Maria Bertzeletou: Welcome to Current Intelligence, a podcast from Signal Ocean AXS Every day, millions of tons of cargo move across the world's ocean. At Signal Ocean AXS we combine advanced shipping analytics, machine learning, and decades of market expertise to understand what those moments really mean. In each episode, we go beyond the numbers to explain. what's happening, why it matters and what we're watching next. This is our episode 2, "When agriculture meets energy". Last time we followed a red rock from Guinea, Bauxite and showed how the energy crisis is quietly reshaping dry bulk through the metals of the electric age. If you missed that one, go back and listen because today is the other side of the same coin. The energy crisis didn't stop at metals. It has now reached the most human commodity of all, our food. We tend to treat agriculture as a weather story, rainfall, harvests, yields. But in 2016, it's become something bigger. It's sitting right at the crossroads of two global forces, geopolitics on one side and weather on the other. The disruption in the Arabian Gulf has already received fertilizer trade. And now, El Niño has officially developed in the tropical Pacific with conditions expected to strengthen through the second half of this year. Put those together, and the effects reach well beyond the farm into commodity flows, shipping, demand and ultimately food prices. I'm Maria Bertzeletou, Senior Market Analyst at Signal Ocean AXS and to dig into numbers with me, I'm joined by our Senior Commodity Analyst, Luke Nickels. Luke, welcome.

Luke Nickels: Hey Maria, nice to see you. Thank you for having me on this week.

Maria Bertzeletou: So the second quarter gave us two different stories. Soybean shipments rose almost 15 % year on year to 57.7 million tons, while corn was also by around 15 % reaching 45.6 million tons. Fertilizer moved in the opposite direction with shipments down nearly 12 % year on year. Luke, Let's start with grains What was behind that increase?

Luke Nickels: Yeah, essentially this was driven by a record supply with Brazil sitting very much in the driving seat of this, particularly on the soy bean crop. So Brazil exported around 180 million tonnes. and this was say five percent up year over year, and this was based on better yields on a larger planted area, and that pushed the the soybean kind of volumes up by say 15%. Corn was a a similar story again, driven by record supply, and this was up by say fifteen percent as well. But the origins of of the corn flows was much more diverse. So soybeans is very much a Brazil story, with with corn being a story with with many more players within it.

Maria Bertzeletou: and that's where the soybean story gets really interesting. More than 80 % of seaborne soybean shipments originated from Brazil last quarter and around two-thirds of those volumes were heading to China. Luke..

Luke Nickels: Yeah, for sure. I think as as I've kind of explained, that really highlights the the dominance Brazil has in the market of soybeans being the the origin of of eighty percent and China taking over two-thirds at sixty-six percent. The US kind of sit very much a distance second to Brazil in terms of soybean origins. and that's something that's really interesting and it really kind of goes to highlight how the soybean trade right now is very much a Brazil to China story.

Maria Bertzeletou: Corn looks quite different, though much more diversified.

Luke Nickels: Yeah, for sure. say we compare this to soybeans, the the largest origin for for corn was the US, but that was only forty-three percent compared to say the eighty percent for Brazil in the soybean story, Argentina and Ukraine also up year on year quite positively. and on the buy side, that again was also more diversified. The the rest of the world bucket. So everyone that wasn't represented by the top four importers took the most of the bulk. and that would say seven million tonnes. So corn. Is a much broader story than something like soybean is with more kind of origins

Maria Bertzeletou: and the fertilizer went the other way, down 12 percent, just under 49 million tons. What stands out is where the decline came from. Saudi exports roughly halved, falling by around two million tons over the quarter. And on the demand side, Brazil... the world's largest importer took around three million tons less. So are we looking at weaker demand here or is it really a supply story?

Luke Nickels: So yeah, it's a it's a demand story reacting to the supply story, right? So regardless of what happened in in the Strait of Hormuz and Middle East, farmers didn't all of a sudden just need less fertilizer, right? So the Saudi export disruptions and the sharp drop in the Gulf led to to regions such as Brazil having to pull back from fertilizer buying. and there's obviously there you obviously get a a kind of knock on effect, which means there's a a much tighter market for fertilizer, and with people looking and and buyers looking to to hedge costs and understand where their costs are going to be, maybe not entering the market to buy fertilizer while prices are really high and and the market's quite difficult to navigate.

Maria Bertzeletou: So one quarter, three very different stories, strong rain flows out of the Americas, a put back in Brazilian fertilizer buying and a sharp drop in Saudi fertilizer export. And that last one takes us straight to the Gulf The Gulf is a much bigger part of the fertilizer story and something that many people do not realize. Right, Luke? What do you think?

