January 9, 2013

High Transport Costs Make Brazilian Farmers Less Competitive

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

Two records are likely to be set with the 2012/13 soybean crop in Brazil - a record large production and a record high cost of transporting the crop to processors or exporters. Not only does it cost more to transport Brazilian soybeans than it does to transport soybeans in the U.S., it also takes longer to get the beans to the end users as well. According to the president of the Mato Grosso Soybean and Corn Producers Association (Aprosoja-MT) Carlos Favaro, the freight costs for exporting soybeans from Mato Grosso equates to approximately 35% of the price of the soybeans. For corn exports it'CFas even worse at 50 to 60% of the price of the corn. These figures were calculated based on the 2011/12 crop and they are expected to be even worse when the 2012/13 crop is exported.

He attributes the very high costs to a lack of efficient infrastructure to move the grain into export position. Sixty percent of the grain in Brazil is transported by truck and one of the quickest ways of reducing the transportation costs would be the completion of highway BR-163, which connects Mato Grosso with the Amazon port city of Santarem. As an illustration of how things work in Brazil, that highway was projected to be completed by the end of 2012, but the completion date has now been pushed back to sometime in 2014.

The greatest promise for cost savings would be the construction of barging operations carrying soybeans and corn northward to the Amazon River instead of trucking the grain to ports in southern Brazil, but barging of grain is not a top priority for planners in Brazil. In fact, the Brazilian government has plans to build dozens of dams in the Amazon Region, but rarely is the movement of grain even considered when the dams are designed. The number one priority for the dams is the generation of electricity and designing the dams to accommodate barge traffic is rarely considered.

Farmers in central Brazil feel the government should consider using the vast river system in the Amazon Region as a transportation network in addition to just generating electricity. That could reduce costs and the time it takes to get the grain to end users around the world.

Aprosoja-MT calculates that it takes approximately 56 days to transport soybeans from Mato Grosso to users in China while it only takes 32 days to get soybean from the Midwest to China via the Port of New Orleans. In the U.S. the time could be reduced by nearly half if the grain is shipped out of West Coast ports. In Brazil it can cost as much as US$ 150 per ton to transport soybeans from central Mato Grosso to a port in southern Brazil, while it only cost approximately US$ 35 per ton to move soybeans from the Midwest to New Orleans. If Brazil could barge the soybeans to ports on the Amazon River, those costs could be reduced to US$ 60 per ton. Even at that lower rate, that would still be nearly twice the cost of the U.S., but it would represent a tremendous saving for Brazilian farmers.

The main reason why Brazilian farmers are pressing for these cost savings is the worry that soybean prices may decline with a couple of good back-to-back crops in South America and North America. If these transportation cost remain as high as they are today and soybean prices decline significantly, then growing soybeans profitability in central Brazil would be put in doubt.