Freight rates for cargo heading from the U.S. to Asia have risen to levels that are crimping the free flow of goods to the Pacific Rim. Rates are on the rise because of strong demand and a limited number of vessels. As a result, freight rates for ships carrying grain, coal, and iron ore to Japan and China have jumped to as high as $71 a ton. That's $4 to $6 a ton more than a year ago at this time.
The upshot is Asian buyers are holding off on purchases, waiting for freight rates to drop ... or for free-on-board offers for cargoes like soybeans.
The Asian appetite for soybeans, especially in China, is tremendous. But the U.S. is NOT the only supplier plying the Chinese market.
China has promised to lower trade barriers on Brazilian soybean and soyoil imports which is expected to boost trade of soy products between the two countries. A multi-billion dollar trade pact signed last weekend, agreed to scrap some sanitary rules aimed at curbing imports and to adopt a market-driven policy.
Last spring, in a high-profile trade dispute, China rejected five cargoes of fungicide-contaminated Brazilian soybeans and slapped a month-long ban on 23 suppliers of Brazilian soybeans.
Brazil since, has tightened port inspection in an effort to regain access to the lucrative Chinese market. China is the world's biggest importer of soybeans and Brazil is the second largest exporter of beans, behind the U.S.
Through October, China was Brazil's largest buyer with a total of 5.7 million tons, which is down 5.8% from the same time last year. Prices this year, however, were higher on average -- at $282.20 a ton compared to $214.10 a ton last year.
Driven by voracious Asian demand, Brazilian and Argentine farmers are scrambling to plant as much soy as they can. And so far, in Brazil, the 2004-2005 soybean planting is 64% completed -- up from 48% a week ago but behind last year's 71%. There have been slight delays in planting in the southern parts of the country due to heavy rains last week.