Will Matopiba Change the Competitive Landscape in the International Grain Market?
In a previous Cornhusker Economics article, I discussed changes in the corn market and highlighted how the rapid growth of the Brazilian winter crop has been reshaping the market within Brazil and abroad. However, since corn exported by Brazil comes mainly from the country’s center-west, its competitiveness in the international market is grossly impacted by the transportation infrastructure in Brazil. The same issue applies to Brazilian soybeans as well.
The development of a new agricultural frontier in Brazil, in a region known as Matopiba, may help Brazilian grain become more competitive and bring more changes to the world market. Before we talk about this new frontier, let’s take a look at some numbers for competitiveness in the world market in order to better understand how the new production area in Brazil may change the landscape.
Export competitiveness in corn and soybean markets
A study from the ERS-USDA illustrates how the notoriously poor infrastructure in Brazil hurts its competitiveness in the world market1. They calculated transportation costs of corn and soybeans exported from the United States, Argentina and Brazil (large exporters in the world market) to Egypt and Japan (large importers of corn) and China (the largest importer of soybeans).
For each country, they started with farm price (which essentially reflects production costs) and added transportation, handling, and other costs involved in taking the grain from the farm to the export port. Specifically for Argentina, they also accounted for export taxes levied by the Argentine government and other export restrictions occasionally imposed, which represent extra costs for farmers (policy-related costs). Farm price plus the cost to move grain from the farm to the port gives us the FOB port price, which is the corn price at the port after it has been loaded onto the vessel. Finally, they added ocean transport cost to find the landed cost of grain in the destination country.
Read More of the June 19 Cornhusker Economics published by the University of Nebraska-Lincoln Department of Agricultural Economics and view tables comparing production and export costs for corn and soybean in Brazil and the US.