South America Calling

Brazilian farm leaders are currently wringing their hands over the potential chaos that will descend when Mato Grosso and the other Cerrado states try to send their expected record soybean crop to port come February.

Logistics were a mess this season, leading to waiting times of up to 80 days to load beans onto ships and a 50% jump in the cost of freighting produce from Mato Grosso to port. And with no substantial improvements to logistics due to deal with a crop that is expected to be 5% to 10% larger, they have a right to be worried.

There was, however, some positive news amid the gloom Thursday.

Yesterday, Brazilian President Dilma Rousseff opened a new rail terminal in Rondonopolis, at the heart of southern Mato Grosso soy country.

The terminal is linked by a new 160-mile track to the Ferronorte railroad, which runs from Araguaia and Alta Taquiari in southeastern Mato Grosso, to Santos port.

The new stretch, which was first proposed 20 years ago, cost America Latina Logistica (ALL), the rail concession holders, some R$730 million ($332 million). In addition, they spent R$150 million ($68 million) on the Rondonopolis terminal.

The new terminal brings the railroad closer to southern Mato Grosso farms, reducing the costs of trucking beans and corn, as well as reducing the massive tailbacks around the existing terminals.

The Rondonopolis will increase the Ferronorte reception capacity to around 20 million metric tons from the current level of around 10 mmt when fully operating.

Meanwhile, approximately 20 other companies plan to install terminals and grain processing operations around the terminal, at an estimated cost of R$700 million, over the next five years.

ALL estimates rail freight costs to Santos are 10% to 15% lower than those for road freight, currently the most popular means of transporting the state's soy and corn.

WON'T SOLVE THE IMMEDIATE PROBLEMS

However, the new link will not solve Mato Grosso's immediate logistical problems.

That's because the bottleneck at Santos port remains. Lack of storage capacity and agility at the port will limit growth in Ferronorte use -- ALL estimates shipments of 12 mmt this year.

Meanwhile, sending soy via Ferronorte will remain excruciating slow because trains must still pass through Sao Paulo city, something they can only do in the wee hours at low speeds.

Sao Paulo state has plans for a rail bypass but it has yet to offer the building and operating concessions.

Another issue is that the 17-mile stretch of federal highway running from the city of Rondonopolis to the terminal only has one lane each way, making it impassable if the expected quantity of trucks descends upon it. At the inauguration, President Rousseff promised the road would be expanded into a two-lane highway.

I know I sound very "cup half empty" as the opening of the terminal does represent a step forward. The problem is that Brazil is so late in investing in its grain logistics that all advances get instantly overwhelmed by the sheer volume of produce farmers and trading firms are seeking to ship out of the Cerrado region.

(ES)

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