It’s Getting Too Expensive to Export Soybeans From Top Grower Brazil

(Bloomberg) — It’s getting very expensive to export soybeans from Brazil, the world’s top supplier.

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That’s according to Cargill Inc., one of the biggest global shippers of the oilseed. Diesel price hikes and worsening road conditions have led to expensive freight rates. The cost to export soybeans this season has exceeded Cargill’s estimates for freight rates by at least 25%, slashing margins, according to Paulo Sousa, who heads Cargill’s operations in the South American nation.

“Logistics were very complicated for Brazil’s summer crop,” Sousa said in a telephone interview. “Who could’ve forecast oil prices at current levels?”

Spiking fuel costs in one of the world’s biggest crop exporters are in focus, because they threaten to further accelerate food inflation that’s gripping the globe. Transportation is already one of the biggest costs in getting crops out of fields to their ultimate destinations, which in the case of soy could be a livestock feeding operation or a food processing plant.

In Brazil, more than half of grain and oilseed production is carried from farms to ports via trucks, and fuel prices largely determine freight rates. Also, a big difference between estimates and the real cost of freight can lead to significant losses for traders like Cargill, because companies usually discount freight costs when they pay farmers, often months before harvest.

One bright spot is that soybean crushing margins are “excellent” amid strong demand for soybean oil, Sousa said. Also, Cargill isn’t expecting any shrinkage in soybean acres even as costs of fertilizer soar, because it’s still profitable to cultivate the oilseed. While farmers may use less fertilizer, it’s too early to estimate yield losses from that, Sousa said.

Corn could also bring more profits for exporters in Brazil. Demand is expected to soar in the coming months amid declining supplies from the Black Sea due to the war between Russia and Ukraine, two important producers.

Other takeaways from the interview include:

A stronger real is adding to the difficulties for exports created by higher transportation costs, Sousa said.
Soybean export volumes are being hurt by falling production due to adverse weather from La Nina patterns.
Cargill hasn’t seen disruptions to its imports of fertilizers so far.

(Update adds context on losses in fifth paragraph.)