Jun 21, 2018
Uncertain Freight Rates slows Grain Marketing in Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Corn farmers in Mato Grosso were very optimistic back in May concerning the marketing of their 2017/18 anticipated safrinha corn crop. Their optimism was based on improving corn prices and a weakening Brazilian currency. Their optimism has waned somewhat over the past month due to the truck driver strike, higher freight rates, a stronger Brazilian currency, and a slump in international corn prices.
According to the Institute of Agricultural Economics for the state of Mato Grosso (Imea), by the end of May, farmers in the state had sold 67% of their anticipated 2017/18 safrinha corn production and 12% of the 2018/19 corn production, which will not be harvested until a year from now. Farmer selling thus far in June has been much slower and market analysts are advising farmers to hold off on further selling until there is a resolution of the freight rate dispute in Brazil.
At the end of May, the average corn price in the state of Mato Grosso was R$ 22.59 per sack (approximately $2.77 per bushel) compared to the average price in May of 2017 which was R$ 14.69 per sack (approximately $1.90 per bushel).
The proposed increase in freight rate is of particular concern for farmers in Mato Grosso due to its distance from Brazil's major ports in the southeastern region of the country. Not only is it expensive to transport corn to the ports, the high freight rates will also dive up the cost of production. Approximately 70% of the fertilizers used in Brazil are imported and the principal port of entry for fertilizers is the Port of Paranagua. So higher freight rates will lower the prices paid for corn and increase the cost of next year's corn production.
A shortage of adequate on-farm grain storage in the state also results in an increased demand for trucks as soon as the harvest gets underway. Without on-farm storage, trucks are needed even to get the grain from the field to the neighboring co-op or grain elevator.
The impasse over the proposed freight rate increase has not yet been resolved and it is causing a slowdown in marketing of the grain. Farmers do not want to sell their grain because of the uncertainly surrounding the freight rates. For their part, grain companies do not want to purchase grain because they do not know how much it will cost to transport the grain to the ports.
In testimony before the Brazilian Supreme Court, the Brazilian Agriculture and Livestock Confederation (CNA) estimated that 6.8 million tons of soybeans and soybean meal were not exported during the past 20 days due to the dispute over freight rates.
Imea reported last Friday that farmers in the state had harvested approximately 6% of their safrinha corn crop. In the state of Parana, the Department of Rural Economics (Deral) reported that 1% of the safrinha corn had been harvested by last Monday.