April 12, 2012

 

Brazil's grain freight expenses double in eight years

 

 

Due to infrastructure scarcity to support farm expansion in Brazil has resulted a doubling freight costs over the past eight years to the extent that logistics is influencing sowing decisions.

 

The cost of shifting grain the 420 kilometres from Sorriso, in the centre the main soy-growing state of Mato Grosso, to the port of Paranagua in the south has hit US$130 a tonne, the Brazilian row crop industry group Aprosoja said.

 

The figure - the equivalent of US$3.50 a bushel - compares with US$62 a tonne in 2003, and reflects factors such as fuel, tyre and labour bills, plus the poor condition of highways on which the great bulk of grain is transported.

 

"The worse the roads, the higher maintenance costs and the more expensive is the transport," Ferreira Edeon, Aprosoja logistics head, said.

 

Some 60% of soys are moved by truck in Brazil and only 7% by barge - the opposite of the US, where some 60% of grain is carried by barge and 16% by lorry. Brazil's dynamics reflect the huge expansion in the country's arable area to meet the growing need for crops, a demand swollen by higher population and improved diets.

 

Cropping land in Argentina and Brazil between them has risen by some 22% to 70 million hectares over the past decade, led by expansion in soy, according to research by Australian crop bureau Abares.

 

And soy area in Brazil will rise a further one-quarter to 31 million hectares over the next five years, with a rise to 15.7 million hectares in corn sowings, Abares forecast.

 

However, infrastructure has lagged, a factor which USDA officials in Brasilia warned overnight had left farmers facing "high transportation costs" which "continue to significantly affect producers' profitability".

 

"Though limited progress is being made on infrastructure projects, deadlines are almost never met," the officials said.

 

With transport bills calculated in US dollars, the disadvantage from high freight costs is exacerbated by a weakening real, which has depreciated by 6% this month against the greenback, and stands some 13% below last year's peaks.

 

Farmers pay freight costs in US dollars "because the prices charged for products transported are in this currency", Aprosoja said.

 

The extent of the costs is prompting farmers to compromise on crop yields to time harvest their harvest outside peak times, and benefit from discounted transport bills, according to South America agriculture expert Michael Cordonnier.

 

"A few farmers are actually planting their soy much later than what is recommended because they feel they can save enough money on harvest and transportation costs to offset the increased cost of fungicides and insecticides needed to produce a late developing crop," Cordonnier, at US-based Soy and Corn Advisor, said.