South America Calling

Freight Pressure Eases On Brazilian Grains

By Alastair Stewart

We all know that logistics is the Achilles heel of Brazil's grain industry but we haven't heard much about it lately.

That's principally because, despite Brazil exporting record volumes of soybean and corn in 2015-16, transport costs as a percentage of prices are actually down.

The reasons: The slowdown in the Brazilian economy and increased use of alternative export routes through the north.

Brazilian farmers have already benefitted massively from the devaluation of the real, which has declined 45% against the dollar since September 2014. As a result, the price of corn in Mato Grosso is 37% above what it was last year, despite a 5% drop in Chicago futures, according to Mato Grosso Agricultural Economy Institute (IMEA) figures.

The price of sending Mato Grosso corn by truck has also gone up, driven by inflation, but not by the same proportion as grain prices. Freight to port from Sorriso, the biggest grain municipality in the state, as a percentage farm gate price was 84% on Jan. 25, very high but down from 91% at the same date last year and 104% the year before.

Holding down freight rates is the massive availability of trucks. The Brazilian economy contracted around 3.7% in 2015 and is expected to shrink another 3% in 2016. That kind of decline in economic activity leaves a lot of truckers kicking their heels and eager for loads wherever they can get them.

Meanwhile, the opening of new export corridors through the Amazon to ports like Bacarena, Santarem and Sao Luis has taken some pressure off the traditional export routes through the southern ports Santos and Paranagua.

Still, you would have expected a bigger jump in freight rates when you consider Brazil will export around 67% more corn this season than last -- estimated at around 35 million metric tons.

This is certainly good news for farmers as Brazil's new record soybean crop starts coming in.

Alastair Stewart can be reached at Alastair.stewart@dtn.com

(ES)

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