Luke Nickels: Yeah, no, exactly. I think people forget how important the Middle East, the Arabian Gulf is to the global kind of fertilizer market. And obviously when flows of fertilizer out of that region kind of stopped everyone buying fertilizer had to try and source it from somewhere else, right? And that messed up and put barriers into trade patterns, buying frequencies, voyages, lots of things changed, as I've kind of alluded to earlier. Importers of fertilizer either delayed buying the material or they tried to source it from elsewhere. And the disruption obviously adds time and as everyone knows, time is money and and delays cost reduces and down the line consumers as well.

Maria Bertzeletou: The scale here is important. The Gulf accounts for roughly a third of the world's urea exports. When Hormuz closed, fertilizer flows out of the Gulf were hit hard. Observed, fertilizer shipments through the strait fell close to zero. Oil has at least some ability to bypass Hormuz through pipelines, fertilizers doesn't have the same escape route. And this is the interesting part of our story today.

Luke Nickels: Yeah, no, exactly, I agree. as you've kind of said, oil has has other ways of say leaving the Gulf. Fertilizer doesn't. There's no pipelines for fertilizer. So again, it goes back to that that point that we're we're trying to make, that the buyers of the fertilizer having to look at different origins for material. And the disruption caused by that it's huge, right? It's particularly when we're in planting seasons and and periods of time where fertilizer's being used the most. what is interesting though is we've kind of seen Russia maintain its kind of importance in the market. And I think it was around 20% of fertilizer flows kind of originated in in Russia. And although we saw, say, Brazil kind of pulling back fertilizer purchases, places like India kept buying. And trying to, just hoover up what they kind of could in the fertilizer market, given kind of different planting and harvesting cycles, it it kind of made sense for them to do so.

Maria Bertzeletou: And this is where the energy connection really matters. Fertilizer is in many ways energy in another form. Natural gas is the main feedstock for nitrogen fertilizer and can account for more than 70 % of the cost of producing ammonia. Then there's diesel powering farm machinery and trucks and shipping moving the product around the world. So when energy gets more expensive or harder to move, agriculture feels it too.

Luke Nickels: we're obviously talking about fertilizer here, but I think you made a great point where it's not just the the rising kind of energy costs impacting fertilizer costs or fertilizer relatability. It's it's the diesel that goes in the tractors, it's the the fuel that powers the combined harvesters, and then it's obviously the the bunkers, etc., that go in in the vessels carrying the the grains or whatever we're talking about agriculturally to markets and things. So yeah, it's very exposed to to energy market movements, particularly in prices or supply being cut off.

Maria Bertzeletou: And the interesting twist in our story today is in the price. After surging early in the year, fertilizer prices pulled back sharply in June. The World Bank's fertilizer index fell more than 20 % in that month alone. So Luke, does that mean that pressure is starting to ease or not?

Luke Nickels: Not necessarily, unfortunately. I think we've seen this across quite a few of the the more energy-intensive commodities when the first peace negotiation deal kind of went through, we saw some of the risk premiums that were added to some of the commodities drop off and and fertilizers, et cetera, won't be any different. But with the escalation more recently and the the kind of risk premium still there. what initially drove kind of the prices so high and the underlying risks kind of still remain and traders, buyers of fertilizer will kind of be monitoring the situation very quickly and everyone's trying to be the best positioned they can right to see where prices are going. So it's a it's a case of sit and wait, wait and see. But definitely the underlying pressures on the price are kind of bubbling under the surface, let's say

Maria Bertzeletou: So overall, we can say that the bigger point is that the Gulf crisis doesn't simply stop at energy. It raises into fertilizer, into transport costs, and ultimately into agriculture. And geopolitics is only half of the story. The other half is the weather. And that's where El Niño comes in. El Niño is here. Expectation is to strengthen considerably through the end of the year. It's a high chance that the weather will develop into a very strong event, potentially placing in the same historical category as the major El Niños that we have seen in 1997, 1998 and 2015-16. Luke, We have seen what events like those can do. Where do you start looking for the impact on agriculture?

Luke Nickels: I think what's really interesting with El Nino and the effects on on rainfall, as you said, they're not the same, they're not uniform across. So some regions will have more rainfall, heavier rainfall, longer periods of rainfall. Other regions will kind of have droughts. and that obviously affects different crops differently. And the effects of El Nino is particularly difficult to kind of prepare against, right? It's the weather and who knows kind of when they wake up tomorrow what the weather's going to be like and something like El Nino makes it even even more unpredictable. And I think what's what's difficult for this is the crops that it affects the most are the the kind of staple foods, the the cereals, the wheat, the rice, the corns, soybeans, but also through to more maybe diversified agricultural commodities, so your palm oils, your sugars, your cacao, that kind of thing. Everything's kind of affected by by the weather and El Nino just makes that much harder to predict and and prepare for.

