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January 26, 2011

New Harvest Season, Same Old Problems in Mato Grosso

Even though a new harvest season is under way in Mato Grosso, producers in the state are still facing the same old problems they have confronted for many years, namely a lack of transportation options to move their grain out of the state. As a result, the cost of producing and transporting soybeans in Mato Grosso are the highest of any major producing state in Brazil. The situation could be even worse this year due to the more concentrated harvest season due to delayed planting.

During the 2010/11 harvest, it is going to cost approximately US$ 120 per ton (approximately US$ 3.25 per bushel) to move soybeans from central Mato Grosso to export facilities in southern Brazil. Contributing to the high cost are; poor road conditions, high toll charges, long lines and delays at rail terminals, long lines and inadequate infrastructure at the ports, and a general lack of alternative modes of transportation.

Truck transportation is the most expensive mode of transporting grain in Brazil and yet over 60% of the grain in Brazil is moved by truck over very long distances. Much cheaper alternatives would be rail or barge transportation. Generally, it cost approximately US$ 120 per ton to move grain by truck from central Mato Grosso to Brazilian ports, but it is estimated that barging costs could be as low as US$ 30 per ton (approximately US$ 0.80 per bushel).

The two most probably barging routes out of Mato Grosso would be the Paraguay/Parana route, which would move soybeans south to ports in Argentina and the Teles Pires/Tapajos route, which would move soybeans north to the Amazon River. Once approved, the development of these barging operations would be expensive and it would take 8 to 12 years to become fully operational, but unfortunately these projects have not yet gotten beyond the discussion stage.

Rail would be the second most economical mode of transportation, but the only rail line in Mato Grosso has only been built approximately 50 miles into the southeast corner of the state. Construction has now resumed on the Ferronorte railroad after nearly a decade of work stoppage and the line is expected to arrive in Rondonopolis in 2012. Even when the rail line reaches Rondonopolis, it will still only service the southeastern corner of the state. Much of Mato Grosso's soybean production will still be 500 to 800 kilometers away from the railroad.

Port officials have been talking for decades about increasing the capacity at Brazilian ports and increasing their logistical capabilities. While small improvements have been made recently, the overall situation is that Brazilian ports are woefully inadequate to handle the ever increasing level of Brazilian exports and imports.

The transportation situation for cotton produced in the state is even worse. Some of the soybeans and corn produced in Mato Grosso are utilized within the state, but virtually none of the cotton produced in the state is used in the state. The existing rail line is not set up for efficient handling of cotton and nearly all the cotton must be shipped to other parts of Brazil by truck, which is of course, is the most expensive alternative.