Bloomberg News

Brazil Soy Boom Bottlenecked as China Left Waiting: Commodities

March 26, 2013

Brazil Soy Boom Bottlenecked as China Left Waiting

Harvested soybeans are transferred into grain carts at the Morro Azul farm near Tangara da Serra, Brazil. Photographer: Paulo Fridman/Bloomberg

Erai Scheffer, the world’s largest soybean farmer, bought 200 trucks for this crop to counter the worst transportation breakdown in Brazil’s history. In China, undelivered cargoes mean buyers may turn to Argentina as Brazil falters on its ability to become the top global supplier.

“In 30 years, I’ve never seen anything like this,” Scheffer said by phone from Cuiaba, in Brazil’s Mato Grosso state, an agriculture powerhouse three times the size of Italy. “I’m worried because the mid-season corn harvest is approaching and will likely worsen the situation at ports even more.”

The line of trucks waiting to unload soybeans at Brazil’s busiest port surged to a record 15 miles long this month, while a total of 212 vessels awaited loading in a country that’s forecast to surpass the U.S. as the biggest producer. For Chinese crusher Shandong Chenxi Group Co. the boom isn’t coming to fruition after eight of 10 shipments failed in the past two months, General Manager Shao Guorui said. Chenxi may redirect soybean orders to Argentina and plans to cancel about 2 million metric tons of purchases from Brazil, or about 5 percent of the country’s exports estimated for this season, he said.

“Logistical constraints suggest this supply will be difficult to bring to market,” London-based Macquarie Group Ltd. analyst Chris Gadd said in an e-mailed report March 20. “While infrastructure fails to perform, these crops will remain largely landlocked and irrelevant to the international markets.”

Record Crop

Brazilian farmers are harvesting a crop that the U.S. Department of Agriculture estimates at 83.5 million tons, with exports forecast at 38.4 million. Those volumes mean U.S. supplies will trail Brazil’s for the first time, with 82.1 million tons of American output and 36.6 million of exports estimated by the USDA for the year ending Sept. 30. Not so if Chenxi goes ahead with the shipment cancellation plan and Brazilian exporters fail to sell the cargoes elsewhere.

President Dilma Rousseff’s goal to lure $235 billion into toll roads, bridges, railways and harbors so far has done little to counter the infrastructure shortfalls. Legislation limiting truck drivers’ work hours, rising fuel costs and excess rainfall that’s halting port activity are among hindrances that are adding to pot-holed roads and insufficient railway and port capacity.

Record land freight costs are causing trading companies from White Plains, New York-based Bunge Ltd. (BG:US) to Minneapolis- based Cargill Inc. to spend an extra $650 million this season to send the crops to ports, said Sergio Mendes, head of the oilseed and grains exporters association, known as Anec. Farmers are paying the bill as they get less from the traders, he said.

‘Biggest Concern’

“The biggest concern is inland logistics trucking,” Bunge Chief Executive Officer Alberto Weisser, who estimates it will take about six months to finish shipping Brazil’s soybean crop to ports, said in a Feb. 20 presentation. “We have by far the largest contract on railways, and so others will have to use trucks where we use rail.”

Scheffer is using a tractor repair and storage facility as an extra silo to keep stranded oilseeds while part of his ripe crops remain in the fields amid a lack of storage capacity, he said. His Grupo Bom Futuro is Brazil’s second-largest soybean grower after Vanguarda Agro SA, while he ranks first among individual soybean farmers.

Soybean crop yields that are 30 percent higher than in the U.S. proved little advantage for Brazilian farmer Diorginis Seron as the record trucking costs reduce the price trading companies are willing to pay for his harvest.

Soaring Costs

Shipping (BDIY) to a port from Seron’s 2,500 hectares (6,178 acres) of land in Mato Grosso state costs about three times more than from Davenport, Iowa, farmers group Famato and Ankeny, Iowa-based Soy Transportation Coalition data show. A 56 percent jump in costs in a year, to $152 a ton, means profit margins for Mato Grosso growers like Seron are a third of those in the U.S., according to data from Famato and The American Soybean Association.

