Bloomberg News

Brazil Beating U.S. in Soybean Exports Is Boon for ALL: Freight

November 27, 2012

Brazil, already the largest exporter of coffee, orange juice and sugar, stands to overtake the U.S. as the largest shipper of soybeans, with help from ALL America Latina Logistica SA. (ALLL3)

A 13,300-kilometer (8,266-mile) Brazil rail network makes ALL the country’s largest rail operator and a key channel to move soybeans to export ports from farms located hundreds of kilometers from the sea. That means carrying more oilseed than usual this season as Brazilian farmers plant a record forecasted 83 million tons, pushing the country ahead of the U.S. as the world’s largest soybean grower.

The soybean boom will boost shares even more than investors anticipate, said Karina Freitas, an analyst at brokerage Concordia Corretora in Sao Paulo.

“The size of the harvest still isn’t being priced into the stock,” Freitas said in a telephone interview. “ALL is the best-positioned company in the railroad sector to gain from the record harvest.”

Other analysts like the company too. Nine of the 18 who follow ALL recommend investors buy the stock, and only one advises selling. ALL shares have dropped 14 percent this year, compared with a 0.9 percent drop for the benchmark Bovespa (IBOV) index, on investor concern about whether the company will be able to go through with a minority share sale.

Corn Record

ALL stands to benefit from growth in agricultural products other than soybeans as well, as Brazil is set to bring in a record corn crop, according to data compiled by Bloomberg. Growth of all crops, including processed products such as sugar, in the areas of Brazil where the company operates will reach 14 percent in 2013, UBS AG analyst Marimar Torreblanca said in a Nov. 4 report to clients.

“From ALL’s perspective, this is quite positive given the transportation needs,” Sergio Luiz Nahuz, ALL’s commodities director, said in a phone interview from Curitiba. Of the 15 million-ton increase in the soy crop this season, “13 million comes from the area we cover and is for export,” he added.

Soybean importers such as China are turning to Brazil and Argentina, which is also expected to grow a record crop in the 2012-2013 season, as U.S. farmers battle the most severe drought in more than 50 years. Concerns over the lack of rain in the U.S. this year drove prices of the oilseed to a record $17.66 per bushel on Sept. 4. Prices have since fallen 17.9 percent.

Freight Cars

Agricultural produce forms one of the three main categories within ALL’s cargo business, together with minerals and petrochemicals. The company also runs an 8,000-kilometer railway in Argentina, has a total of 1,095 locomotives and 31,650 freight cars and operates storage terminals for grain in Brazil, according to the ALL website.

The rail operator is well placed to benefit from booming agricultural activity because of the high costs of moving produce by alternative routes, such as roads or rivers, to Brazilian seaports, said Antonio Alvarenga, president of the country’s National Agricultural Society.

“Even though sea transportation from Brazil to China is cheaper than from the U.S., sending soy from Mato Grosso do Norte to China costs $180 per ton, while from the U.S. it costs $132, because road transport in Brazil is absurdly expensive,” Alvarenga said in a Nov. 19 phone interview from Rio de Janeiro. “For the next harvest, ALL is well positioned to be one of the top beneficiaries.”

Better Earnings

Analysts are forecasting better earnings in the first half of 2013. ALL’s adjusted earnings per share will increase in the first quarter to 7 centavos from 3 centavos a year earlier and to 28 centavos from 20 centavos in the second quarter of 2013, according to analysts’ estimates compiled by Bloomberg. The bulk of the soybean crop is harvested during the first six months of the year.

An earnings boost could counteract the poor performance this year of ALL stock, which has been affected by a share acquisition attempt by Cosan SA Industria e Comercio (CSAN3), the world’s largest sugar processor.

Cosan is seeking to acquire a 5.7 percent stake in ALL for 896.5 million reais ($432 million). The bid, announced in February, faces opposition from minority stakeholders who are demanding tag-along rights that would entitle them to the same offer from Cosan. ALL’s shares dropped in June when magazine Exame reported that the operation could be canceled. Cosan’s Chief Executive Officer Marcos Lutz said Oct. 22 that the acquisition will occur this year.

Sugar Processor

The two companies have had a partnership since 2009, when the sugar processor agreed to invest 1.2 billion reais to help ALL expand its railway in exchange for exclusive transportation rights. The 2012-2013 Brazilian sugar crop is expected to grow 3.7 percent to 37.5 billion tons, according to data compiled by Bloomberg.

ALL’s stock also has been hit by investor uncertainty over the government’s plans to draw more private infrastructure investment, said Concordia’s Freitas. In August, President Dilma Rousseff announced a program calling for 91 billion reais in investment in 10,000 kilometers of new railways over 30 years. The rules under which the railroads would be built and operated have not been fully spelled out.

“The stock is still being pressured in relation to the railway package and possible reduction of tariffs,” Freitas said.

Still, with the record soy harvest coming in next year, the company will make more efficient use of its existing capacity, said Giovana Araujo, an analyst with Itau Unibanco Holding SA.

“ALL is one of the obvious beneficiaries of a record crop,” Araujo said in a Nov. 14 telephone interview from Sao Paulo. “Bigger volumes mean they optimize use of the network.”

To contact the reporters on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net; Mario Sergio Lima in Brasilia at mlima11@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net


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