Bloomberg News

Amazon River Soy Route Seen Extending Brazil Lead on U.S.

January 10, 2014

Soybean Harvest in Brazil

Combines harvest soybeans at the Morro Azul farm near Tangara da Serra, Brazil. Photographer: Paulo Fridman/Bloomberg

Brazil became the world’s biggest soybean exporter last year even without fixing thousands of pot holes that bedevil its trucks, and without solving delays to load cargo onto ships lasting as long as three months.

Now the country is set to extend its lead on the U.S. by blazing a short-cut through the Amazon forest to link soybean farms in the interior to the Panama Canal and on to Asian buyers. Traders from Bunge Ltd. (BG:US) to Cargill Inc. are spending $2.5 billion on the project, mostly on new docks, barge fleets and terminals along the Amazon river and tributaries.

The project will become Brazil’s biggest export route for soybeans and grain. Ships will shave two days off their route by sailing west over the Pacific instead of a longer journey across the Atlantic and Indian oceans. That could undercut futures prices in Chicago for the legume that’s highly demanded in China and used in everything from meat substitutes to industrial oils.

“We don’t have a shortage of soybeans in the world, we have a logistical shortage,” Dan Basse, president of research firm AgResource Co. in Chicago, said by phone. Speeding soybeans to Asian markets “will ease concern” about short supplies in the U.S. and may depress prices in Chicago, he said.

The new infrastructure will boost shipping capacity by 30 million metric tons a year in 2017, said Kleber Menezes, head of the trading companies’ Tapajos Terminals Association. Brazil exported 41.9 million tons of soybeans in the past season, U.S. Department of Agriculture data show. Menezes spoke in an interview from Belem, the northern port city where the Amazon meets the Atlantic that’s destined to be a main shipping hub.

Benefit to Corn

Corn and cotton also stand to benefit from the river projects. Brazil already ranks No. 2, behind the U.S., and No. 5 among global exporters of those crops. Proponents of the Amazon short-cut will have to deal with concern that it will open up new areas when roads are upgraded. Better transportation can encourage illegal logging and plantations in the world’s biggest rain forest near the river route.

“It’s worrying because new roads and infrastructure bring an occupation pressure,” Tica Minami, Amazon campaign coordinator for activist group Greenpeace, said by phone from Manaus, Brazil. Illegal deforestation can create pasture land for cattle that’s later turned into soybean farms, Minami said.

Part of Brazil’s soybean production is currently hauled across more than 1,000 miles of precarious roads from Mato Grosso, a western state more than twice the size of Germany that produces almost a third of Brazil’s output, to ports in the southeast that don’t have the capacity to handle them.

Delay Costs

Upon arrival, they get stuck in tens of miles of truck lines waiting to unload at congested terminals for weeks every harvest. Even so, they topped American shipments for the first time in the past season. Basse said shipping backlogs are expected again this year.

Losses stemming from vessel-delay charges known as demurrage fees and rising trucking costs amounted to $2.5 billion last year, Sergio Castanho Mendes, head of the National Grain and Oilseed Exporters Association, or Anec, said at a Dec. 12 event in Sao Paulo.

China is bracing itself for Brazilian shipping backlogs this year through soybean-import contracts with optional origins for delivery from February through April, when most of the South American country’s crop is harvested, AgResource’s Basse said. That means trading companies can supply China with beans from U.S. stockpiles if shipments expected from Brazil are delayed.

Broker Perspective

“It will take a few years for things to move into the export markets smoothly,” said Alberto Alvarez, managing director at Fintec Group Inc, a broker with offices in Chicago and Miami and clients in South America and the U.S. “The investments will not provide an immediate fix.”

Exporters spend about $150 per ton to transport soybeans from the north of landlocked Mato Grosso to southeastern ports, four times more than in the U.S., Daniel Furlan Amaral, economics manager at the Abiove oilseed processors group representing Bunge, Cargill and other crushers in Brazil, said by e-mail.

This year, the government expects to complete about 450 miles of paved roads linking the north of Mato Grosso to Miritituba, a city by the Tapajos tributary of the Amazon River. At the end of November, about 113 miles where yet to be paved, soybean growers group Aprosoja said in an e-mailed report.

