Jul 19, 2018

Brazilians may be missing Selling Opportunity due to Freight Dispute

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

The president of the Brazilian Soybean and Corn Producers Association (Aprasoja) recently lamented the fact that Brazilian farmers are missing the opportunity to cash in on the trade dispute between the United States and China. The forward selling of the 2018/19 Brazilian soybean crop has basically been suspended since May due to the truck driver strike and subsequent increase in freight rates.

He commented that had it not been for the truck driver strike and the subsequent higher freight rates, Brazilian farmers would had probably already sold 12 million tons of their anticipated 2018/19 soybean production principally to China.

Estimates are that the freight costs will increase 25-40%, but the higher rates are not yet certain. The National Land Transportation Agency (ANTT) is expected to announce the new freight rates sometime this week.

The president of Aprasoja stated that Brazilians are missing out the opportunity to cash in on the premiums being offered at Brazilian ports which is as high as $2.50 per bushel.

The Economic Director of the Brazilian Association of Vegetable Oil Industries (Abiove) expressed concerns that Brazil may be missing a unique opportunity that may not last very long. He is concerned that China recently announced that they would reduce their soybean imports going forward. That coupeled with a record large crop just harvested in Brazil and the potential for a record large crop in the United States, could result in excess supplies of soybeans in the world market. Additionally, the 2018/19 soybean crop in Argentina is expected to be much larger than the drought-reduced crop of 2017/18.

An additional problem for Brazilian farmers is the uncertainly over fertilizer deliveries and the higher cost of delivering those fertilizers due to the increase in freight rates. Generally, the peak time for fertilizer deliveries to Mato Grosso is the month of July, but thus far only 10% of the anticipated fertilizer needs have been delivered. The problem is that the fertilizers are being held up at the ports because of uncertainty concerning freight costs.

In the state of Mato Grosso, over 50% of the funds needed to plant the next soybean crop come from farmers who barter with grain companies for the needed inputs. The grain companies may be reluctant to enter into a barter agreement with farmers without knowing how much it will cost to transport the grain to port facilities. Estimates are that the freight costs will increase 20-40% once the new freight rates are announced.