July 27, 2018

High Freight Rates increase Cost of Producing Crops in Mato Grosso

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

Brazilian farmers are worried about the cost of producing their next soybean and corn crops. The cost of production is increasing due to the cost of freight to move a bulk product such as imported fertilizers from ports in southern Brazil into the interior as well as a weaker currency that makes fertilizers and imported chemicals more expensive.

The Mato Grosso Institute of Agricultural Economics (Imea) recently increased their estimate of producing crops in the state from their last report a month ago. Imea is now estimating the variable cost of producing soybeans in Mato Grosso in 2018/19 is in the range of R$ 2,829 to R$ 3,124 per hectare. With a 45 bu/ac yield, this would equate to a range of $6.70 to $7.40 per bushel. With a 50 bu/ac yield, this would equate to a range of $6.05 to $6.65 per bushel. This represents an increase of 0.6% over last month.

The cost of producing corn in the state also increased compared to last month. Imea is estimating the variable cost of producing high technology corn is R$ 2,324 per hectare. With a yield of 100 bu/ac, this would equate to approximately $2.47 per bushel. With a yield of 90 bu/ac, this would equate to approximately $2.75 per bushel.

The resaons for the increases are a weaker Brazilian currency which makes imported items such as fertilizers and agricultural chemicals more expensive and higher transportation costs to get the imported items out into the countryside. If the higher freight rates remain in place, they could increase freight cost by 20% to 40% with some isolated rates increasing as much as 100%.

The recent impasse over higher freight rates in Brazil has delayed the deliveries of fertilizers to states such as Mato Grosso. The impasse, which has been ongoing for more than six weeks, has resulted in very slow fertilizer deliveries. Only about one-third of the normal amount of fertilizer has been delivered to Mato Grosso at this point.

Farmers in Mato Grosso are generally the first to plant their soybeans in Brazil. Farmers in the state start planting by mid-September and they conclude the planting before the end of October. If soybean planting in Mato Grosso is delayed until November, yields can drop as much as one sack of soybeans per hectare per day for each day delayed (approximately 0.9 bu/ac per day). Therefore, farmers in the state certainly do not want to delay their plating while they wait for fertilizer to be delivered.