“In 30 years we built up this farm from nothing and the infrastructure around us remains the same,” said Seron, 37, as he surveyed the spraying of pesticides over recently planted corn and cotton, two months after harvesting his soybeans. “I’m revolted, outraged.”

The difference between the cost of soybeans at Brazil’s southern Paranagua port, the country’s second-biggest export hub for the oilseed, and the price producers get in the city of Sorriso, Mato Grosso, rose to a record 59 percent at the peak of the harvest on Jan. 11, more than double the average in the past decade, according to research agency Cepea data compiled by Bloomberg.

Food Prices

Brazil’s delays in shipping crops so far haven’t affected overall food prices. The Food & Agriculture Organization’s index of world food prices fell for a fifth consecutive month in February, down 12 percent from a February 2011 record.

The USDA estimates the world’s stock of soybeans will rise to 60.2 million tons in the 2012-2013 season ending Sept. 30, from 55.3 million a year earlier.

Soybean futures dropped 20 percent from a Sept. 4 record of $17.89 a bushel to $14.365 on the Chicago Board of Trade yesterday, partly on speculation that South American growers will produce a record crop. Futures are expected to fall 7 percent further by year-end to $13.37, according to the median of 12 analysts’ forecasts compiled by Bloomberg.

This year, soybean prices have advanced 2.3 percent, while the Standard & Poor’s GSCI Index of eight agricultural commodities has lost 0.4 percent. Corn prices have risen 4 percent and cattle dropped 8.2 percent.

Trade Contracts

While predicting Brazil’s bottlenecks may worsen as corn farmers start harvesting their mid-season crops in June, Macquarie’s Gadd expects the country will be able to export its record soybean crop.

The backlog at ports doesn’t mean trading companies including Bunge, Archer-Daniels-Midland Co. (ADM:US) and Louis Dreyfus Holding BV won’t be able to meet contracts, Anec’s Mendes said in a March 20 telephone interview from Sao Paulo.

“We have no doubt all delivery contracts will be met,” he said.

There are no cancellations of Brazilian soybean cargoes and there probably won’t be any in the “near” future, Liu Guoqiang, general manager of CHS (Shanghai) Trading Co., said at a forum in Kunming on March 21.

Decatur, Illinois-based ADM, the world’s largest grain processor, prepared for the anticipated congestion by increasing its storage capacity and improving the efficiency of its port terminals, spokeswoman Jackie Anderson said in an e-mailed response to questions. Officials at Bunge and Cargill in Sao Paulo, who can’t be named because of company policy, declined to comment when contacted by Bloomberg News.

Santos Port

At the Port of Santos, Brazil’s biggest, soybean and soybean-meal exports plunged 41 percent from a year earlier in January to 238,250 tons even as growers reaped a record crop, according to the latest data on the port’s website. The line of trucks waiting to unload the oilseed at the hub has surged to 15 miles long, the most ever, compared with no line a year earlier, road operator Ecovias said on March 22.

The all-time-high 212 ships waiting to load 12.6 million tons of soybeans at Brazilian ports have been held up for as many as 54 days, Santos, Brazil-based SA Commodities said March 22. That compares with 119 vessels and 6.5 million tons a year earlier, with a maximum wait of 26 days in the previous harvest.

“Outside of Brazil’s farms, we’re no longer an agricultural power house,” said Nelson Piccoli, finance director at the Mato Grosso Agriculture Federation, known as Famato. “The state of our infrastructure is a disaster.”

To contact the reporters on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net; Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net

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


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Companies Mentioned

  • BG
    (Bunge Ltd)
    • $74.19 USD
    • -0.08
    • -0.11%
  • ADM
    (Archer-Daniels-Midland Co)
    • $47.57 USD
    • -0.50
    • -1.05%
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