Maria Bertzeletou: And what makes this particularly interesting for story is the geography. Take Australia. El Niño is often associated with drier conditions, which can put wheat production under pressure. Across parts of South and Southeast Asia, rainfall becomes a concern for crops, such as rice and palm oil. Move across to South America. and you can get a very different picture. South Brazil and Argentina often see weather conditions which can actually be supportive for soybean corn crop. So, El Niño doesn't simply mean small crop harvest, right?

Luke Nickels: Fundamentally, I think you've answered that really well. what it does is it affects weather patterns. So some regions might see kind of lower yields because it's drier or more wet, but then other regions might have larger yields because it's drier or it's more wet, right? So it's the the unpredictability of the effects which make El Nino really interesting and really hard to kind of position oneself in.

Maria Bertzeletou: which is where it becomes particularly interesting for our shipping. If production shifts from one exporting region to another, the trade doesn't necessarily disappear, it moves. You can end up with a different origin, a different route, and depending on where the replacement supply comes from, a very different voyage length.

Luke Nickels: Yeah, for sure. And kind of arcs back to I think what the overriding theme is for for El Nino is is the unpredictability, right? So people aren't waiting for harvests, numbers, et cetera, to to kind of try and position themselves. So people are already looking at weather patterns, what's happening, what's expected to happen. How they can position themselves and that unpredictable nature of the effects is what has the kind of most effects on the market. And price will move on news one day and it'll change based on weather the other day. charterers, etc., will need to kind of move and position themselves to kind of take the best advantage of what the latest information is, but being so unpredictable, it makes things difficult to position oneself in.

Maria Bertzeletou: So to place a question for 2026-27 is that the crop cycle isn't simply whether El Niño produces more or less food globally. It's about where production shifts, who steps in to fill the shortfall and what that does to trade routes. And now... we go to more risks. So far we have looked at two separate forces, the Gulf on one side El Niño on the other side. But Luke, what happens when they start to overlap.

Luke Nickels: Yeah, and that's where things get even more complicated, right? The the uncertainty with how crops would grow and and where kind of harvest would be, say, before the the disruptions in the Middle East would make things difficult because it's an El Nino year. Then you add the the further complications of fertiliser restrictions, higher energy costs. Is there going to be enough fertilizer, et cetera? Adding those questions, farmers have to weigh in. Is it worth planting on the kind of marginal land areas because it's going to require more fertilizer costs to do so? Are they going to have the fertilizer to do that? Are they going to be to be kind of incentivized to plant that area with kind of the higher cost of doing so? If El Nino then comes in and makes that marginal land less fertile, more likely to grow crops. It it's a real balancing act. And I think that uncertainty is is kind of what the market doesn't like, right? No one likes uncertainty. People want to to know what to do and what the the best option is. But flexibility and an approach that's adaptable and agile enough to kind of deal with these risks is something that I think the market and and those particularly within this sector are going to be looking at being able to do. Farmers are going to have to kind of absorb more shocks potentially. And then obviously lower yields and and higher crop prices affects everyone in the world really.

Maria Bertzeletou: the perspective you placed analyzed a lot the probability of uncertainty and reaches to a conclusion that we are living not simply a case of higher costs and lower yields, it's about having several parts of the supply chain under pressure at the same time. A farmer can adjust to expensive. fertilizer, a grain buyer can respond to a poor crop in one region by sourcing somewhere else. But once fertilizer, fuel, weather and trade routes all start moving together, those adjustments become harder.

Luke Nickels: Yeah, for sure. And I think it highlights the fact that you don't just need to say crop failure for the agricultural market to become even more difficult to navigate, right? if one exporter can't meet the quotas always expected to, then buyers are going to have to look elsewhere and and maybe be, more creative in in where they're trying to source these crop products from.

Maria Bertzeletou: And for shipping, that's where it gets interesting. It's not just how many tons move, but where they move from. A change in origin, as we said, alter voyage distances, the timing of cargos, and where ships need to position. And perhaps that's the thread running through this whole episode. Energy changes the cost, and availability of the inputs, weather can change where the crop is produced and shipping sits between the two, adjusting as the trade map moves. So Luke, when you put all of this together, where do you see the biggest impact for the freight market?

Luke Nickels: Yeah, for sure. I think that's really interesting. I think what we've alluded to is that we will see operators having to look maybe at different regions to kind of load for the crops. If your North Americas, your South Americas aren't producing kind the same quotas, the same levels that they have done before, based on El Nino or the kind of fertilizer shortage, et cetera, then vessel owners might have to look to smaller regions and do smaller shipments of of crop to try and make up for the kind of losses of volume. So it's a real positioning story, right? Where do you need to be to take advantage of the opportunities because regardless if it's a a good harvest year or a bad harvest year, whatever that is, there's always going to be opportunities, right? And that's kind of where the freight market has to step in and identify where and position themselves in in the places that they can take advantage of the opportunities that situations like this present themselves.

