June 5, 2013
Brazil's logistics impede export growth of soy and corn
Press release
Agribusinesses in Brazil can expect to continue to face difficulties in logistics this year, due to the rising cost for transportation, according to Rabobank's new report.
Despite current construction projects to improve Brazil's transport and exporting capacity, virtually nothing can be done to alleviate the current pressure on the system in the short term, or to prevent it from intensifying. Transport costs in the country have risen significantly due to three factors: new legislation impacting the working hours of truck drivers, a sharp increase in diesel prices and rising export volumes for major commodities. In the next three to four months, the upward pressure on internal freight rates will be intense, owing to the expected large export volumes of soybeans, corn and sugar.
Rabobank analyst Andy Duff said, "Transport companies have been faced with major implementation costs, compounded by a rise in the price of diesel of more than 10% in a span of three months. As the dominant method for transporting major commodities to the ports, the cost of road freight tends to dictate the freight rates for all modes of transport. For this reason, the new legislation on truck drivers' working hours - stipulating that drivers must take more frequent breaks - has had a substantial impact on commodity transport costs. The challenge for transport companies is maintaining the flow without having to acquire many more vehicles and drivers."
Compounding the challenge, Brazil's exports of soybeans, corn and sugar are all expected to rise in 2013, based on higher production forecasts. Favourable margins for soybeans and corn, which run on a July/June crop year, have been the key drivers behind expansion of production in Brazil. According to Rabobank, soybean trading companies will have to absorb much of the increase in transport costs this year.
The expectation of higher costs next season is likely to be passed back to farm gate prices via the prices that trading companies offer for contract soybean purchases from farmers. While this would reduce margins for soybean producers (and the same is likely to be the case for corn), it could also result in lower raw material prices for pig and poultry operations in major grain-producing regions.
