Rocketing freight costs eating away Brazilian grain margins

Despite the sharp increase in international soybean and corn prices due to losses from the Argentine drought, Brazilian farmers are seeing margins that would have been healthy evaporate with skyrocketing freight costs.

Local analysts said a combination of factors is contributing to the unusual climb in transport costs for farmers shipping their harvests to warehouses or the ports.

They include the sharp rise in diesel prices, a record corn harvest last year that needs to be cleared to make way for the new crop, and the concentration of Brazil’s soybean harvest into a tighter window after delays in planting.

Average freight rates for bulk grains in Brazil are up more than 50% from a year ago, said Luiz Pacheco, a transport analyst at T&F consultants.

“Even though inflation is at a 30-year low in Brazil, freight rates are rising thanks to Petrobras’ need to recover the past losses it suffered” (from the previous government’s price controls)," Pacheco said referring to the state-controlled oil company’s new fuel pricing policy that went into effect in July of 2017.

Truck rates for soy and corn from the western grain belt of Brazil’s third-largest soy producer Rio Grande do Sul to the Port of Rio Grande on the eastern coast of the state, a haul of 600 km, rose more than 70% from a month ago to BRL 120/mt ($37/mt), according to T&F.

A few hundred km to the north, in Parana, Brazil’s second-largest soybean and corn state, rates rose 40% over the past month to BRL 112/mt for a similar haul to Paranagua on the eastern coast of the state.

Truck shortages

In the center-west and northeastern soy and corn-producing regions of Brazil, producers are increasingly concerned over the shortage of trucks as the harvest progresses and the need to get their crop to storage or to clear silos of last season’s corn for the incoming new crop intensifies.

The late planting of the 2017/18 soybean crop that is forecast at close to the record harvest of 114 million mt of last year has delayed harvest in the center-west state of Goias, Brazil’s fourth largest soybean producer.

This delay has in turn prompted truckers to work other areas of the grain belt.

“There’s a shortage of trucks (in Goias),” said Jorge de Oliveira Filho, a manager at a local warehouse and farm input supplier Ariarc in the state, who added that he has been speaking with trading companies in the nearby state of Minas Gerais to try to secure vehicles to handle the rapidly progressing harvest in his region.

Economists at the farm federation in Rio Grande do Sul (Farsul) said the recent spike in soy and corn prices due to the losses to the Argentine crop from drought was helping producers weather the recent spike in freight rates.