Brazil logistics chaos looms with record crop in store
Logistic jams and transportation delays anticipated in Brazil early next year will likely slow the flow of a record soybean crop to buyers around the world who are counting on South America to fill the gap left by drought in the United States.
Doubts that Brazil can funnel up to 20 percent more soy through a transport network already short of trucks, storage and port capacity when a strong sugarcane harvest is starting and corn exports are surging, have importers and traders on edge.
"Brazil is not prepared for this harvest, we urgently need to resolve our logistics problem," said Antonio Alvarenga, head of the Rio de Janeiro-based National Agriculture Society.
Though Brazil is not likely to renege on its export contracts, delays could send buyers scrambling to purchase from the United States at premium prices, threatening Brazil's aspirations to become the world's main breadbasket after drought lowered U.S. production this year.
Port delays have already caused Japan to cancel an order of Brazilian corn and buy from the United States after the Asian importer said shipments of Brazilian corn, used mostly in animal feed, were delayed in September.
"And this is at a time when Brazil doesn't have any soy!" local Cerealpar analyst Steve Cachia said of Japan's switch.
"I want to believe that we won't have dramatic problems, but we're going to see high volumes ... April and May will be worst," he told Reuters.
In January, Brazil will start to harvest an estimated 81 million tons of soybeans, a crop that will likely put it ahead of the United States in soy production for the first time ever.
But there will be little time to gloat as those extra supplies make clear how inadequate Brazil's infrastructure remains even as its thriving farm sector expands.
Logistics researchers from the University of Sao Paulo said the arrival of soy, along with an expected recovery in the sugar cane crop in April and May, could result in a shortage of trucks, while ships docked and waiting for product to arrive could be fined for lingering longer than scheduled, driving up costs.
Rains that frequently persist into March could halt bulk loading once Brazil tries to dispatc h what the government sees as 36.25 million tonn es of the oilseed, up from 31.25 million exported in the season now ending.
"This is making the market question all the more what capacity Brazil has to meet world soybean demand from February to September of 2013," one Brazilian grains trader said.
A similar scenario hit Brazil's sugarcane sector in 2010, when a record crop, coupled with overwhelming spot demand early in the harvest and rains, delayed bulk loading at ports.
That increased waiting times for ships to load at Brazil's two key ports, Santos and Paranagua, from a few days to more than one month around peak harvest, costing importers heavily in demurrage and extended ship chartering. It also prompted a needy spot market to bid record sums for sugar.
A new law introducing mandatory rest periods for truck drivers, who transport some 70 percent of Brazil's agricultural exports, could add additional complications this year.
It may slash Brazil's road haulage capacity as much as 30 percent, the Brazilian road cargo association (ATR) said.
"This change was made in a time of crisis, it's creating logistical chaos," said Rogerio Martins, ATR's director.
Brazil's government plays down the forthcoming bottlenecks as growing pains that investments will resolve in a few years.
"There are advances in Brazilian agriculture that infrastructure can't keep up with when it comes to exports," Derli Dossa, head of strategic management at the Ministry of Agriculture, told Reuters. "We're better off increasing the supply even if it means having all these problems."
Dossa said logistics would start to improve after the next season, but will likely take four to five years to overhaul with public and private investment.
The government is granting concessions for about $66 billion in projects for the construction of key railway lines and new highways to speed up progress.
But Brazil's comparatively efficient agriculture sector, whose competitive edge has now been virtually wiped out by the cost of transportation to ports, has grown impatient for promised new rail lines as well as roads to less distant northern ports.
The logistics squeeze could reverberate throughout the entire system, from a shortage of silos that left corn piled high in the open air in key farming regions this year, to lines of trucks whose loads ports cannot digest fast enough.
"We don't have an answer for the very near term, and we must have one," Carlo Lovatelli, president of Brazil's vegetable oil association Abiove, said. (Reuters)