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Food costs: World and US trends as predictors of what is to come
Finally, the other major factor in these food costs is shipping or overseas freight costs. Not only is the cost of fuel sky high but availability of cargo ships has been stretched thin. However, in response to China’s shortages and use of ships, in addition to the steep increases of cargo ships used for coal, iron ore, steel, cement and fertilizers in general, the shipping industry is responding to incentives to build more cargo ships.
It takes 2-3 years to get a ship on the sea. However looking at orders and under construction vessels, the number of new container ships added to the market place is expected to be greater in the coming year than the total of the last 3-4 years combined. Additionally, the types of ships under construction are the Panamax (60,000 ton) and Cape (80,000 ton) capacity vessels to replace the aging Handy (25,000 ton) and Handymax (40,000 ton) capacity ships. This will not yield a price impact on commodities this year but is expected to buffer or soften overseas freight charges after 1-2 years.
In summary, the prediction is that we should see a softening of prices of soft wheat and at least a holding of prices on hard wheat. We may never see the days of prices reflecting 300 US dollars (USD) a ton as we had in the early 2000s. However, the prices should moderate down from the 600-800 USD a ton levels to maybe 500 USD a ton levels. We are already seeing prices go down based on the predictions of the world harvests being strong. US free on board (FOB) prices at the dock have dropped nearly 100 USD per ton from 450 to 350 on average already. Many of the factors that have affected wheat have similar ramifications for the other major food grains our food streams are based upon. We will be getting real numbers in the weeks to come as the harvests begin in earnest.
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