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November 1, 2018

Freight Rates from Central Mato Grosso to Port of Santos up 22%

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

As Brazilian farmers plant their 2018/19 crops, they continue to be concerned about the unresolved issue of mandated higher freight rates. These higher rates are the result of the nationwide truck driver strike last May that severely impacted the Brazilian economy. The government capitulated to the trucker's demands by lowering diesel prices and instituting the higher minimum freight rates.

Even though the higher rates are currently in effect, the constitutionally of the mandated rates is still unresolved. Many organizations in Brazil filed suit over the mandated rates claiming that they were being forced to purchase items they did not want. For example, the legislation authorizing the higher rates also mandates the companies purchasing the freight must also pay the truck driver for his return trip even if the truck returns empty. The Brazilian Supreme Court held three public hearing concerning the legislation, but thus far they have not made a ruling on it's constitutionally.

For producers in central Mato Grosso, the freight rates are now 22% higher than the 5-year average for this time of the year. The Mato Grosso Institute of Agricultural Economics (Imea) reported that the average freight rate from Sorriso, Mato Grosso to the Port of Santos for the month of October was R$ 355 per ton of soybeans, which equates to approximately $2.62 per bushel. This compares to the average of the last five years of R$ 290 per ton or approximately $2.15 per bushel.

One of the results of these higher rates has been a slowdown in sales and forward contracting of grain. Farmers and grain companies are very hesitant to sign contracts for freight not knowing if the rates will still be place after the Supreme Court announces its decision. Most of Brazil's grain still moves by truck and these higher rates are of particular concern for producers in Brazil's interior that can be as much as 2,000 kilometers from export facilities.