Soy ships head to Brazil early, expect to pay heavy delay costs

Big trading houses are dispatching an armada of ships to Brazil hoping for a good spot in line to load up a record soybean crop that will largely not hit local ports for a few more weeks.

The price of Panamax shipping capacity on the global market has responded in anticipation of bumper grain crops approaching harvest in South America. Baltic drybulk prices have risen 15 percent so far in 2013.

Two vessels scheduled to arrive in the next two or three days in the Amazon port of Itacoatiara will likely be the first to carry off new crop soybeans. See: Williams Shipping Lineup

Nonetheless, more vessels are scheduled to arrive long before soybeans reach the ports in anticipation of a rush that will clog Brazilian infrastructure and slow exports.

"The expectation is that we have lineups of up to 45 days," said lead analyst Andre Pessoa at consultants Agroconsult. "Starting in February we are going to be living this problem very intensely," he told journalists in Sao Paulo on Tuesday.

If it rains, as it did in 2010 during the loading of Brazil's massive sugar harvest, the delays could be even greater. Brazil's ports stop loading during downpours.

Global stocks of soybeans used in a wide array of products ranging from chicken feed to salad dressing have dwindled to record low levels due to severe droughts over both the U.S. and South American farm belts last season.

Brazil is sitting on a record crop of up to some 85 million tonnes and will be the only main global supplier until Argentina begins exporting in late March and April.

Brazil's crop is 30 percent bigger than last year's, which is good news for big importers of soy, such as China. But the South American farming giant added no new capacity to its ports despite projections that it would overtake the United States as the largest producer of soy.

Consultants FCStone estimate that between February and May, when Brazil is the world's main source of soybeans, the country will only be able to export a maximum of 22.7 million tonnes.

Pessoa of Agroconsult estimated Brazil's peak capacity to export soy was about 8 million tonnes a month, if all the country's ports were operating optimally. Brazil ports are no strangers to unforeseen disruptions though.

In the past few years, a few ships have added rip shiploaders, which are vital for getting the soy into the holds of vessels right off the piers. Rains once washed out the main mountainous road to the principal grain port of Paranagua.

Ports in Brazil's North, Northeast and South have over the past decade begun to export smaller volumes of the crop and taken some pressure off the main southern ports of Paranagua and Santos, which are prone to congestion.

PREPARE TO WAIT

Yet this season, some of the expected wait to load ships was premeditated by big importers including China as a way to increase the odds that they get the first Brazilian soybeans available for export.

"The cost of demurrage (an idle ship) runs about $15,000 to $20,000 a day, so if you do the math, it pays to pay for 20 sometimes up to 30 days of demurrage to be the first to load," the head of the soy desk at a big multinational trader in Brazil said. "That seems to be China's strategy."

The rush of soy through the ports will be most intense during March and April, when most of the 25-million-hectare soybelt is in full harvest.

Although very early harvesting started in late December in the main soy state of Mato Grosso, much of this small quantity will be snapped up by local grain crushing industries for pork and poultry feed markets and by biodiesel producers.

The crop is still three weeks away from arriving at big southern ports in volumes sufficient to allow steady loading of ships, traders said.

Brazil lacks sufficient warehouse and silo capacity to handle the bumper crop that is coming down the pipeline and small to medium producers unaffiliated with the big trading houses have traditionally used trucks and port silos as de facto storage, but this puts added pressure on infrastructure.

A recent study by the federal statistics institute IBGE estimates Brazil has just shy of 58 million tonnes of warehouse and silo capacity to handle what could be 85 million tonnes of soy this season.

In past years, ports including the main grain port of Paranagua registered lines of trucks streaming nearly 60 miles (100 km) from the port. But Santos and Paranagua have since implemented restrictions, requiring trucks arriving to have designated ships to pick up their cargoes.

"The days of the long truck lines are over for the most part," said trader Leao D'Avalo at Granos Consultants based in Mato Grosso. "But that's not to say we aren't going to have some major logistic problems February through April." (Additional reporting by Caroline Stauffer; Editing by Nick Zieminski)

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