Jan 20, 2016

Freight Rates Increase due to Devalued Brazilian Currency

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

Farmers in central Brazil don't only have to worry about adverse weather impacting their bottom line, they are now facing higher freight costs as well in 2016. Based on data generated by the Mato Grosso Institute of Agricultural Economics (Imea), the magazine Carga Pesada reported that the average freight rate increase for all the major routes within the state and between the state and ports in southern Brazil, increased an average of approximately 50% compared to last year with the highest increase being 89% year-on-year.

There are several reason for the increase. The first and most important reason is the increased demand to move a record large corn crop from Mato Grosso to ports in southern Brazil. Most of the available trucks in Brazil headed to Mato Grosso to haul corn, but even with the influx of trucks, the demand for trucks is greater than the available supply. Grain elevators are willing to pay the higher costs because they need to move out the record large corn crop before farmers start to harvest the next crop of soybeans.

Additionally, the tucking sector in Brazil is not in good financial shape. Many trucks remain parked due to higher costs for fuel, parts, and tolls resulting in a lack of profitability. Also, the poor Brazilian economy has led to falling truck sales due to higher interest rates and tight credit. Truck sales in Brazil fell 47% from 2014 to 2015, while at the same time Brazilian farmers continued to produce record large crops of soybeans and corn.

Truck drivers are also complaining that some of the provisions agreed to by the federal government in exchange for ending the truck driver strike last March have not been implemented. Tolls in Brazil are charged by the number of axles on the vehicle and one of the provisions to end the strike was to eliminate the toll for an axle that is suspended when the truck is empty. Apparently some states are still charging a toll for the suspended axle.

From Campo Verde in southeastern Mato Grosso to the Port of Paranagua in southeastern Brazil (1,724 kilometers), the freight rate increased 81% from R$ 135 per ton in 2015 to R$ 245 per ton in early 2016. From Rondonopolis in southeastern Mato Grosso to Paranagua (1,589 kilometers), the rate increased 80.7% from R$ 130 a ton last year to R$235 a ton.

It is not as bad as it might seem for farmers in Mato Grosso because these new rates are in terms of devalued Brazilian reals. In dollar terms, the freight rate has changed very little compared to last year.

Source: SoNoticias