Pledges made by Brazil’s president to hike minimum truck freight rates, and enforce them in order to head off a new trucking strike, would cripple internal trade in soybeans and corn, market sources said Monday.
Last week, President Bolsonaro pledged to reflect an 11% rise in diesel prices in government-set minimum freight rates, a move that came after several trucking unions warned that they would repeat last year’s strike in response to rising diesel prices.
A repeat of a strike would likely once again cripple the economy and movements of Brazil’s commodities.
Although wholesale diesel prices fell sharply in October and November last year and were largely stable in December and January, prices shot up nearly 11% in February and again in March.
They have risen an additional 5.6% in April so far, while minimum freight rates have been held unchanged.
“The agreement is not 100% clear because it was just an attempt to avoid a strike. We don’t know what the new rates will be, but a sort of agreement has been reached. But like any other cost, it is the farmer who will in the end have to pay for it,” said Steve Cachia, of Brazil-based brokerage Cerealpar.
Cachia estimates that freight rates will have to increase 4% to compensate for rising diesel prices.
Last year, the minimum freight table was brought in to compensate truckers for what they said were unsustainable price hikes in the cost of diesel.
In Brazilian law, the minimum freight rate has to be revised if diesel prices move 10%.
While initial estimates suggested that it could add $50-80/mt on the cost of shipping soybeans and corn from the interior to the ports, enforcement of the law has not been robust.
“At first, sellers only wanted to sell (crops) FOB interior and buyers only want to buy CIF delivered. So far, there is no news of inspections and fines and freight rates for spot positions are negotiating below the table anyway,” one market source said, requesting anonymity.
“If they follow the table, inspect and fine, the market will come to a halt and it will take some time to adjust,” the source said, adding that costs are transferred to the ones who contract the freight.
A third source agreed.
“There is some buying FOB interior, but many won’t take the risk. We saw this last year and I expect we will see the same [reaction] if the government is serious,” said the third source, who also requested anonymity.
The news of higher costs comes as the price of soybeans futures has fallen sharply, dragging soybean prices in real terms at the port of Paranagua to a three-month low, according to Agricensus data.
“I’ll tell you the truth, nobody knows what will happen, probably [not even] even Bolsonaro,” said Aldo Lobo, an analyst with brokerage Granopar.