May 20, 2015
Soybeans in Brazil will start to Flow like the Water - Down River
As more infrastructure gets built in northern Brazil, soybeans and corn in Brazil will start to flow to export markets similar to the way water flows in Brazil - down river. The region of Brazil that divides which way the water flows, either north the Amazon River or south to the Parana River, is generally 150 kilometers on either side of the 16th parallel south latitude. As an orientation, the 16th parallel south latitude runs east and west just south of Brasilia and Cuiaba, which is the capital of Mato Grosso.
Currently, most of the grain produced in central Brazil is shipped south to ports in southern Brazil, but that is changing. In 2014, there were 11.1 million tons of soybeans exported out of the "Northern Arc" of ports on the Amazon River and in northeastern Brazil. That is expected to increase to 14.4 million tons in 2015. By the end of 2015, the actual installed capacity at these northern ports will be 16.8 million tons, but not all of the capacity will be operational for the entire year. By the year 2030 (15 years from now), the "Northern Arc" of ports are expected to export 38 million tons of grain.
As mentioned previously, the movement of grain will start to parallel the movement of the water and the grain produced in central Mato Grosso and points further north will be exported out of the northern ports. Moving grain north will save about 30% in transportation costs and about a week in the time it takes to get the grain to overseas customers. With more grain moving north, it will impact the amount of grain produced in central Brazil that will be exported out of southern ports. The Port of Santos will probably be the port impacted the most from this reversal of flow so to speak.
The port of Santos is currently the port of choice for soybeans exported out of Mato Grosso, both by truck and by rail. The Ferronorte Railroad, which is currently the only railroad in Mato Grosso, ends at the Port of Santos so it is currently the only option for rail shipments out of Mato Grosso. For now, freight rates to truck soybeans that are produced in Mato Grosso to ports in southern Brazil are cheaper than tucking them north to the Amazon River because some of the costs can be defrayed by back-hauling products like imported fertilizers. The back-hauling option is not yet available from the northern ports, but that is expected to change going forward.
The Port of Paranagua will also lose some of its source of grain, but it is not nearly as dependent on grain from Mato Grosso as compared to the Port of Santos. At the Port of Paranagua, in 2014, 64% of the soybeans and 56% of the corn that moved through the port were produced in the state of Parana. The second leading source of grain at the port was Mato Grosso which supplied 20% of the soybeans and 19% of the corn exported out of Paranagua.
Both of these ports are not sitting back and willing to lose some of their volume without a fight. The Port of Santos is upgrading their rail delivery system and the Port of Paranagua is upgrading its loading system with four new ship loaders, increased storage capacity, and new receiving facilities. All of this points to healthy completion for business between Brazil's southern ports and northern ports. The winners in this competition will be farmers in central Brazil who are about 2,000 kilometers from the southern ports and 1,500 kilometers from the northern ports. It will lower the cost of transporting their grain to export facilities and it will spur increased production.
The migration of grain northward in Brazil is not expected to impact Brazil's third largest port of Rio Grande. More than 90% of the grain handled at that port is produced in the state of Rio Grande do Sul.