February 25, 2011

Cost Savings Expected Upon Completion of Infrastructure Projects

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

Soybean producers in central Brazil are hoping for significant savings in their transportation costs once two major infrastructure projects are completed. According to the Mato Grosso Federation of Industries, once construction of highway BR-163 is completed to the Amazon River and the Ferronorte Railroad reaches the city of Rondonopolis, farmers in the state can expect at least a 25% savings on their transportation costs.

Federal agencies are in the process of completing the construction of highway BR-163 from northern Mato Grosso to the Amazon port city of Santarem. Once completed, it will be cheaper for soybean producers in central and northern Mato Grosso to send their production northward to the Amazon River than to existing ports in southern Brazil. The distance from central Mato Grosso to the Port of Santarem is approximately 1,000 kilometers as compared to the 1,500 kilometers between central Mato Grosso and the Port of Paranagua, which is the largest grain port in Brazil. Cargill operates a grain terminal at the Port of Santarem and they have already announced plans to expand the facility in anticipation of a greater volume of grain coming from Mato Grosso. An additional benefit for using the Amazon River to export soybeans is the fact that the mouth of the river is much closer to European customers than are the ports in southern Brazil.

The other anticipated infrastructure project is the resumed construction of the Ferronorte Railroad in southeastern Mato Grosso. The long-stalled railroad is decades behind its original schedule, but construction finally resumed late last year after nearly ten years of inactivity. The single track railroad is expected to arrive at the city of Itiquira in mid-2011 and in Rondonopolis in late 2012. Eventually the railroad is expected to link the capital of Mato Grosso, Cuiaba, with the Port of Santos in the state of Sao Paulo. Two grain terminals already exist along the railroad and two more will be built, one in Itiquira and one on Rondonopolis.

Currently the railroad is being operated by America Latina Logistica (ALL), but after the railroad reached the city of Rondonopolis, the right to build and operate the new segments will be opened up to other companies.

Currently in Brazil 67% of the grain production is moved by road, 28% by rail, and only 5% moves by barge. In the U.S., the situation is reversed with 67% of the grain production moving by barge and only 16% moving by road.