November 15, 2012

Soy Three Times More Profitable than Corn in Southern Brazil

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

Farmers in Rio Grande do Sul are expected to increase their 2012/13 soybean acreage by 5% to 6% due to strong international soybean prices and the higher profitability of growing soybeans as compared to corn or rice production.

According to The State Agricultural Federation (Farsul), soybean producers in the state of Rio Grande do Sul can expect to turn a profit of 73% on their soybean production. That estimate is based on an average yield of 2,520 kg/ha (36.5 bu/ac) and a soybean price of R$ 66.53 per sack of 60 kilograms (approximately US$ 15.00 per bushel). The same organization estimates that corn production in the state could turn a profit of 25% based on a yield of 5,400 kg/ha (83 bu/ac) and current corn prices.

International soybean prices have slumped recently, but soybean producers in the state have already forward contracted 30% of the anticipated 2012/13 soybean crop, thus locking in profits.

The potential profit from growing soybeans could be even higher were it not for the high cost of transporting the crop to Brazilian ports. The cost of transporting a ton of soybeans over a distance of 460 kilometers from northwestern Rio Grande do Sul to the Port of Rio Grande in the southeastern part of the state, corresponds to 19% of the cost of producing the crop. By comparison, the cost of transporting a ton of soybeans in the U.S. over a distance of 2,700 kilometers to the port (5.8 times further) corresponds to 18% of the cost of production.

The higher costs in Brazil are due to the fact that most of the grain moves by truck over poorly maintained highways, whereas in the U.S. it moves by barge, which is much more economical. That already high cost of truck transportation in Brazil might spike even higher during the next harvest season due to new trucking regulations instituted last July.

New work rules recently imposed on Brazilian truck drivers threatens to not only drive up the cost of transportation, but it could also result in a shortage of trucks during the critical harvest season. These new work rules reduce the number of hours a driver may work during a 24-hour period and it requires the driver to rest for a period of 30 minutes for ever four hours of driving. The result has been that many independent drivers can no longer afford to do long hauls because they will end up losing money. That is a particular problem for farmers in central Brazil that are a very long distance from the ports in southern Brazil.

A shortage of trucks could actually slow the soybean harvest in Brazil. Since less than 15% of the soybeans are stored on-farm in Brazil, farmers must have trucks available at the time of harvest in order to haul the soybeans to the local grain elevator or cooperative. If the trucks are not available, the farmers can't harvest his soybeans. The 2012/13 soybean crop in Brazil is expected to be much larger than last year's drought reduced crop and along with a larger crop there will also be bigger logistical bottlenecks and delays as well.