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Brazil Farmers Hit Hard by Fuel Costs

South American Crop Watch

Higher costs will ding South American grain profits

Published on: April 19, 2013

I am visiting family and friends in Illinois, and I nearly drove into a light pole when I saw fuel prices here in Chicago. The cheapest I saw was about $4.05 a gallon – and according to one survey, the city has the highest diesel prices in the nation.

That's getting close to the cost of diesel in my town in Brazil, where it sets me back $4.59 per gallon to fill up my S-10 diesel.

It's worse, though, when you're putting in fuel to haul a load of soybeans hundreds of miles to a port. And it's even worse yet, when those fuel prices are climbing while the prices of the beans you're hauling go down.

In fact, Brazil's Petrobras national fuel company raised its wholesale price to retailers twice in the first quarter of 2013: the first increase was 5.4% in January, followed by a 5% hike last month.

Higher costs will ding South American grain profits
Higher costs will ding South American grain profits

With most of Brazil's beans being hauled on eighteen-wheelers, it is estimated fuel cost increases affect a full 40% of the transportation cost for trips from distant locations like top soybean-producing state Mato Grosso. It's maybe half of that portion of total transportation costs for producers with farms relatively close to a port.

One expert told a local reporter that the 5.4% increase alone should result in a 2% or greater increase in freight costs in general.

For the record, all diesel fuel in Brazil is a 5% biodiesel blend. The increases were only on the 95% petroleum diesel part of the blend. Brazil just bought 129 million gallons of biodiesel for blending in the coming two months, at an average price of about $4.80 per gallon. 

Petrobras is raising prices to dealers in an effort to save some money. The company has been keeping gasoline and diesel costs artificially low, likely in order to help maintain a lower inflation rate in this country where inflation had gotten into the thousands of percent per year just 25 years ago.

And producers who don't have much on-farm storage have been taking the hit on fuel costs in the first quarter—just as a big crop was coming in.

Add fuel hikes to the list of this year's headaches in Brazil, along with bad infrastructure and port problems.