January 14, 2011

Farmers in Central Brazil Bracing for Higher Freight Costs

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

Central Brazil is already the most expensive place in Brazil to grow soybeans and it is set to get even more expensive. The Freight Association of Mato Grosso (ATC) is anticipating that the freight charges to move soybeans out of the state will increase at least 10% during the 2010/11 harvest season.

The freight haulers say they need the higher rates to cover increased fuel and maintenance costs. According to Mauricio Galvao, director of logistics for ATC, during the last five years diesel prices have increased more than 500% and those costs must be passed on. The trucking companies also maintain that their maintenance costs have risen due to the poor condition of the highways. Their labor costs have also risen due to higher salaries for the drivers which were mandated by the government. Several years ago the government also reduced the number of hours a driver may work in a twenty four period, which also adds to the costs.

Soybean farmers in the state complain that they already pay the highest freight costs in Brazil and they are not able to pass along their higher costs. To illustrate their point, they indicated that during the 2009/10 harvest season it costs R$ 3.00 to 3.20 per sack (US$ 2.30 to 2.47 per bushel) to move soybeans from Rondonopolis, Mato Grosso to the Port of Paranagua in southern Brazil. During the 2010/11 harvest season, soybean producers fear it could be as high as R$ 3.60 per sack (US$ 2.80 per bushel).

The city of Rondonopolis is located in the southeastern corner of the state which is much closer to the Port of Paranagua than the central and northern regions of the state. The municipality of Sorriso, which is the largest soybean producing municipality in Brazil, is located in central Mato Grosso. It's approximately a ten hour drive from the city of Sorriso to the city of Rondonopolis. Therefore, the freight costs from Sorriso to the Port of Paranagua can be as much as US$ 0.75 per bushel higher than from Rondonopolis, or an astounding US$ 3.50 a bushel.

The way to reduce these high costs is to develop alternative methods of moving bulk commodities such as rail and barge, but the development of these alternative transportation modes has been extremely slow in Brazil. As long as truck transportation remains the primary way of moving soybeans in Brazil, Brazilian farmers will continue to pay the highest transportation costs of any major soybean producing country.