In a previous article (Understanding The Supply And Demand Of Dry Bulk Carriers), I highlighted how both supply (an excess of ships) and demand (iron ore and coal orders) were driving the Baltic Dry Index. While iron ore and coal are the two main drivers of demand for the Dry Bulk Carriers, grains are also an important customer of the ships.
Bloomberg and the International Grains Council have recently announced how big of a harvest this past year was for farmers. Total grain production, including corn, wheat, rice, and soybeans, are all up to record levels. These record levels have exceeded the World consumption requirements while also pushing down the price to record lows.
The U.S. corn harvest totaled 355.3 million metric tons, up 30 percent from last year, and pushing global output to a record 964.3 million tons.
These record lows and demands for global distribution have helped to drive up the Grain Freight Index, used to set rates that help build the Baltic Dry Index.
My last article looked at the analyst sentiment of the Dry Bulk sector and their performance over the past three months. I still feel like DryShips (NASDAQ:DRYS), Diana Shipping Inc. (NYSE:DSX), Navios Maritime Partners L.P. (NYSE:NMM), Safe Bulkers, Inc. (NYSE:SB) and Navios Maritime Holdings Inc. (NYSE:NM) are the best run in the industry. As an investor, I would stay far away from both Genco Shipping & Trading Ltd. (NYSE:GNK) and Eagle Bulk Shipping, Inc. (NASDAQ:EGLE), but they might be great for traders trying to time the tops and bottoms. At this time, they still have some challenges to get through (and might not get through them) before they are ready for investors.
The increase in the grain crop will benefit all by absorbing some of the excess capacity in the fleet and helping to sustain the rates globally. Both NM and NMM fall under the umbrella of Navios, which has focused much of its shipping operations on North and South America, and would likely be the two companies that see the largest benefit from an increase in grain rates and volume. A recent snap shot of the DSX fleet shows that only 12 of their ships were located in the Atlantic, although more could be transiting back in and moved to where the demand was.
As far as taking advantage of the rising BDI, DRYS has just under 50% of their fleet trading on the spot market. SB has just over 1/3rd of their fleet coming off time charter at the end of 2013, but have yet to announce plans to bring them back on charter or move them to the spot market. NM has right at 20% and NMM has just over 10% of their fleets coming off time charter at the end of 2013, but have yet to announce plans to put them back on charter or use them on the spot market. DSX also looks to keep most of their ships on time charters and not enter the spot market yet.
The International Grains Council believes these low prices and surplus will continue into 2014, which should help to support exports and sustain a portion of the Baltic Dry Index. While rates will not likely reach levels seen in 2008, and could remain turbulent for some time, I believe the Dry Bulk Shippers will see improvements in their bottom lines and a demand for their ships. This demand will help sustain the recovery for DryShips, Diana Shipping Inc., Navios Maritime Partners L.P., Safe Bulkers, Inc. and Navios Maritime Holdings Inc.
Disclosure: I am long DRYS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.