that is the shipping must be payed. If Ethiopia needs more free food, and the numbers just doubled again, then we need to be able to short the market and deliver into the cash market. If the buyers can't pay the freight, then the producer is not willing to take the risk of paying for both the shipping and the commodity. If it's free food, then shipping needs to be arranged by the agency taking delivery. Usually they use military aircraft and the shipping cost is eaten by the government giving the free food and included in the cost - so the producer does not have to worry about shipping costs. If the freight is too expensive for the agency receiving the food, then the option would be to cost it to the donating government delivered Ethiopia by military aircraft or ship, assuming that this is possible. If not, they would need to pay their own shipping and cost the commodity FOB the Canadian port. This is all more difficult without being able to do shorts without owning the commodity. For example, I could sell the grain for delivery in three months FOB Canada or FOB delivered without buying the commodity and only buying the cash when I need to deliver. So, now, no one wants my grain delivered the port of Canada, but delivered Ethiopia and they won't buy until they have a delivered price, which they want the producer or seller to guarantee or they won't buy. The grain rots and no one gets anything. Well, that's what the buyer wants. They can't arrange the shipping, so they won't buy until the delivered price is something they can make money on or the price that makes the agency that gives the free food to the Ethiopians happy. The grain will just rot. No one is paying.

Shipping became a big issue when the US got billed for the food emergency, the five year emergency sustainable budgets and the yearly budgeted existing programs. The food was free delivered. That's costed. It got into biofuel farming vs food farming and the price of oil.