Corn: Brazil eliminates bottlenecks and becomes the largest exporter – 08/24/2023 – Market

Brazil should overtake the United States this year as the world’s largest corn exporter, reflecting both an abundant harvest and logistical advances, mainly the consolidation of export routes in the North region, which are increasing the competitiveness of the South American agricultural powerhouse.

Exports through the ports in the North of the country, which use the waterways of the Amazon River basin to take grain to the world, are on track to exceed the volumes shipped via the Port of Santos for the third consecutive year, according to transport data from grains analyzed by Reuters.

The move demonstrates how Brazil, which produces three crops of corn a year and still has huge tracts of underutilized farmland, is finally overcoming the structural bottlenecks that have long made it difficult to ship its products to global markets.

That, and a new supply deal with China announced last year, suggest Brazil could extend its dominance over US corn exports. The last time this happened, Brazilians briefly took the global lead. It was in the 2012/13 season, after a severe drought in North America.

Improved export capacity has helped the country fill gaps in the global market amid disruptions caused by the war in Ukraine, a major grain exporter, and US-China trade tensions.

“We celebrated a lot… when the volumes (of corn exports) through the ports of the North equaled Santos”, said Sérgio Mendes, director general of Anec (National Association of Cereal Exporters). “By using the ports in the North… you are earning R$20 per ton (of corn).”

North region export routes, in particular, benefited from a 2013 law that encouraged companies such as Cargill and Bunge, and logistics operator Hidrovias do Brasil, to build new private-use port terminals (TUPs).

With transshipment stations along the Tapajós and Madeira rivers, these structures began to connect the heart of national agricultural production to ports in the Amazon such as Itacoatiara (AM), Santarém and Barcarena (PA).

The Tegram terminal in Itaqui (MA), built and operated by foreign and Brazilian grain traders including Louis Dreyfus Commodities and Amaggi, increased its grain export volumes by 306% in eight years to over 13 million tonnes in 2022 , according to data provided by the companies.

The legislation of the TUPs, which differs from a traditional concession whose exploitation is for a determined period, triggered a wave of long-term port investments. Around BRL 39 billion were invested in the construction and expansion of 112 new terminals for private use under the new law, according to a 2020 study by the TCU (Tribunal de Contas da União).

The Brazilian agricultural industry, however, has not yet overcome all its logistical problems. For example, the country’s grain storage capacity is still small compared to competitors such as Canada, the United States and Argentina.

In Mato Grosso, the storage deficit has increased to 46 million metric tons, according to state government data through 2021, after the annual corn harvest tripled to more than 90 million tons in the space of a decade. This occurred because the construction of silos did not follow the increase in production.

Lack of storage space means farmers are forced to quickly sell their crops or store maize outside warehouses. The result is possible road congestion during harvest peaks, which can lead to more expensive freight costs.

Cheapest route to China

New export capacity has helped Brazil compete on logistical costs with US farmers.

Shipping a ton of soybeans in 2008 from Iowa to Shanghai cost 77% of the price of a shipment through ports in northern Brazil, but in March 2023 it was 5% more expensive to ship it on this same route in the United States, according to data by ESALQ-LOG and the US Department of Agriculture. For corn, freight rates are very similar, says Thiago Péra, ESALQ-LOG’s logistics research coordinator.

The Amazon basin has also become competitive with the port of Santos, which for years has been one of Brazil’s main ports for grains. About 37% of total Brazilian corn exports passed through the ports of Barcarena, Itaqui, Itacoatiara and Santarém in the first half of 2023 (4.3 million tons), according to the National Supply Company (Conab). Only 24% passed through Santos (2.8 million tons).

Eight years ago, however, Santos exported almost three times more corn than the four northern ports combined, according to data from maritime agencies.

“The greater share of shipments through ports in the North region reflects cheaper freight costs compared to routes to ports in the South and Southeast”, said Thome Guth, from Conab.

Conab forecasts that Brazil’s total corn production in 2023 will be nearly 130 million metric tons, the highest in history, and exports will reach 50 million metric tons for the first time.

Chicago corn futures have fallen from 10-year highs in April 2022 to two-and-a-half-year lows this month, in part due to ample Brazilian supply.

While improvements in export infrastructure are here to stay, it is possible that lower corn prices could discourage farmers from increasing corn production in Brazil.

Chinese state-owned trading company COFCO is now building a new grain terminal in Santos, after winning a 25-year concession to operate a structure with a capacity of 14 million tons. STS11, as the terminal is called, should operate from 2026.

The concession of the BR-163 two years ago also modernized an important corridor for the flow of grain, extending over a thousand kilometers from Mato Grosso to the ports of the state of Pará.

For years, caravans of grain trucks were regularly stuck on stretches of the BR-163, on their way to the northern ports, in a region that is rainy.

And while major rail projects still face a host of bureaucratic hurdles in Brazil, some have already gotten off the ground.

Rumo has just completed a BRL 4 billion investment in the North-South Railroad, which began in 2019. The line connects the port of Santos to the agricultural states of Tocantins, Goiás, Minas Gerais and Mato Grosso, reinforcing another important route to take the Brazilian harvests to global markets.