June 17, 2011

As Much as 23% of Soy Price Eaten by Transport Costs in Brazil

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

Part of what Brazilian soybean farmers have gained over the last three decades in increased productivity has been lost in an inefficient and expensive transportation system. Over the last three decades, soybean production in Brazil has migrated from the southern states of Rio Grande do Sul and Parana, to the central Brazilian states of Mato Grosso and Goias. The southern states are close to the ports so transportation costs are low. The central Brazilian states are as much as 1500 kilometers from the ports which drive up transportation costs.

According to data from the USDA, it costs US$ 120 per ton to transport soybeans from northern Mato Grosso to the Port of Santos. In the United States it costs US$ 58 per ton to transport soybeans from Fargo, ND to the Gulf of Mexico (US$ 8.94 to get to the rail terminal and US$ 48.99 from the rail terminal to get to the port). Once at the ports in either Brazil or the United States, the cost of transporting the soybeans to China from either country is about the same.

The disadvantage for Brazilian farmers is getting the soybeans to the ports. To transport soybeans from Lucas do Rio Verde, which is located in central Mato Grosso, to the Port of Santos, it cost approximately US$ 110 per ton or about 23% of the current price of soybeans. For soybeans produced in Parana and Rio Grande do Sul, the cost of transportation to the ports is approximately US$ 37 per ton.

In 2010/11 Brazilian farmers planted 24.1 million hectares of soybeans which yielded a nationwide average of 3.047 kg/ha (44 bu/ac). Thirty years ago during the 1980/81 growing season, the nationwide soybean yield in Brazil was just 1,781 kg/ha (25.8 bu/ac). Unfortunately for Brazilian farmers, even though they have become much more proficient in producing their soybeans, the increased transportation costs have significantly reduced their profit margins.

The ultimate answer to this dilemma would be to export the soybeans produced in Mato Grosso via the Amazon River. Transporting the soybeans by truck to the Amazon River could save as much as 20-30% compared to trucking them to southern Brazil. If the soybeans could be barged to the Amazon River, the savings could be even greater.

One of the obstacles to infrastructure improvements in Brazil is the very cumbersome process of obtaining an environmental license for the project. After decades of waiting, the Brazilian highway BR-163 which links Mato Grosso and the Amazon River is finally being asphalted and is scheduled to be completed in late 2011 or early 2012. At the end of the highway is a grain facility on the Amazon River operated by Cargill. In anticipation of the increased volume of soybeans expected from Mato Grosso, Cargill wants to expand the facility, but they have been waiting five years of an environmental license to start construction.

The same obstacles exist for new barging operations on Brazilian Rivers. Brazil has the equivalent of five Mississippi Rivers that flow into the Amazon River, but getting environmental approval to begin barging operations has been nearly impossible.

Without major improvements in the Brazilian infrastructure, Brazilian farmers will be at a distinct disadvantage to their counterparts in the U.S. and Argentina and Mato Grosso will remain one of the most expensive places in the world to grow soybeans.