March 14, 2013

Diesel Prices in Brazil Increased Four Times since Mid-2012

Petrobras announced a 5% increase in diesel prices last week, which was the fourth increase since mid-2012. The higher price will increase the cost of production for Brazilian farmers because diesel fuel is used in all aspects of production from soil preparation, to planting, harvesting, and transporting the crop. The National Transportation Confederation (CNT) estimates the increase will raise the cost of production by 0.5% and the cost of freight by 1.25%. Since freight costs are already so high, this increase in diesel fuel is expected to have little impact on freight rates which have surpassed R$ 300 per ton (USD 150 per ton) to move soybeans from Mato Grosso to the ports in southern Brazil.

According to the Brazilian Association of Cargo Transporters (ABCT), freight costs out of Mato Grosso to the southern Brazilian ports are up 40% compared to 2012. The increase is the result of a record large harvest and fewer available trucks due to the new truck driver law in Brazil that restricts the number of hours a driver is allowed to be behind the wheel. The truck drivers in Brazil are adhering to the new restricted hours because we have seen hundreds and hundreds of trucks parked everywhere there is enough space during all hours of the day. This is very unusual because you normally only see trucks parked during the lunch hour.

Brazilian farmers realize that they have been lucky the last few years to be able to absorb these sky-high freight rates due to near record high commodity prices. If commodity prices fall from these lofty levels, it will be difficult to make money growing soybeans in Mato Grosso if the freight rates stay where they are currently.