Brazil Logistics Improve - 3

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By Alastair Stewart
DTN South America Correspondent

SAO PAULO, Brazil (DTN) -- Brazil's grain transport and port logistics has coped well in 2016.

With new port capacity due to come on line in the next few years, Brazil hopes to have put the years of massive soybean truck lines and long loading delays behind it.

"We want to promote farm exports and we will push the port and transport infrastructure will allow us to achieve that," said Neri Geller, executive secretary at the Brazilian Agriculture Ministry.

THE FUTURE IS NORTHERN EXPORT CORRIDORS

While this year's performance has been driven by improvements at the southern ports, the key to long-term growth is the development of the northern export corridors through the Amazon region to northern coastal ports.

These routes will allow for the development of grain production along the northern frontiers of the Cerrado, which are over 1,000 miles away from southern ports and will be grain specific and therefore more efficient.

Heavy investments by trading companies in northern port installations have allowed shipments to rise dramatically over the last two years, reaching 20 million metric tons (mmt) in 2015, according to government data.

A series of new terminals are due to open over the next couple years, specifically at Miritituba where eight barge terminals are being constructed to take Mato Grosso soybeans up to sea ports along the Amazon. Meanwhile, terminal capacity will expand at Bacarena, Santarem and Itaqui ports, among others.

"We will be seeing the addition of new capacity every year. The northern ports are turning into a joined-up export corridor," said Edeon Vaz, head of Movimento Pro-Logistica, a farmer-lobby group on logistics.

The investments across the northern export corridors will translate into a 16 mmt increase in soybean shipments, or a 30% overall rise, by 2025, predicts Rabobank.

That needs to happen as Brazil's soybean and corn acreage continues to grow.

Geller forecasts that Brazilian grain planted area will grow by 5 million acres or more in the upcoming 2016-17 season amid what appear to be super-attractive margins.

Meanwhile, Brazil has over the last couple of years solidified its position as a leading corn exporter.

CHALLENGE IS CONTINUED LONG-TERM EXPANSION

Therefore it is important to maintain the momentum and ensure new northern export capacity continues to come through the pipeline.

The single biggest threat to that is the political and economic instability currently cursing Brazil.

In May, Congress opened impeachment proceedings against President Dilma Rousseff, who was replaced by her running mate, Michel Temer.

With impeachment likely to be confirmed, Temer is outlining his plan to boost the economy, which is in the middle of one of the deepest recessions in its history.

The good news is a key part of the plan is to stimulate private investment in logistics by cutting red tape.

However, this plan took an early hit when early this month the government was forced to suspend the tender auction for six new grain port terminals in the northern state of Para amid concerns that there would be no proposals.

It isn't that nobody is interested, but the economic and political situation is so turbulent, and credit so hard to come by, that investors are not willing to take the plunge.

Brazil needs to stabilize and establish credibility before exporters begin investing again, noted Pro-Logistica's Vaz.

Meanwhile, the downturn in the economy and the perilous state of government accounts has forced the Temer administration into austerity measures, with dire consequences for the infrastructure budget.

One of the first casualties is the completion of the paving of the BR-163 highway that links Mato Grosso and Miritituba and Santarem.

However, farm leaders are confident that the government will seek to push through projects in the medium term.

"Agriculture is one of the few parts of the economy that is growing. The government will seek to foster it," said Sergio Mendes, executive secretary at the Brazilian Cereal Exporters Association (ANEC).

That is vital for logistic to remain the Brazilian grain sector's biggest issue.

The new routes will bring down sky-high grain freight costs of exporting from the northern reaches of the Brazil's grain belt. It can cost three times more to transport grain to port from the interior of Mato Grosso than from Iowa.

But the current projects will not lead to a paradigm shift in freight costs. For that to happen, projects to barge grain straight out of Mato Grosso via the Araguaia and Tapajos rivers or to create new rail links from the Cerrado to port have to be implemented.

"There are a lot of plans, but not many of them are actually economically viable," said Renato Pavan of Macrologistica, a logistics consultancy.

The seasonal nature of grain exports means that a lot of these projects only work in conjunction with mining operations, as minerals guarantee yearlong cargos, he explained.

Alastair Stewart can be reached at astewartbrazil@gmail.com

(ES/SK)