SAO PAULO, Brazil (DTN) -- If you were to sum up Brazil's soybean industry in one phrase, it would be: Competitive farming, terrible logistics.

Brazil is working to untie the infrastructure knots that restrict local farming, but the benefits won't be felt in the upcoming 2011-12 season. That's a problem, as the Agriculture Ministry provisionally forecasts oilseed and grain output will grow 4.6% to 169 million metric tons next season.

"It promises to be another season of expensive freight and long delays," said Luiz Antonio Pinazza, executive director at the Brazilian Agribusiness Association (ABAG).

The heart of the problem is that Brazil still exports 84% of its soybeans and grains through southern and southeastern ports, while production is expanding more than 1,000 miles away in the center-west and northeast part of the country.

With cheap rail and river transport rare, most frontier-region soybeans are trucked down to Santos or Paranagua port at great expense. It costs approximately $115 per ton to ship soybeans down from Lucas do Rio Verde, Brazil's largest soy-producing district in northern Mato Grosso, compared with a mere $25 per ton for the journey from central Illinois to New Orleans.

In an attempt to cut that cost gap, and also to open up vast tracts of Cerrado savannah to soy production, the agriculture ministry is leading a concerted drive to increase shipments through northern ports. Progress has been made, but delays mean it will be two more years before farmers see major shipments through Amazon River facilities.

Emblematic is the situation along the BR163 highway, which links the soy-rich fields of northern Mato Grosso to the Amazon ports of Santarem and Miritituba.

PROMISES TO PAVE

For years, the government promised to pave the road, which would cut the journey from Lucas do Rio Verde to port by about 700 miles and potentially shaves $1 per bushel off transport costs.

In 2010, state and federal government finally got their act together and agreed to a plan to complete the road by the end of 2011.

Work did get under way but, unfortunately, a corruption scandal at the transport ministry has led to administrative delays and the road now won't be completed until December 2012 at the earliest, said Edeon Vaz, a director at the Mato Grosso Soybean and Corn Producers Association (APROSOJA).

When completed, the road could carry up to 7 mmt of soybean exports a year, up from 1 mmt at present.

The paving of the BR158 highway, part of the link from eastern Mato Grosso to the North-South Railway, is subject to similar delays. According to Vaz, most of that road will be ready by the end of 2012, but a stretch through the Marawatsede indigenous reserve will probably only be completed in 2014.

The road offers a cheap route to market for soybean farmers in eastern Mato Grosso, which could lead the region's current modest output to explode. Analysts estimate the region has approximately 7.5 million acres of pasture that could be converted.

"The east would very quickly move to soybeans, if the logistics were in place," said Seneri Paludo, president of the Mato Grosso Agricultural Federation (FAMATO).

Meanwhile, an extension of the North-South Railroad into soybean land is due for completion in 2012. The route potentially allows farmers in Tocantins, northern Goias and parts of western Bahia to profitably export through the Amazon port of Itaqui port. Just like eastern Mato Grosso, Tocantins and northern Goias don't currently produce many soybeans, but have great soil and climatic conditions to do so.

Northern ports also look like construction sites as they seek to increase capacity to handle a potential flood of soy, but work is delayed there, too.

Santarem, one of the ports that will receive soy sent along BR163, already has capacity to ship 2.5 mmt per year. Cargill plans to increase capacity at Santarem by 1.4 mmt, although it is still waiting for environmental licenses.

Meanwhile, work still has to begin on Miritituba port, which will receive the remainder of the BR163 soy. Authorities forecast shipments of up to 5 mmt through Miritituba by 2015.

Improvements to Itaqui port, which would receive soybeans along the North-South Railway, are still in the tender phase. The state expects port capacity to reach 5 mmt by 2013, although the process needs to accelerate significantly for that to happen.

"(A lack of capacity at) Itaqui port is the major impediment to shipment of soy via the North-South Railway at the moment," admitted Mauro Ramos, superintendent at Valec Engenharia, which is responsible for the North-South project.

Rail links significantly cut the cost of shipping dry bulk cargoes such as soybeans, but a lack of competition means the gains are rarely passed on the farmer.

That's because the rail companies typically align their prices to road freight rates. Meanwhile, the rail concession holders have little incentive to increase capacity, as the government-run port facilities can't cope with the extra volumes.

The government's goal is to have 25 mmt shipped through northern ports five years from now.

"One positive sign is that the agriculture ministry is now 100% behind a coordinated push to develop the northern port links. That may not sound like much, but that wasn't happening before," said Pinazzi.

 

Alastair Stewart can be reached at alastair.stewart@telventdtn.com

(ES/AG)

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