May 13, 2013
Brazil Soy Takes 52 Days to Reach China vs. 16 Days for U.S. Soy
As Brazilian farmers make plans for the 2013/14 growing season, the historical logistical problems encountered in Brazil over the last few months is foremost on their minds. Untimely, Brazilian farmers are paid less for their grain to compensate for the cost associated with thousands of trucks lined up along highways waiting to unload soybeans at interior grain terminals and hundreds of vessels waiting up to two months to load grain at Brazil's southern ports.
Nothing illustrates the stark deficiency of the Brazilian infrastructure more than the comparison between the United States and Brazil in the time it takes to transport soybeans to China. According to a study released by the Mato Grosso Soybean and Corn Producers Association (Aprosoja), soybeans produced in Brazil take an average of 52 days to arrive in China compared to 16 days for soybeans produced in the U.S. The total distance from the U.S. to China is less, but the main difference in time is due to the lack of efficient infrastructure in Brazil to move the soybeans in a timely manner.
Studies indicate that Brazil invests 1.7% of its Gross Domestic Product on infrastructure, whereas China invests 8.3% and Australia invests 5.4%. Brazil's main competition for export markets is the U.S. and with the infrastructure already in place in the U.S., Brazil needs to invest heavily in infrastructure in order to catch up. While the investments in infrastructure are increasing in Brazil, the country is starting from such a deficit, that much more needs to be done or Brazil could fall even further behind.
Faced with record large grain crops, the cost of freight in Brazil has soared in recent years to such an extent that farmers are reluctant to forward contract their crops because they don't know what their freight costs will be for their future grain production. Historically during the month of May Brazilian farmers would have forward contracted approximately 30% of the anticipated grain production, but thus far this May, they have contracted only 5%.
SLC Agricola is one of the largest grain producers in Brazil farming 282,000 hectares of soybeans, corn, and cotton in various Brazilian states and one of their marketing strategies is to wait until freight rates decline in order to move the bulk of their production to market. Freight rates in Mato Grosso soared 30% to 40% to historic high levels during the peak of the soybean harvest in February and March. Since then, freight rates have fallen 16% and they are expected to fall even further in the months ahead. As a result, SLC Agricolahas indicated that their margins have been supported simply by waiting to ship their grain until freight rates decline.
High freight rats not only cost Brazilian producers in the form of lower grain prices, they also increase their production costs as well. The high freight rates drive up the cost of inputs such as seed, chemicals and especially fertilizers. Seventy percent of the fertilizers used in Brazil are imported through ports in southern Brazil and the cost of transporting the fertilizer into the interior of Brazil is extremely expensive.
Therefore Brazilian farmers are faced with higher costs and lower prices due to the inefficient infrastructure in Brazil and that is why they are constantly urging the Brazilian government to invest more heavily in infrastructure improvements.