Maria Bertzeletou: And we have already had a taste of that this year. In the second quarter, East Coast South America to Far East shipments, more than double from the first quarter, with China remaining the main buyer. cargo demand built, prompt Panamax tonnage became more competitive around the key loading area. Even before El Niño becomes part of the equation, we see how quickly strong export program can change the regional freight balance.

Luke Nickels: Yeah, for sure. And that's the part we need to watch, right? The current outlook's got around half a billion tons, five hundred million tons of cereal globally over this kind of harvest year. Underneath that headline, the picture obviously varies quite a bit by origin, by commodity within that cereals grouping. so it's not about really how much trade there is, it's about who captures it, who's positioned well enough to take advantage of the opportunities. I think El Nino on the baseline doesn't affect, demand too much. I think what it may do is it may add demand to the market. Regions that may be a bit more self-sufficient in, grain production might have a weaker harvest. So that adds a little bit more demand to the picture. so it's an interesting kind of balance between the two, and it's something that you kind of have to monitor through the supply chain, right?

Maria Bertzeletou: we can say that fertilizer gives us a different dynamic. Global dry bulk fertilizer shipments as we said at the beginning, were estimated to be down around 12 % year on year in the second quarter, largely reflecting the disruption to the Gulf supply. So grain and fertilizer are coming the freight market from different directions, grain through a potential shift between exporting mediums, fertiliser through a disruption to the physical supply chains.

Luke Nickels: Yeah, for sure. I think ultimately the the parallels between the two though are we're going to see a market where buyers need to maybe looking at regions they don't or haven't historically looked at all the time, where kind of vessel owners are are s maybe looking at smaller ports and maybe moving in in smaller tonnages per kind of shipment as opposed to straightforward large tonnages going from origin A to origin B. There might be say few origins going to to major ports and things. So they're obviously very different in terms of What's impacting them on a physical aspect, say less fertilizers, maybe more more grains. But given the effects of the war in Iran and El Nino, the flexibility and the understanding where vessels need to be positioned to take advantage of that is the the kind of opportunity that the pr is it presents itself to the the shipping industry right now.

Maria Bertzeletou: So for me, there are four signals at the moment. First, fertilizer exports out of the Arabian Gulf and what happens to flow through Hormuz. This is a very hot topic. Second, the weather across the major growing regions as El Niño develops. Third, fertilizer and energy costs. And fourth, where the big grain importers start changing where they buy from. would those be your 4 as well?

Luke Nickels: Yeah, absolutely. I think what you've done there really well is you you've covered the whole chain from kind of crop to end use there. And every single stage within that, the four you've mentioned, is going to be affected by by the issues, straightforward moves, is going to be affected by fertilizer, availability, is going to be affected by El Nino event. And each one of them and how they move affects what's say ahead of it within that chain. So understanding and monitoring them as a as a four-sectional kind of chain, I think is definitely the right way to be doing it. And that's something that I'm going to be doing at Signal. And I think as a market intelligence team is something we're going to be monitoring too.

Maria Bertzeletou: And the bigger uncertainty sits in 2027. And El Niño begins materially changing production across the major growing regions, while fertilizer and energy costs remain elevated. What matters for shipping, as we said, is where those tons come from. A shift between Brazil, the US, Australia. or the Black Sea changes voyage distances. And over all of that sits the Gulf. What happens to fertilizer flows through a remains one of the key variables in the coming months.

Luke Nickels: Yeah, for sure. I think things are uncertain now, but I think like anything, the the further ahead you look, the the more uncertain things get, right. So it's yeah, it's a case definitely as a wait and see, watch and see, right. And and as you said, we've got the four main things that we'll be monitoring and looking at. And luckily there there might be a little bit of lag between one and and the knock on effect, so we'll be able to kind of make informed kind of expectations of what markets going to do based on them. But yeah, definitely it's an uncertain market for 2027 and as we kind go into move into the year. But markets are always uncertain, right? and that's what provides opportunity for people to make money really. So yeah, something we're monitoring, but it's a very uncertain 2027 so far.

Maria Bertzeletou: I agree with you about the uncertainty and sometimes uncertainty is not so bad because it creates also opportunities. The takeaway of today's episode isn't really about crops, it's about how energy, weather and trade have become one connected system. Last week it was Bauxite. and the metals of the electric age. This week is fertilizer, grain and weather. Same crisis, different cargo. The Arabian Gulf has already redrawn fertilizer flows as we analyzed. Now the weather may decide what happens next as you described, Luke. For sure, we will be tracking all of it. across the Signal platform and if you are new to our show go back and listen to episode 1 it's where this whole thread begins. Luke, thank you for joining me.

Luke Nickels: Maria, it's been a pleasure. Thank you for having me.