Rising Diesel Prices Are Wreaking Havoc in Soybean Giant Brazil
By Dayanne Sousa
Rising oil prices caused by war in the Middle East are driving up costs for crop exporters in Brazil, where growers rely heavily on diesel-powered trucks for transportation.
Brazil is currently at the peak of shipping soybeans, its most important export crop. The run-up in diesel prices is making it more expensive to transport the soybeans to terminals while adding to broader inflationary pressures.
Several commodity traders halted soy bids in local Brazilian markets over the past week amid fears of a steep short-term increase in freight costs, according to analysts and brokers. Diesel comprises a large share of trading costs, and without hedging tools against price spikes, traders are exposed to extensive losses.
A combine harvester fills trucks along the edge of a soybean field during a harvest near Mambai, Goias state, Brazil, on March 3.Commodity traders were less active in Brazil recently, as the freight risks added to sanitary concerns that hit some shipments to top buyer China, said João Henrique Teodoro, a consultant at Patria Agronegócios.
The problems come at a particularly sensitive time for Brazil, China’s main soy supplier this time of year. A prolonged war and continued volatility in freight could create bottlenecks, eventually driving importers to buy soy from other sources such as the U.S. or Argentina.
“Companies need to have a way to plan, and depending on how long this takes we could indeed see complications in logistics,” said Adriano Gomes, a market analyst at AgRural.
With no sign of a reprieve, trucking companies may start imposing emergency surcharges because of the war, said Silvio Kasnodzei, president of the union representing cargo companies in the key crop-producing state of Paraná. The Brazilian government announced federal tax breaks on fuels to shield consumers from surging crude prices, but the moves don’t go far enough to ease uncertainty for trucking companies, Kasnodzei added.
When signing deals for soybeans in Brazil, traders booking cargoes to be shipped in the coming months are exposed to fluctuations in the freight cost, said Rodrigo Gonçalves, the chief executive officer at logistics solutions company goFlux. If a trader booking cargoes for May later sees freight costs climb, an otherwise profitable deal can turn into a big loss, he added.
This comes on top of an already costly environment for agricultural freight rates because of high seasonal demand. Trucking costs spiked earlier this year as rains forced farmers to speed up the harvest and move large volumes in a shorter period of time. Poor road infrastructure also led to longer-than-usual waiting times in some key routes in February.
While local fuel prices are influenced by Brazil’s state-controlled Petroleo Brasileiro SA, truckers saw diesel prices rise in the countryside even before the company officially increased wholesale prices.
In just the first eight days of March, the diesel price sold by fuel distributors to filling stations rose nearly 14%, according to calculations by the Brazilian Institute of Planning and Taxation. Petrobras’ price was unchanged in the period. The company only announced on Friday it was going to raise the cost to distributors.
While in the U.S. barges play a significant role in long-distance transport of soy for exports, in Brazil a study by the University of Sao Paulo found that 55% of soy depended on trucks to reach ports. Volumes moved by road have increased in recent years, as investments in rail or river infrastructure have not kept pace with rising crop production.
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