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August 16, 2018

New Rates in Brazil could add $0.60-1.20/bu to cost of moving Grain

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

If the higher freight rates remain in place in Brazil, the additional costs will be reflected in lower prices paid to Brazilian farmers.

The National Association of Grain Exporters (Anec), estimates that the higher freight rates will add US$ 2.4 billion to the cost of transporting grain in Brazil. The new rates will increase the cost of transporting grain by 20-40% and in isolated cases it could increase 100%. Anec estimates that trading companies will see their margins reduced by 20% due to the additional costs. Estimates are that the new rates could lower prices paid to Brazilian farmers by R$ 5 to R$ 10 per sack of soybeans ($0.60 to $1.20 per bushel).

The Brazilian Supreme Court is scheduled to take up the constitutionally of mandated higher freight rates at the end of August and one of the critical issues they must decide is what's called the return freight (back haul). The independent drivers are demanding that the companies pay for their return trip as well, even if the truck returns empty. The freight rate for return trips are usually less than what is charged to haul the grain to the port. The main product hauled on the return trip is fertilizers.

Companies contend that if a truck returns empty, that is the problem of the truck driver, not the company that paid to haul the grain to the port. If the Supreme Court decides in favor of the truck drivers, it would be an enormous additional cost for the shipping companies.