The Brazilian grain freight market is expected to show less volatility in 2023 amid forecasts for record soybean and corn crops, causing domestic freight rates to rise, especially during harvest.
The 2022-23 soybean crop is estimated at 153.5mn t, up from 125.5mn t in 2021-22. The second corn crop — the largest in the country — is forecast at 96.3mn t, up from 85.8mn t in the previous year, according to the national supply company Conab.
This should increase demand for freight services, especially after Brazil increases its corn exports to China, leading to higher freight rates.
Grain freight rates were also high in 2022, but mostly because of the increase in diesel prices throughout the year as a result of the Ukraine conflict. The fuel's prices rose by 22pc from the beginning of the year, according to oil regulator ANP.
Several other issues contributed to the increase in freight rates. The soybean crop suffered from adverse weather conditions in parts of the country and produced less than initially expected, decreasing demand for transportation. Road closures also dampened demand, especially after the presidential elections, and weather problems hampered traffic flow on major roads. Thus, grain freight rates oscillated widely during the year.
Market participants expect a more predictable environment in 2023, but some points will still require attention. Grain output may reach a record high, but the pace of forward crop sales for 2022-23 is below the five-year average for this time in the season, especially in Mato Grosso state, Brazil's largest producer. Farmers' sales of soybeans and corn is 13.5 percentage points and 21.5 points below historical levels, respectively, according to data from the Mato Grosso institute of agricultural economics (Imea). Rising diesel prices and transportation conditions on highways and transportation corridors can also increase grain freight prices.
Fertilizer freights
Conditions anticipated for the first quarter of 2023 point to lower fertilizer freight rates in the beginning of the year, but that may shift.
The Ukraine conflict drove producers to bring forward significant volumes of nutrients, as they feared shortages and high input costs. Therefore, inventories will be higher at the beginning of the year, which could lead to fewer imports and lower demand for transport services.
But sources tell Argus they believe the supply of vehicles will be lower, which may increase freight rates.
Brazil's storage capacity has not been growing at the same rate as grain production and fertilizer consumption. Thus, the need for agile and timely loading is growing. These conditions could cause fertilizer freight rates to rise, despite lower import volumes.
Additionally, market participants continue to worry about the tense political situation in the country as President Jair Bolsonaro continued to stir up his supporters even though he will give up his seat on 1 January. Further roadblocks cut curtail transport flows from ports to planting areas.
By João Petrini
