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March 18, 2019

Grain Companies to bid on BR-163 and Ferrograo Railroad in Brazil

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

There has been a lot of news in Brazil lately concerning the movement of grain north to export facilities on the Amazon River and along the northern Atlantic Coast of Brazil. Unfortunately, much of the news has been bad due to traffic problems on Highway BR-163. The highway was recently closed for about two weeks due to muddy conditions in the unpaved sections of the highway. This was the third year in a row of similar problems.

Highway BR-163 is the principal highway for the movement of grain produced in central Brazil to the "Northern Arc" of ports in northern Brazil. In 2018. 28% of Brazil's grain exports went out these northern ports and that is expected to incease rapidly in the coming years.

The last remaining unpaved sections of the highway between the city of Sinop in northern Mato Grosso and the Port of Miritituba on the Tapajos River should be completed sometime in 2019 and then the road will be turned into a toll road operated by a private company.

A group of four international grain companies, along with Brazil's largest grain company, are joining together to bid on the right to operate BR-163 once it becomes a toll road. The four include: Archer Daniels Midland (ADM), Cargill, Bunge, Louis Dreyfus and the Brazilian company Amaggi. The same companies are also considering bidding on the Ferrograo Railroad (Grain Railroad), which will be built parallel to BR-163 from northern Mato Grosso to the Amazon River. The grain companies have a vested interest in both of these projects as a way to reduce the time and the cost of moving grain north to their export facilities.

For the 968 kilometers of BR-163 that will be up for bidding, the grain companies would like to operate the highway for a period of 10 years. Most of these type of consessions in Brazil are for longer periods such as 20-30 years, but the grain companies feel the proposed Ferrograo Railroad will gradually transport most of the grain north starting in 2025.

Bidding on the Ferrograo Railroad is expected later this year or early in 2020. Building of the railroad is expected to take at least 6-7 years. Other investors including the Chinese are expected to submit bids for both the highway and railroad.