An unusual mismatch between Brazilian grain and fertilizer demand and road freight rates is likely to persist into 2024 because of a variety of lingering market challenges.
The flow of agricultural production in Mato Grosso, the country's largest producing state, this year faced two main hurdles, despite the record production of soybeans and corn. First, slow forward sales of crops were persistent in 2023, as lower commodity prices on the international market caused farmers to hold back on sales. The pace of forward sales also remained slow, delaying volume transportation.
The second hurdle was severe drought in Brazil's north beginning in May because of the El Nino weather pattern. The situation hampered navigation of vessels carrying grains and fertilizers in Northern Arc ports, especially in Itacoatiara, in Amazonas state, and Barcarena and Santarem, in Para state.
Navigation constraints caused grain freight rates in the region's corridors to fall, as the time needed to unload trucks was longer than usual and sometimes uncertain, causing shippers to seek alternate routes.
Northern Arc ports have received more attention from farmers, especially from Mato Grosso. Last year,the Northern Arc ports exported 52.3mn metric tonnes (t) of soybeans and corn, up from 37.5mn t in 2021. That was the the first time that the ports have shipped a larger volume than the southeastern Santos port, which exported 46.8mn t in 2022. This year through November, Northern Arc ports have exported 54.6mn t of soybeans and corn, compared with 48.1mn t shipped from Santos.
Under these circumstances, road freight rates remained high on most export corridors originating in Mato Grosso, including during the intercrop period, when demand for transportation service was expected to fall and costs were expected to decrease. Grain freight rates remained high throughout 2023, increasing logistics costs.
The scenario is uncertain for the first half of 2024. If the effects of El Nino continue, the drought in the Northern Arc could keep hampering the flow of grains and oilseeds, as navigation conditions on waterways would remain restricted. That would result in lower freight rates to Miritituba, Porto Velho and Barcarena, and excess demand for other corridors to Santos, Paranagua and Palmeirante.
Drought in the center-west delayed the 2023-24 soybean planting in Mato Grosso and around 4pc of the planted area will have to be replanted, according to Mato Grosso's institute of agricultural economics Imea. This could delay harvesting, resulting in higher freight costs, as the flow from several regions will take place at the same time, increasing competition for trucks. But it could also lead to a reduction in production, as farmers may choose to leave soybeans aside and switch to planting cotton.
Fertilizer freights
An expected growth in fertilizer freight rates in the second half of 2023, during the purchase windows for 2023-24 soybean harvest, did not occur. Farmers postponed crop sales because of lower corn and soybean prices on the international market, so market participants expected that negotiations would intensify as more nutrient imports arrived.
Brazil imported 4.81mn t of MAP in January-November, up by 25pc on the year, while MOP imports reached 12.3mn t, up by 9pc from the same period in 2022. But the higher demand was not reflected in freight rates, which remained below previous years' levels. Lower liquidity of the Brazilian market also contributed to this scenario.
Queues at Brazilian ports also have contributed to the atypical behavior of fertilizer freight rates. The scenario has been worst in Paranagua, where the average waiting time for fertilizers reached 29 days at the beginning of December. The wait at the port of Itaqui, in Maranhao state, reached 13 days. In Rio Grande and Santos, some ships waited up to 28 days to dock at their respective terminals.
Demand for nutrient transportation services should increase in the first half of 2024, according to market participants. Fertilizer freight rates have been on an upward trend since early December, which is poised to continue at the beginning of the new year. A significant volume of fertilizers is available for negotiations and for custom clearance at Brazilian ports.
With the proximity of corn planting, the domestic fertilizer market is expected to heat up. Backhaul conditions could help equalize fertilizer freight rates — if soybean production runs smoothly in the main producing states — as drivers will be able to charge cheaper fertilizer freight rates because of the higher supply of grain cargoes on return routes.
