Markets

Scott Krakar is a Grain Merchandiser with LAC Inc., Hyde Park, 519‐473‐9333

Shipping routes in the Parana river affect grain prices

Inflation continues to be the ongoing concern of financial market watchers. The U.S. Federal Reserve highlighted this worry in a recent meeting, when they stated that inflation readings have been higher, more persistent, and more widespread than had been anticipated previously. The U.S. Federal Reserve is not the only one vocalizing this concern. Many long-time market players have been vocal about the decades-high inflation (U.S. inflation is the highest it’s been in 40 years) that is being experienced currently and use language such as “stopping the inflation spiral could be the biggest challenge of our generation”. There are multiple sources that can be pointed to as the cause of this inflation; but very notably we can look towards wages and energy. Both of these have been affected by the COVID-19 pandemic policy response and the stated energy reforms of various governments around the world. Both policies are inflationary, as all goods are directly affected by wage and energy costs. Stemming from this inflation, the U.S. Federal Reserve continued their discussion with the observations that given the outlook for the economy, the labour market and inflation, it may be warranted to increase the federal funds rate sooner or at a faster pace than was once expected. In short, the way to fight inflation is by increasing interest rates. At this juncture however, it seems there is a great hesitation in increasing rates, due to the appearance of Omnicron. The potential economic influence that this new variant has made nearby, likely has the U.S. Fed nervous about snuffing economic progress at this time. The balancing act continues between short-term worries and long term expectations. Now that we have closed out 2021, data from the St. Lawrence Seaway is now being released for their total shipping volumes. Grain volumes were lower this year through the seaway, largely being impacted from the drought in the western regions of Canada and the U.S. Overall, 2021

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sales.atvdepot@bellnet.ca had lower grain shipments through the seaway of about 17 per cent compared to 2020. Keep in mind that 2020 was a record grain shipping year via the seaway, so grain exports were still quite good considering the growing season in the west. While grain was lower, other commodity and goods shipments were higher. Notably iron ore shipments were up 15 per cent from last year and general cargo such as steel and other bulk items were also robust. Cargo such as steel should continue to be strong into the coming years as the U.S. continues to look at large infrastructure improvement programs. North America simply does not have the steel-making capacity to produce what would be required for large infrastructure programs, and therefore imports from India and China will likely remain high. Grain prices are strong given the drought conditions affecting some parts of the South American growing region. Last year, the Parana river – the waterway that carries about 80 per cent of Argentina’s farm exports — hit a 77-year low mid-year. From this record low level, water levels rose through much of the balance of the year, only to fall to about similarly low levels once again due to the extreme dryness. This is significant to the market today, because Argentina is the world’s largest shipper of soybean meal and the second largest corn exporter. Not only does this possibly affect navigation speed through the river, but it also affects cargo loads, due to shallow water. It is reported that the average ship navigating these waters has a 30 per cent reduction in cargo volume. From this a Panamax vessel that carries around 50,000 metric ton cargo would be reducing its loading volume by approximately 15,000 mt. This reduced cargo volume significantly increases delivered pricing to overseas destinations. The drought in South America is bringing significant worries to growers in the area, and market participants are taking notice likewise. Significant heat, at times even greater than 36˚C, combined with extreme drought has taken a noticeable toll on the crop. Estimates coming out of Brazil have estimators probing to see how low they can go on estimates.