BRAZIL, South America's largest grain and oilseed exporter, has a big problem: getting corn and soybeans to overseas markets.
While stories of massive backlogs at Brazil's ports dominated news out of the country earlier this year, year-round production and relatively low costs have placed the country on the cusp of being the world's top producer and exporter of several key agricultural commodities.
According to projections from the U.S. Department of Agriculture, Brazil is set to surpass the U.S. as the world's largest soybean exporter in both the 2012-13 and 2013-14 marketing years.
Recent operational expansions have allowed the ports to trim their record backlogs from earlier in the year, with USDA forecasting nearly 38 million tons of exports this year and more than 41.5 million next year.
While soybeans have long been a key export commodity for Brazil, corn has recently become a major part of its export portfolio as well. According to an analysis by the U.S. Grains Council (USGC), the country has doubled its corn production since 2000, almost entirely due to its second corn crop.
In recent years, winter corn planting has expanded rapidly, with soybean planting becoming more prominent in the spring.
First-crop corn area declined from 10.5 million hectares in 2000 to only 6.9 million last year, while second-crop acreage increased from 2.4 million hectares to 8.9 million (Figure 1).
With improvements in seed and production technologies, first-crop corn production has remained constant at roughly 35 million metric tons, while second-crop corn production rose from 6.5 mmt in 2000 to 44.2 mmt in 2012 (Figure 2).
As Brazil's production has grown, so have its exports, significantly eroding what had typically been an overwhelming dominance held by U.S. corn exporters.
The U.S. share of the corn export market is expected to fall below 20% in 2012-13 for the first time ever, compared with 50-75% of the global market for much of the past century. USDA's Economic Research Service noted that while the U.S. is expected to return to the top spot next year, it will remain well below 50% of the total market, with Brazil and the Ukraine each picking up a 15-20% market share.
Given such rapid expansion in production, it's little wonder that Brazil has struggled to handle a relatively unprecedented glut of corn and soybeans. According to USGC data, Brazil exported an estimated 21 mmt of corn last year, benefiting from the extreme tightness in the U.S. corn supply.
The country's storage capacity, however, is much smaller than its production capacity. While corn production could push 188 million tons this year, Brazil's estimated storage capacity is barely 145 million.
Even though Brazil has earmarked $30 billion to build additional storage over the next six years, that may be cold comfort come harvest time. USGC noted that the significant lack of transportation infrastructure will be an issue again this year.
From January to May, ports in the southeastern and southern regions of Brazil handled an estimated 93% of corn and 86.9% of soybean exports. If ports in the north handled more grain, the storage shortfall in major producing areas would not be such a concern.
Also, given that 65% of Brazil's storage capacity is located on the coast while most of the new production areas are in the heart of the country, the shortcomings in grain transit infrastructure are exacerbated. The Mato Grosso state, for example, expects to produce some 40 million tons of corn and soybeans this year but is home to only 30 million tons of storage, according to USGC.
"There is a 34% undercapacity of soybean storage, and the situation is aggravated by the rapidly increasing production of second-crop maize," Peter Goldsmith, University of Illinois agricultural economist, said. "The worst situation occurs in northern Mato Grosso with a simulation of a full-maize second crop. There is clear evidence of a shortage of storage, particularly private and cooperative, as grain production rises in the state."
Goldsmith's research in Brazil found that Brazil's storage and transportation dilemma leads to a 10% postharvest loss.
"Losses occur in three areas: grain that's left standing in the field after a harvest, during the short-haul when grain falls off of the truck in transportation from the field to either storage or commercial sale and loss of private storage," he said.
While short-haul loss is fairly minimal in the U.S., unpaved and poorly paved roads plus older, worn-out trucks lead to a loss of approximately 3% in the developing world.
Brazil's growers have figured out how to produce bin-busting crops fairly frequently. If the country's policy makers and agribusiness titans can figure out how to get the crop from field to port more swiftly, Brazil's share of the global market might expand as well.