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February 21, 2019

Livestock Producers in Southern Brazil importing Argentine Corn

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

The high cost of transportation in Brazil continues to be the "Achilles heel" of Brazilian agriculture. That fact was evident again earlier this week when it was reported by Reuters that the food giant JBS was set to import its first shipment of corn this year from Argentina into the state of Santa Catarina for its livestock operations. They have made the calculation that it is cheaper to bring in the corn from Argentina rather than from central Brazil.

Importing corn from Argentina and Paraguay into southern Brazil has actually been a common occurrence in recent years. Corn from Argentina can either be transported by vessel the relatively short distance from ports in Argentina, or it could be trucked across the border as well. Corn produced in southern Paraguay could easily be trucked across the border into western Santa Catarina, which is the main hog producing state in Brazil.

In 2018, JBS imported five vessels of corn from Argentina into Santa Catarina for their livestock operations. Each vessel carried 30 to 35,000 tons of corn.

Farmers in southern Brazil do not produce enough corn to satisfy the needs of the large livestock industry in southern Brazil. To make up the difference, the corn must be brought in from central Brazil or from neighboring Argentina or Paraguay.

The only way to get corn from central Brazil to southern Brazil is by truck since there are no railroads or rivers connecting the two regions. Transporting corn by truck the 2,000 kilometers from central Brazil has always been expensive and it is now even more expensive with the new higher mandatory freight rates that took effect late last year. Many in the market now consider the higher freight rates as exorbitant.

In fact, before the new freight rates were implemented, it was estimated that there could be a 75% saving in transportation cost by bringing corn into Santa Catarina the 500 kilometers from southern Paraguay instead of the 2,000 kilometers from central Mato Grosso. The saving are probably even greater now with the higher mandatory freight rates.

The uncertainty of the freight rates continues to frustrate the agricultural sector. Nearly everyone who contracts freight in Brazil considers the new mandatory freight rates as unconstitutional, but they are frustrated by the Brazilian Supreme Court's lack of a decision on the issue. As a result, companies are hesitant to contract freight just as farmers are also hesitant to sell their crops.