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June 18, 2018

Freight Dispute could Impact Grain Movement in Brazil for Months

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

The repercussions from the truck driver strike in Brazil continue to reverberate across the agricultural sector in Brazil. Even though the actual strike ended several weeks ago, the dispute over the minimum freight rates has not been resolved. Truckers say the rate increases are needed for them to make a living. Companies for their part, claim these rates are unconstitutional and illegal and they have gone to court to press their case.

It is anyone's guess how this may play out, but one thing is certain, it has already significantly impacted the grain trade in Brazil. There has been reduced marketing and shipments of grain for about the past month. The slowdown was first the result of the truck driver strike, but now the slowdown is due to the impasse over freight rates. A backlog of grain shipments is starting to build and grain companies contend that this needs to be resolved as quickly as possible because silo space needs to be freed up for the impending safrinha corn harvest.

During the opening days of June at the Port of Santos, there have been 22% fewer trucks arriving at the port. During the first ten days of June, there have been 13,000 trucks arriving at the port compared to 17,000 during the first ten days of May.

At the Port of Paranagua, the decline in arriving trucks is 14% for the first 14 days of the month with an average of 1,098 per day compared to 1,281 per day last year in early June. At Paranagua, there have been enough soybeans arriving at the port to guarantee continued laoding of vessels but not enough to rebuild stocks to the port's capacity of 1.5 million tons.

May was a record month for soybean shipments out of Brazil, but that will not be repeated in June. Soybean exports in June have started off slower than May and slower than June of 2017.

As soon as the safrinha corn harvest gets underway, freight rates are going to skyrocket due to the increased need for trucks. The same things occurs during the soybean harvest as well, especially in remote locations such as Mato Grosso.

During the month of May, the average cost of moving a ton of soybeans by truck from Primavera do Leste in southeastern Mato Grosso to the Port of Santos in southeastern Brazil was R$ 247 per ton or approximately US$ 1.85 per bushel. When the corn harvest gets underway, it's going to increase, but no one as yet knows by how much. The safrinha corn in Mato Grosso is approximately 6% harvested.

Logistics in Brazil are always a dicey proposition because the country does not have enough grain storage space to store both the soybean and corn crops at the same time. As a result, the grain must start to flow to the ports as soon as the harvest gets underway. Having slower than normal grain movement for a month or more will create a backlog that may take months to resolve. If they don't start moving the grain at a faster pace, the problems are going to multiply once the safrinha corn harvest gets underway.