Weaker Currency Offsetting Higher Brazilian Truck Freight Rates

One factor that will eventually help U.S. soybean farmers obtain a higher soybean price is higher Brazilian truck freight rates increasing the Brazilian soybean port price. The U.S. Center Gulf and Brazilian port soybean and grain prices are highly correlated. The higher internal freight cost reduces the inland price of soybeans, which in turn reduces the incentive to increase acreage.

Currently, the market is not receiving the lower price message because the Brazilian real continues to decline versus the U.S. dollar. The U.S. Department of Agriculture (USDA) Brazil Transportation report detailed that in 2018, the Brazilian real depreciated nearly 16 percent against the U.S. dollar when compared to 2017 and another 2 percent in the first quarter of 2019. According to National Supply Company (Conab), the inland soybean dollar price in Brazil decreased by nearly 10 percent in the first quarter of 2019 versus 2018. Soybeans sold on the international market are priced in U.S. dollars, but Brazilian farmers receive reais. Farm level soybean price measured in reais increased, on average, nearly 5 percent in the first quarter of 2019 versus 2018. So instead of the market telling the farmer not to plant more acres, the Brazilian farmer has incentive to farm more acreage.

The USDA Brazil Transportation report stated, “The cost of shipping a metric ton of soybeans, 100 miles by truck, decreased by almost 13 percent from $8.94 per metric ton in the first quarter of 2018, to $7.75 per metric ton in 2019’s first quarter.” It was not until February 2019 that a judge ruled the National Land Transport Agency (ANTT) could issue fines for not complying with the Minimum Freight Rate Table (MFRT). The true impact of the MFRT will be recorded in the second and third quarters of 2019. The MFRT established to end the Brazilian truckers strike in 2018 is allowing carriers to charge 50 percent more per trip due to the rate being based on the round-trip costs versus the carrier being responsible for a backhaul. The currency depreciating 16 percent in 2018 will soften the blow of the truck freight rate increase. Like farmers, the truck drivers are paid in reais.

Over time, the advantage of a weaker currency is eroded by higher input costs or inflation. This creates a situation where the farmer must achieve a higher soybean price just to break even. Also, the lending institutions charge a higher interest rate to cover the rate of inflation.  If the world soybean consumption requires more land in production, the world price will have to reach a level that covers the increase in Brazil’s input costs, which will lead to a higher price for U.S. farmers.

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.