South America Calling

Sluggish Brazil Eases Pressure on Freight

Brazil's economy is in the doldrums at present.

GDP grew at a projected 0.2% in 2014 and market consensus pegs expansion at just 0.4% in 2015.

One fringe benefit is a drop in freight demand that helped push grain transport rates lower in the second half of 2014.

It was a rare and glorious thing for farmers to see as the constant rise in truck freight rates post-harvest has bitten hard into soybean and corn margins in recent times.

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In late September, freight from Sorriso, Mato Grosso, to Paranagua port was R$200 per ton ($2.29 per bushel), down 20% on the year, according to Mato Grosso Agricultural Economy Institute (IMEA) figures.

"Less demand on the fleet of trucks has been a real factor in lower grain freights," said Andre Pessoa, director at Agroconsult, a farm analytics firm.

Another factor has been the extremely dry weather in the southeast, which meant the ports did not suffer the usual rain delays and optimized loading.

So, the economic sluggishness, which could be exacerbated if it doesn't rain hard and water and energy rationing is introduced, will also help keep freight costs down when the upcoming soybean harvest accelerates over the next couple of weeks.

Brazilian logistics have improved over the last two years, mainly because of better management, and increased shipments through the Amazon river port of Miritituba and the start of operations at the Tegram terminal in the northeastern city of Sao Luiz will help ease the burden in 2015, said Pessoa.

But, on the other hand, soybean output will grow again in 2015, by 9%, creating fresh demands in the post-harvest period.

With the arrival of the harvest less likely to cause an explosion of transport costs in 2015, farm representatives and the soybean industry were surprised when the Mato Grosso Haulage Association published their new price list with a substantial increase in minimum prices.

Still, there remains hope prices won't explode. Last week, freight from Sorriso to Paranagua was quoted at R$225 per ton ahead of the harvest, roughly the same as last year.

(CZ)

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