Plunging shipping costs send grains globetrotting

By Lisa Shumaker - Analysis

CHICAGO (Reuters) - Shipping costs have plunged to 22-year lows, skewing global grain trading patterns to the point where U.S. hog farmers are importing wheat from Britain and Japan has eschewed U.S. corn supplies to buy from the distant Ukraine.

In some countries, it is now cheaper to ship grain thousands of miles across the ocean rather than move supplies hundreds of miles by barge or railroad cars.

But the phenomenon should be short-lived and the United States should remain the world's top exporter of corn, wheat and soybeans.

"It has opened up opportunities that perhaps wouldn't have been conceivable before and one-off trades may well happen but it is not really changing the grain flows," said David Doyle, head of wheat at leading farmers co-operative Openfield in England.

Ocean freight rates hit a record high in May and have since tumbled more than 90 percent in a few months to as little as $10 per tonne to most destinations.

"Ocean shipping costs are so low that it would be cheaper for south Indian buyers to import Russian wheat than move wheat from north India by train," one European trader said.

Yet, the general consensus is that such cheap freight rates will not last beyond the next 12 months. Prices will have to rise for shipping companies to remain in business and trading patterns will return to normal.

"It's the anomaly of the excess supply of grain available and the low freight. The U.S. is usually the most cost-effective producer of corn," said John Kruse, managing director at Global Insight, based in the United States.

"I see it more as a temporary phenomenon, versus a major shift in trading patterns," he said.

CHEAP FREIGHT, THE GREAT EQUALIZER

Collapsing ocean shipping costs have leveled the playing field for wheat exporters -- who now compete solely on the price of the grain.

Russia and Ukraine have been able to make sales far beyond their traditional markets in Europe and the Middle East, reaching out to Asia, European traders said.

In a recent and closely followed international tender for wheat shipped to Egypt, U.S. wheat freight was $11 per tonne, an insignificant difference from Russian freight at $12. French and German wheat were also offered at $11-$12 per tonne to Egypt.

"Ship owners are giving away bulk carriers at operating costs just to generate cash flow and to pay crews' wages," another European trader said. "This will expand the selling range of U.S., Argentine and Australian wheat in the Middle East market if they can compete against the Russians on (free-on-board) prices."

Free-on-board refers to the price of wheat at port, before shipping costs.