October 25, 2012

Domestic Soy Transport in Brazil Cost Five Times More than U.S.

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

Soybean producers in the state of Mato Grosso have higher transportation costs compared to other producers in southern Brazil and significantly higher compared to soybean producers in the United States.

To transport a ton of soybeans from Sorriso, Mato Grosso to China via the Port of Santos, it costs approximately US$ 170 compared to the cost of US$ 71 to transport a ton of soybeans from Illinois to China via the Port of New Orleans. Once the soybeans leave the port, the cost is about the same for both countries, US$ 45 per ton from Brazil and US$ 46 per ton from the U.S. The difference therefore is due to the high cost of moving the soybeans from the interior of Brazil to the ports, which is about five times more than the domestic transportation costs in the U.S. (US$ 125 per ton in Brazil and US$ 25 per ton in the U.S.).

The higher costs in Brazil are due to the fact that most soybeans are transported by truck, which is much more expensive compared to rail or barge. For Brazil as a whole, 53% of the soybeans move by truck, 36% by rail and 11% by barge. In the state of Mato Grosso, which is in the middle of the South American continent, it is even worse with approximately 70% of the soybeans moving by tuck. In the U.S., 60% of the soybeans move to the ports by barge, 35% by rail, and only 5% by truck.

The problem in Mato Grosso is that the soybeans are produced a very long distance from the ports in southern Brazil. The distance from north-central Mato Grosso to the Port of Paranagua is approximately equivalent to the distance between St. Paul, Minnesota and Miami, Florida. It costs approximately US$ 125 per ton just to get the soybeans to the ports in Brazil, so therefore; approximately 75% of the cost of moving the soybeans to China is incurred domestically in Brazil

Farmers in southern Brazil have much lower transportation costs compared to Mato Grosso because of their closer proximity to the coast. Parana is the second leading soybean producing state in Brazil after Mato Grosso and it costs an average of US$ 38 to move a ton of soybeans produced in Parana to the Port of Paranagua compared to US$ 125 per ton from Mato Grosso. The state of Rio Grande do Sul is the third leading soybean producing state and their costs are similar to those in Parana.

Farmers in Mato Grosso are anticipating lower transportation costs once highway BR-163 is asphalted all the way to the Amazon River and when additional rail lines and barging operations connect the state to the Brazilian coastline and the Amazon River.

Highway BR-163 (sometimes referred to as the "Soybean Highway") is scheduled to be completed in late 2012 or early 2013 and it will provide an asphalted connection between northern Mato Grosso and the Amazon River port city of Santarem. Once completed, it could reduce transportation costs from northern Mato Grosso by an estimated 34%. Even greater saving could be realized if the proposed barging operation on the Teles Pires River to the Amazon River is completed. Once operational, it is expected to reduce transportation costs by as much as 60%.

As long as soybean prices remain strong, Brazilian farmers can absorb these higher transportation costs and still remain profitable, but if soybean prices would retreat to levels seen in the early 2000's, it would be very difficult to produce soybeans profitably in the interior of Brazil without significant transportation costs savings.