Market Talks: Unprecedented floods hit Brazil’s Southern Rio Grande do Sul state

Author Argus

Rio Grande do Sul is Brazil’s main producer of rice, wheat and summer corn, and it is set to become the country’s second largest producers of soybeans in the 2023-24 season. Considering the state is a large agricultural producer, Rio Grande do Sul is one of the main consumers of fertilizers in Brazil. Understand the impacts of the floods in the agricultural production and in logistics in Brazil.

Join Renata Cardarelli, deputy editor for the Argus Brazil Grains and Fertilizer publication, and Nathalia Giannetti, reporter for the Argus Brazil Grains and Fertilizer publication, as they talk about the impacts of heavy rainfalls that have hit the state since 29 April, culminating in the worst floods ever registered in Rio Grande do Sul state.

Transcript: 

RC: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world. I am Renata Cardarelli, deputy editor for the Argus Brazil Grains and Fertilizer publication and in today's episode, I will talk to Nathalia Giannetti, reporter for the Argus Brazil Grains and Fertilizer publication, about the unprecedented floods that hit Brazil’s Southern Rio Grande do Sul state. Hi, Nathalia, welcome.

RC: Hello, Renata, it is always a pleasure to be here.

RC: Nathalia, heavy rainfall has hit the state since 29 April, culminating in the worst floods ever registered in Rio Grande do Sul. And the situation goes on, Nathalia, doesn’t it?

NG: Yes, the situation is getting worsening, with the rainfalls still going on. Showers in Porto Alegre have reached an accumulated 502mm in May already, according to Brazilian meteorological firm Climatempo. The historic monthly average is 111mm.

RC: River and lake levels also kept rising. The Guaiba lake, in the state's capital, reached 4.9m (16ft) on 13 May morning — up from 4.8m on 10 May, according to the state government. It is considered in a flood stage once it reaches 3m. By the way, Nathalia, the state's geographic layout does not favor the water flow, does it?

NG: You’re right, the state's geographic layout and a particularly narrow channel for floodwaters to reach the sea suggests the worst is yet to come in the southern part of the state. Water levels are about to increase in the Lagoa dos Patos, a lagoon that receives water from many rivers and flows to the Atlantic Ocean.

RC: This situation, in addition to the humanitarian issue, also generates a huge logistical problem, amid widespread rain and flooding in the state. Regional participants said drivers are preferring shorter routes and avoiding long trips because of roadblocks. According to the entity that runs the roads in Rio Grande do Sul state, there were blockages in at least 25 sections because of barrier collapses, lane breaks and bridge collapses. Even with the loss of agricultural production and with less fertilizer that farmers must apply to plant the 2024-25 soybean harvest, the expectation for the coming weeks is that freight will rise when the river recedes, because there will be a lot of postponed services.

NG: Apart from the roads, another point of attention is port logistics, Renata. The floods have reached the central part of the state, closing the ports of Pelotas and Porto Alegre, which both handle agricultural commodities, including grains, oilseeds and fertilizers. The high waters are expected to move south, reaching Rio Grande port.

RC: Interesting commentary about the ports, Nathalia, the three Rio Grande do Sul ports handled about 44.8mn metric tonnes (t) in 2023, with the larger Rio Grande port accounting for at least 42.6mn t, according to port data. Even if fertilizer volumes would be discharged as initially planned, the flow to agriculture producing areas would be compromised. The main access to the port, the BR-116 roadway, is already partially blocked, hampering truck flows in the state.

NG: That’s right, Renata. The federal government recognized public calamity in 366 cities of Rio Grande do Sul and announced a series of measures to assist the state’s population. The program totals almost 51 billions of reais and will anticipate social welfare payments and credit concessions in the state. Brazil’s development bank also announced that it will suspend debts from companies and farmers for a year.

RC: And since we are talking about farmers, Nathalia, Rio Grande do Sul is Brazil’s main producer of rice, wheat and summer corn, and its set to become the country’s second largest producers of soybeans this 2023-24 season, behind only Mato Grosso. The rice, summer corn and soybean harvests were already in the final stretch in the state when rainfall intensified, but these last remaining areas are likely to suffer some losses, right?

NG: Exactly, Renata. Rio Grande do Sul accounts for more than 70pc of the national rice production. Brazil’s national supply company currently estimates almost 7.3mn t for the state’s crop, while the whole country is set to produce 8.9mn t. The most recent Conab monthly survey, published in May 14, already reduced the output outlook by 300,000t (three hundred thousand), but the damage caused by floods is yet to be accounted for. Conab’s field surveys took place between April 22 and 26, when the excess of rainfall was already a problem, but the floods were yet to begin. When flooding began, around 17pc of sowed crops were not harvested yet, according to Conab. Farmers estimate that some areas have already lost 30pc of their productive potential. They also report problems in the process of drying the grains, which could result in further losses, because of power outages and road blockades that difficult transporting the grains to storage facilities.

RC: And these potential losses in the rice production, which is a fundamental product for the Brazilian population, besides the road blockades that difficult its transport, led the federal government to authorize Conab to import up to 1mn t of rise. The measure aims to avoid price speculation and stabilize the grain’s prices in the domestic market, according to the ministry of agriculture. Conab will hold public auctions and the acquired volumes will be sent to small retailers in metropolitan regions. Conab also informed that purchases will not be made all at once to not create competitions for the local production. But rice is not the only crop affected by the floods, right Nathalia?

NG: Yes, Renata, rice is not the only one. The state’s soybean crop will also suffers from losses caused by the floods. The local rural agency Emater estimates that around 25pc of the crops sowed this season were in fields when flooding began. These remaining areas may lose about 20 to 100pc of their productive potential 20pc e 100pc and Emater expects to cut its outlook for the crop in the next few months. Silos were also damages by the floods, so this harvested portion may be suffering losses. Conab now estimates that Brazil will produce 147.7mn t of soybeans in the 2023-24 season, but has already announced that this figure will be revised down in the following editions of its monthly report, as losses in Rio Grande do Sul are accounted for.

RC: So considering the agricultural production, volumes in silos are likely drenched right now. And with more damages expected famers in Rio Grande do Sul may be discouraged to invest in technologies and fertilizer for the 2024-25 soybean crop. Besides the lower investments, fertilizer companies in the state are reporting difficult. Some of them are moving their products to storage facilities far from rivers, for example.

NG: Taking into account the state's large agricultural production, Rio Grande do Sul is one of the main consumers of fertilizers in Brazil. In 2023, it was the second largest volume, behind only Mato Grosso state. Considering the 45.8 million metric tonnes of fertilizers delivered to Brazil in 2023, Rio Grande do Sul accounted for 11pc of the volume, equivalent to 5.1 million metric tonnes.

RC: It's true, Nathalia, the position varies from year to year, but without a doubt Rio Grande do Sul is always among the main fertilizer consumers. In 2022, for example, the largest deliveries were in Mato Grosso, Goias and Rio Grande do Sul, in third position, accounting for almost 11pc of the volume consumed nationally. Let's keep following this dramatic and unprecedented situation that affects Rio Grande do Sul state. Thank you very much, Nathalia. This and other episodes of our podcast are available on the Argus website at www.argusmedia.com. Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and in Latin America. We'll be back soon with another edition of “Market Talks”. See you soon!