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October 30, 2014

Brazil's Infrastructure Problems could Worsen in 2014

With the fire at the Port of Santos and a predicted record large soybean crop estimated for 2013/14, the already inadequate infrastructure of Brazil may be in for its biggest test yet early next year. The Copersucar facilities at the Port of Santos probably will not be ready to resume exports until sometime late in 2014, whereas the record large soybean crop of 88 million tons (6 million tons more than in 2012/13) will start arriving at the Brazilian ports next February.

No decision has been made yet on how Brazil will meet its commitments to export sugar while the Copersucar facilities are being rebuilt, but a likely scenario might be that some grain facilities might be used for sugar exports at least on a temporary basis. It is inevitable that there will be problems and delays because all of Brazil's ports were already working at capacity and now a significant portion of capacity at the Port of Santos will be off-line for many months.

I think a good analogy for the infrastructure problems in Brazil is an hourglass. The restricted part of the hourglass are the ports in Brazil. We hear all these stories about lines of trucks waiting to unload and the congestion on the highways and railroads, but the real choke-point in Brazil's infrastructure is the capacity to load grain at the ports.

In 2014, the top of the hour glass is going to get bigger with a record large soybeans crop and the restricted part of the hour glass, which are the ports in Brazil, is going to get a little smaller in 2014 due to the fire at Santos. The result could be longer wait times for vessels and more congestion all throughout the system all the way back to the local grain elevators in the interior.

What is a problem for Brazil could be an opportunity for the U.S. The problems in Brazil are going to give U.S. soybean exporters a little longer window than what they would normally have and potentially a greater volume of exports as well. If a vessel is forced to wait 60-70-80 days to load soybeans from Brazil, it could end up being cheaper getting the soybeans from the U.S. even if the price of the commodity is a little higher.

The early planting of the soybean crop in Brazil started about a week later than last year which means the early soybean exports will start a little later as well. In 2013, there were about 1.8 million tons of soybeans exported from Brazil by the end of February and with the delayed start to planting this year, I would estimate that maybe 1 million tons of soybeans will be exported by the end of February 2014. The real logistical problems in Brazil are going to start next March when the record large soybean crop starts heading to the ports.

Additionally, the larger soybean crop is being planted in a smaller window this year which means harvesting and transporting the crop will also be in a smaller window as well. With a potentially 10% larger soybean crop on the way in 2013/14 (88 million tons vs. 82 million tons in 2012/13), the already over stressed transportation system in Brazil is going to be stressed even more in 2014. Stay tuned.