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Economic Crisis Creates Positive Ag Spin-Off

by 5m Editor
12 January 2009, at 6:34am

CANADA - Informa Economics reports lower transportation and input costs resulting from the current global economic slowdown are creating some positive spin-off for agriculture, writes Bruce Cochrane.

The collapse of the US housing market and subsequent mortgage crisis which prompted lenders to step back and re-evaluate their policies has frozen commerce and resulted in sharp drops in the value of virtually all commodities.

Informa Economics vice president Dave Reimann says we've seen pressure on virtually every market from crude oil to gold and that has started to feather down into many areas that impact agricultural markets.

Dave Reimann-Informa Economics

One of the first areas, for instance, was a complete collapse in freight rates for ocean freight.

With less transactions taking place, less commodities moving back and forth across the ocean, these boats are suddenly available and freight rates start to drop extremely quickly.

In some ways that's actually been very good for ag commodities because it's made it easier for end users to step up and buy our goods over where they were a few months ago because of the lower freight.

Obviously if you're trying to buy a freighter of canola from Canada, or wheat, if you're looking to book that that's a significant savings to the end cost for the users overseas.

All of the decrease in ocean freight traffic and also just the economic pressure has caused a massive amount of selling in things like crude oil and that's bringing down fuel costs which I think we've all seen and experienced now over the last number of months and getting things down to much more realistic price levels.

Input costs are also dropping so we're seeing a sharp sell-off off in nitrogen values and such globally and so input costs both from fuel and fertilizer standpoints should be much lower than anything we were thinking of six months or a year ago.

Reimann says while the economic situation seems to have stabilized somewhat he believes, we still need to see more confidence before anyone is really going to step back in and, until that happens, we'll probably see the uncertainty continue.

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