Barge Plans

From Miritituba, barges will transport Asian-bound soybeans to ports such as Belem on 715 miles of riverways, Abiove’s Amaral said. A convoy of barges can carry about 40,000 tons of soybeans and grains, the same as 1,000 trucks, the Tapajos association’s Menezes said.

Other ports in northern Brazil being prepared to load soybeans and grain from barges into Panamax vessels, which are designed to cross the Panama Canal, include Santarem and Santana. Their capacity to handle crops will likely double to 20 million tons by the end of next year and may reach 50 million tons by 2020, according to Luiz Antonio Fayet, a logistics consultant for the National Agriculture Confederation industry group in Curitiba, Brazil.

The riverway will spare exporters about 1,000 kilometers (620 miles) of truck transportation and cut costs by half, he said.

“New exit routes through the north can eventually halve our logistic costs and boost production in areas that today are inviable due to lack of infrastructure,” Fayet said by phone.

ADM Barges

Currently about three quarters of Mato Grosso’s crops are shipped from southeastern ports, the country’s most developed area, according to Mato Grosso’s Imea agriculture economics institute’s website. Soybean crops have ceased to expand in the southeast because of the higher value of land, urbanization, competition with food crops that supply the country’s biggest cities and sugar-cane fields.

Archer-Daniels-Midland Co. (ADM:US), the largest exporter of soybean meal from Brazil, plans to double the size of its South American barge fleet and increase shipments from Belem to about 6 million tons in five years, from 1 million next year, Matthew J. Jansen, president of ADM’s oilseeds unit, said in a Dec. 17 phone interview from the Decatur, Illinois headquarters.

Bunge’s Unitapajos joint venture with Grupo Andre Maggi, or Amaggi, the soybean producer and trading company run by former Mato Grosso governor Blairo Maggi, will ship crops from Miritituba to Belem on 90 barges starting this year, the White Plains, New York-based company said in an e-mailed response to questions.

Bunge Venture

The venture will move 2.2 million tons of oilseeds and grain next year, according to a report from soybean growers group Aprosoja. Bunge declined to comment on the volumes and how much it’s spending on the project. Francesca Bogo, a spokeswoman for Cuiaba, Brazil-based Amaggi, declined to comment.

Cargill’s operations in Miritituba will start next year, according to the Aprosoja’s report. The Minneapolis-based company declined to comment. Waterway operators Hidrovias do Brasil SA and Cia. Norte de Navegacao & Portos SA, or Cianport, are also members of the Tapajos group investing in the barge route.

Louis Dreyfus Commodities BV, Glencore Xstrata Plc (GLEN) and U.S. cooperative CHS Inc. are part of a group that won licenses to invest a combined 550 million reais ($230 million) in the Tegram oilseed and grain terminal in the northern Itaqui port. The terminal will have the initial capacity to ship 5 million tons this year, according to an e-mailed response to questions from the port, which estimates capacity will double by the end of this decade.

Top Exporter

Brazil surpassed the U.S. as the top soybean exporter in the past season, accounting for 42 percent of about 100 million tons shipped globally last year, according to USDA estimates. This year, exports from the South American country will rise to a record 44 million tons, compared with 40.1 million from the U.S., according to the USDA.

Vanguarda Agro SA (VAGR3), Brazil’s second-biggest publicly traded soybeans and grain producer, is investing as much as 600 million reais to buy 100,000 hectares (247,100 acres) of farmland in Mato Grosso and the northern state of Para because of the the outlook for improved infrastructure, Vanguarda Chief Executive Officer Arlindo Moura said in a Nov. 25 interview in Sao Paulo.

Soybean and grain output in the northern states of Para, Maranho, Tocantins, Piaui and Bahia will reach 17.9 million tons this season, 75 percent more than a decade ago even before the riverway infrastructure is in place, according to government data.

“Regions where it was not possible to produce because they are too far from the ports are now among the most privileged ones from the logistic point of view,” Moura said.

To contact the reporters on this story: Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net; Jeff Wilson in Chicago at jwilson29@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)
    • $74.27 USD
    • -0.15
    • -0.2%
  • ADM
    (Archer-Daniels-Midland Co)
    • $48.07 USD
    • -0.05
    • -0.1%
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