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December 11, 2012

Freight Costs Already High in Mato Grosso Expected to go Higher

Farmers in central Brazil already pay some of the highest freight rates in the country to get grain to market and the rates are expected to go even higher when they start harvesting their 2012/13 soybean crop.

According to the owner of a trucking company in Mato Grosso, Transporte e Logistica, freight rates in the state have already increased 45% over the past twelve months. In December of 2011 it cost R$ 65 per metric ton (approximately US$ 0.88 per bushel) to transport soybeans from Sorriso in central Mato Grosso to the Ferro Norte Railroad terminal in Alto Araguaia, which is located in the southeastern corner of the state. Today, it cost R$ 100 to transport that same ton of soybeans (approximately US$ 1.36 per bushel).

Transporting soybeans from central Mato Grosso to the Port of Paranagua in southern Brazil now cost 56% more than twelve months ago. In December of 2011 it cost R$ 150 per ton (approximately US$ 1.90 per bushel) from Sorriso to the Port of Paranagua and today it cost R$ 250 per ton (approximately US$ 3.40 per bushel).

The trucking company executive thinks the freight rates will go even higher when the soybean harvest begins in January. The demand for trucks always increases as the soybean harvest begins because little of the crop is stored on farm. The majority is stored at the gain elevator or the cooperative and it takes trucks to transport the soybeans from the field to the elevator.

Additionally, there is still a lot of safrinha corn left in the silos of Mato Grosso and that corn will need to be moved out in order to free up space for the new soybean crop. Therefore, the demand for trucks will be much greater in early 2013 when a record soybean crop starts to be harvested at the same time that corn is being shipped out.

To complicate the problem even more are new regulations that took effect in July that place limits on the number of hours a truck driver may work in Brazil. These new restrictions have discouraged independent truckers from taking on long hauls such as from Mato Grosso to the ports in southern Brazil.

The president of the Rural Syndicate of Sorriso fears that freight rates may increase another 15% between now and the peak of the harvest. He says trucking companies will have to work non-stop, including holidays, in order to create enough space for the anticipated soybean crop.

While the state of Mato Grosso is the number one grain producing state in Brazil, it only ranks fourth in the number of storage units in the state behind Rio Grande do Sul, Parana, and Sao Paulo. According to IBGE (the Brazilian Census Bureau), the state has 1,070 storage units with a capacity of 26 million tons, which corresponds to 65% of the 40 million tons of grain produced in the state in 2011/12.

The director of the Agriculture and Livestock Federation of Mato Grosso, Nelson Piccoli, feels the state should have a storage capacity that is 20% greater than its production or in the case of Mato Grosso, 48 million tons. To make matters even worse, much of the storage is ageing and not utilized to its capacity. Piccoli estimates that 80% of the storage units in the state are underutilized due to defects.

Fortunately, the grain harvest in the state is divided between two crops, the full-season soybean crop, which is harvested between January and March, and the safrinha corn crop which is harvested between June and July.