Hot Commodities 08/30/21

Hot Commodities

Supply Chain Problems, Argentina's Crops, Maersk Container Shipping, High Temperatures, India's Soymeal, and Indonesia's Biodiesel Plan Delays

[August 30th, 2020]

Hi all,

This week, we look into how the global supply chain continues to struggle, how Argentina’s corn crop will overtake their soya production, how Maersk is paving the way for green shipping solutions, and how the US’ cash crops are being hit hard by the unfavorable weather. We will also look at India’s decision to finally allow GM soymeal into the country and how Indonesia is struggling to implement a new bio-content for their biodiesel.

The World Economy’s Supply Chain Problem Keeps Getting Worse

The global supply chain has continued to feel the crunch that stakeholders had hoped would end once economies open up with the easing of restrictions and the uptake of vaccinations. Still, it looks like disruptions will continue into 2022. 

According to Bloomberg News, the new delta variant has seen disruptions continue from high raw material costs and high freight rates to shortages of key components for factories in Asia with some quoting an increase of 50% that leads to a 7% rise in production costs.   

China has gone to the extent of closing the world’s third busiest container port at Ningbo for two weeks due to a worker testing positive for the delta variant. The president of Evergreen Marine Corp, the world’s seventh-biggest container liner, states that disruptions at ports and the continued shortage of containers could last to the middle of next year. 

Chinese companies are also prepared to pay a premium for freight to get their cargo loaded for destination, and by this time any other orders outside of Chinese ports come in, shippers remain with little to no space for more cargo. These setbacks have forced manufacturers to find alternative origins for their raw materials, and some have even been forced to use air-freight for high-value products such as leather.

Corn Replacing Soybeans As The Main Crop For Argentine Farmers

Farmers in Argentina are expected to sow more corn than in previous seasons. This is in part due to last year when the Argentine corn crop passed the Brazilian crop to become the world’s second-biggest exporter, after the United States.

According to MercoPress, the Rosario Trade Exchange forecasts that Argentina will plant a record 7.4 million hectares of corn and 16.4 million hectares of soybeans. The 2021-22 corn harvest is expected to reach 55 million metric tons compared to soybeans at 49 million metric tons.

The crop of the 2020-21 harvest ended in June, with soybeans’ output at 43.5 million metric tons and corn at 48 million metric tons. As of August 27th, the corn futures traded at $195 per ton at the Rosario Trade Exchange while $219 per ton on CBOT. Soybeans traded at $343 per ton at the Rosario Trade Exchange and $499 per ton on CBOT. 

Despite Argentina being one of the world’s largest exporters of soymeal, the acreage of soy production has been falling. The failure is due to the slow implementation of the Seeds Law, which will support farmer payments for the use of soy genetics that is expected to help with productivity and the common occurrence of droughts.

Maersk Takes Biggest Step Yet To Decarbonise Container Shipping

The Maersk group plans to decarbonize their line of vessels with the order of eight new “environmentally friendly” vessels that have a capacity of 16,000 containers each and will operate on traditional bunker fuel and “green” methanol. 

According to The Financial Times, Maersk will receive the vessels from Hyundai Heavy Industries in 2024 and become the first shipping container company to order large carbon-neutral vessels that can sail the China to Europe voyage and cross the Pacific. Each vessel will cost 10-15% more than the traditional ships and cost approximately $175 million each, inevitably increasing the operating costs but customers such as Amazon and H&M are happy to pay the “green” premium.  

Despite Maersk’s attempts to offer green solutions to the shipping industry, critics have stated that green methanol will have little impact because CO2 will be absorbed from the ship’s production and then emitted again when burnt as opposed to sequestering greenhouse gasses.

U.S. Crops Wither Under Scorching Heat

The weather in the US is causing high prices for key staples, including corn and wheat. North Dakota, South Dakota, Minnesota, Iowa, and Nebraska are all experiencing high temperatures and drought. 

The Wall Street Journal reports that cash crops are wilting and large fields of spring wheat are in very poor condition compared to the crop last year. In addition, the International Grains Council forecasts; 6 million less tons globally, and production of 2.2 billion tons are expected in the 2021-22 season.

This past week, grains futures at the Chicago Board of Trade saw soybeans trading at $13.32 per bushel, wheat at $7.32 per bushel, and corn at $5.45 per bushel. Wheat and corn have seen a 12% and 11% increase, respectively, for 2021.

India Officially Confirms Import Of 1.2MMT Of GM Soymeal

The Indian government has given the go-ahead for importing 1.2 million metric tons of genetically modified (GM) soymeal after a shortage of the protein affected the domestic feed industry and saw a sharp price rise. 

According to Agricensus, the All India Poultry Breeders Association (AIPBA) was part of a group that lobbied the government to allow a one-time import of soymeal that would be limited to 31st October 2021 to the ports of Nhava Sheva and LCS Petrapole.

At the futures trading platform NCDEX, soybeans traded at $1,370 per metric ton on August 5th compared to $530 on August 1st, 2020. Soymeal prices peaked at $1,308 per metric ton on August 24th.

India is a large importer of oilmeals with up to 500,000 metric tons per year and 300,000 metric tons of non-GMO oilseeds per year. 

Indonesia's B40 Biodiesel Plan Faces New Delay Due To Palm Price

Indonesia, the world’s largest palm oil producer and exporter, has been planning on increasing the bio-content in palm oil-based biodiesel in the country to 40% from the current 30% to useless imported petroleum products. 

According to Reuters, the 40% palm oil content in biodiesel, also known as B40, will be delayed due to palm oil’s high price, which traded at $1,089 per ton by 12th August, a 60% increase from the same time last year. 

The government had planned to implement B40 by July this year, but Indonesian Palm Oil Association members expect the change to occur beyond 2022. 

Indonesia uses revenue from palm oil exports to fund the biodiesel initiative, and this year it cost $3.1 billion. Introducing B40 may also become more expensive with palm oil exports cut from the global supply chain of vegetable oil. 

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-Editors, Ronnie Luwero and Emily Shoemaker