Bumper crops and stable trade boost prospects for Brazil railway

Brazil’s major railroad operator is bracing for a busier year as easing global trade tensions and expectations of bumper crops boost transportation demand in South America’s farming powerhouse.

Rumo SA, a logistics giant that owns 13,500 kilometers (8,400 miles) of railway lines linking Brazil’s agriculture heartland to the nation’s largest coastal ports, started the year with twice as many contracts to transport agricultural commodities than a year ago, Chief Executive Officer Joao Alberto Abreu said. He sees easing global trade tensions and surging agricultural prices as signs of better times ahead.

“We expect 2021 will be a more favorable year,” Abreu said in an interview.

The CEO’s optimism comes as Brazil, a major world supplier of soybeans, sugar, coffee and chicken, stands to benefit from an increasing global demand for agricultural goods and food, led by China. Brazilian farmers and producers rely on rail and other transport modes to get their crops to overseas markets.

Trade Stability

Agricultural trading firms are setting up more transportation contracts due to greater stability in global trade as tensions between China and the U.S. ease, Abreu said. Attractive commodity prices that prompt farmers to sell more crops and a recovery of diesel prices, which adds costs to rival truck transportation, also contribute to the improved outlook for the company that’s controlled by Brazilian conglomerate Cosan SA.

Rumo expects to transport at least 15% more agricultural commodities this year, which will probably boost annual operational earnings by at least 9%, compared to last year’s 4.3% decline, according to March 4 company guidance. Heightened competition from trucking and other factors cut profit margins by more than half last year, despite a 4% increase in transport volumes during a record Brazilian crop.

The paving of a major highway in Brazil’s northern export corridor improved an alternative to rail, with increased competition lowering costs for trading firms to send soybeans and corn from a key grain-producing region to northern ports. The northern corridor loaded 16% more soybeans in 2020 than the prior year, according to data from Abiove, a group representing major trading houses.

Brazil has been harvesting a record soybean crop that will be shipped mostly in the first half of this year. For the second half, when lineups at ports are mostly dominated by corn and sugar shipments, the outlook is for bumper production of both commodities despite weather woes.

Excessive rains have caused a historic planting delay of a second corn crop, though Abreu said it’s too early to speculate on the impacts for the key crop.

“We still have many months ahead,” he said. “Farmers have the technology to ease impacts from delays.”