Low liquidity in Brazil's fertilizer market has got several sectors concerned about the possibility of logistical bottlenecks when the products stored at the ports are shipped.
Forward sales of soybeans and corn are lagging year-earlier levels because of lower prices. This contributes to slower buying of inputs for the 2023-24 soybean crop, even with barter rates at more favorable levels for farmers. Fertilizer deliveries to the market have been slower since the beginning of the year. According to data from the National Association for Fertilizer Diffusion (ANDA), 12mn metric tonnes (t) were delivered between January-March, down by 3.7pc compared with the same period in 2022.
The situation is also affected by the cancellation of fertilizer purchase contracts. Some farmers are refusing to receive nutrients whose contracts were signed in previous periods and at higher prices.
In this case, the drop in fertilizer truck freight rates is even more accentuated this year, because of the lower demand for transport services so far. In 2022, truck freight on the Paranagua-Rondonopolis route in June reached an average price of R243 ($50)/t, down by 20.5pc from January 2022, when freight reached one of the highest levels of the year. In 2023, freight on the same route in June was R201/t, down by 35pc from January.
On the Santos/Cubatao-Rondonopolis route, the average freight rate in June 2022 reached R253/t, down by 10.1pc from January. In 2023, average freight in June was R243/t, down by 20.5pc from January.
Therefore, there is concern that remaining deliveries of fertilizer that are in storage will also be slower, especially from some origins, as there is a risk of facing long queues at Brazilian ports, even with lower fertilizer imports expected in 2023.
Brazil's fertilizer imports this year are lagging last year. According to Global Trade Tracker (GTT) data, considering the main types of fertilizers and raw materials, 15.6mn t were imported between January-May 2023, down by 8pc compared with the same period last year. Importantly, a high volume was imported in 2022 in this period because of concerns over the conflict between Russia and Ukraine.
However, fertilizer stocks are high, which contributes to higher supply in the domestic market. According to ANDA data, at the end of 2022 stocks were at 9.2mn t, up by 19.1pc from the 7.7mn t held at the end of 2021. Therefore, there is significant volume to be delivered to producers.
This is also poised to raise logistics costs, since with higher demand for transportation, truck freight rates for fertilizer originating in the country's main ports should rise amid competition for available vehicles.
In this logistics equation for road transport of fertilizer, the harvest of second corn crop 2022-23 could help make fertilizer freight cheaper because of the backhaul conditions. When fertilizer volumes arrive at their destination, if there are grain loads available for transport, drivers are able to accept a better rate.
But with the decreases in quotations and export premiums, which have declined more intensely since March, the trend is that farmers opt to keep grains and oilseeds in storage, waiting for higher prices for the second half. There is also a significant volume of soybean awaiting negotiation, which impacts fertilizer backhaul conditions. In this case, fertilizer freight ends up being more expensive, while the worst situation for truckers is to drive empty on the road, where they depreciate vehicles and receive nothing in return.
New possibilities in Northern Arc
Growth in the role of the Northern Arc ports in grain exports is already a reality, as it is an important avenue for Brazilian exports.
This region has been gaining more attention from producers, especially from Mato Grosso state, the country's largest soy producer. It is also becoming a logistics point for moving fuels from the north-central region.
These new conditions contribute to ease the queue of ships and flow of trucks that are usually concentrated mainly in Santos and Paranagua ports. Brazil's Vila do Conde port was recently cleared to export corn to the Chinese market.
With grain drawing increased relevance, the fertilizer segment is not a laggard, not only as a different origin, but also as a modal alternative to road transportation. Logistics company VLI started operating the railroad connecting the port of Itaqui, in Maranhao state, to Tocantins state. The corridor has the capacity to transport 1.5m t/yr of fertilizers and should meet demand of farmers from Mato Grosso do Sul, Mato Grosso, Bahia, Piaui and Tocantins, as well as the Federal District.
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