Industry

Brazil Amps Up Logistics Plans

One could argue that China, India, and developing Asia (Asian Growth Center) would not have improved as much as they have without the natural resources in South America and Australia. Over the last two decades, the Asia Growth Center has switched from being a leading exporter of coal and iron ore to the largest importer. South America and Australia provided the resources required to enable this economic growth to continue.

For agriculture, South America’s land expansion has allowed the Asian Growth Center to increase its consumption of food products. Crop prices must reach a level to cover the higher costs associated with the new land being brought into production. For the new land brought into production, the largest cost for exporting soybeans is transportation. Ultimately, Brazilian and American port prices are linked, which filters back to farmers.

The Mato Grosso Institute of Agricultural Economics (IMEA) map below clearly shows the aggressive plans by the Brazilian government to improve transportation and improve Brazilian farmers’ world competitiveness. The legend is as follows:

Red linesOperational highways
Red-dash linesProjected or incomplete highways
Green linesOperational railroads
Green-dash linesProjected or incomplete railroads
Blue linesWaterways where barging is operational
Blue-dash linesProjected or incomplete waterways
Small green squareOperational grain terminals
Small red squareProjected grain terminals
Large blue squareOperational ports
Large red squareProjected ports
Source: Mato Grosso Institute of Agricultural Economics

What is interesting is almost all the transportation projects already have an established port. Instead of “build it and they will come,” it is “build it because we are already here.” If the $76 per metric ton were lowered by $20 per ton, the Brazilian farmer would either make 55 cents more per bushel or lower the world price 55 cents per bushel. As acreage continues to increase to meet world demand, the financial benefit for transportation companies and the government to complete the transportation projects will increase, which in turn increases the likelihood of eventual completion.

Alan Barrett
Alan Barrett

Director of Consulting

Doane Advisory Services

Alan Barrett is Doane’s project consultant and accomplished commodity economist with more than 25 years of experience in futures and cash markets with a focus on cotton, commodity projects, non-traditional agricultural products, transportation and supply chain studies. Alan spent six years as a commodity futures broker. His expertise encompasses feasibility studies of oilseed crushing plants (soybean canola, and cottonseed), grain elevators, export elevators, shuttle elevators, grain container operations, flourmills and other processing facilities. Alan also has conducted transportation supply chain studies for grains, oilseeds, fertilizer, coal, natural gas, crude oil, and petroleum products. Alan has considerable experience in non-traditional agricultural products such as coal, coke, natural gas, chemicals, hydraulic fracturing fluid, hydraulic fracturing proppants, glycerin, fertilizer, micronutrients, salt, limestone, cement, iron ore, pig iron, and steel, especially feed ingredients. Mr. Barrett has a BS and MS in Agricultural Economics from the University of Tennessee.