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July 10, 2018

Brazilian Congress set to Vote on Higher Freight Rates

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

A congressional commission in Brasilia last week tentatively approved the higher freight rates and the Brazilian Congress is scheduled to vote on the measure this week. The lower chamber will vote first followed by the upper chamber. After this week, the Brazilian Congress will be in recess until later in August. If an up-or-down vote does not occur this week, the higher freight rates will remain in place for the immediate future and grain marketing and grain movement will remain slow.

Even if the Brazilian Congress approves the higher rates, it is not certain if that would resolve the impasse due to ongoing litigation.

The litigants have argued that if the freight rates are set into law, their right to negociate in the marketplace over freight rates would be denied. For their part, the independent truckers argued that they need the higher rates in order to cover their expenses.

The uncertainty over the higher rates has led to a virtual suspension of grain marketing activity since the truck driver strike in late May. Grain companies and transportation companies are not even making offers to buy newly harvested safrinha corn because they do not know what to charge for freight, which is some cases costs more than the actual corn.

Everyone in the agricultural sector is opposed to the higher rates because they will decrease the price of grain paid to the farmers and increase the price of inputs.

According to data released by the National Commission on Logistics and Infastructure of the National Agriculture Confederation, the new freight rate would increase the cost of transporting grain from the city of Sorriso in central Mato Grosso to the Port of Santos by 51%, if the truck returns loaded. If the truck returns empty, the cost could increase 120% because the new proposed rules would force the individual or company purchasing the freight to pay for the truck to go both ways.

Under the new rate, the cost of freight from Sorriso to Santos would be R$ 437 per ton (approximately $3.19 per bushel), if the truck returned loaded. If the truck returned empty, the freight cost would be R$ 637 per ton (approximately $4.65 per bushel).

Since the new rate is essentially "one size fits all", the greater the distance the grain must travel, the greater the increase in costs.

Other agricultural products would also be impacted. The Counsel of Brazilian Coffee Exporters (Cecafe) informed the commission that the cost of transporting coffee would increase 100%. Rice producers indicated their transportation costs would also increase 100% as well.

The transportation costs for local deliveries would increase approximately 35% to 50%, which would drive up the cost of items in the supermarket by approximately 10% according to the National Agriculture Confederation.