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31/10/2017 0:00 - Agricultural Commodities Market
JULIO CALZADA - SOFÍA CORINA
The impact of freight costs on soybean profit margins

The Rosario Board of Trade remains concerned about the costs of transporting grains and their byproducts from the northern regions of Argentina to ports located in the Greater Rosario Area, since they hinder their competitiveness in the global market. In the following piece, we analyze the impact of freight cost in soybean producers’ profit margins.

Our analysis begins by establishing the following assumptions:

a) We study the case of three different producers that plant early soybean for the 2017/18 marketing year at distances of 150 km, 700 km and 1150 km from the ports of the Greater Rosario Area. An example of the two latter cases could be the cities of Quimilí (in the province of Santiago del Estero) and Joaquín V. González (in the province of Salta).

b) For each case, we estimate the costs in US dollars per hectare for either rented or own fields: inputs, fieldwork, freight, taxes, etc.

c) We assumed yields of 4 tons/ha, 2.7 tons/ha and 2.5 tons/ha for each of the cases mentioned above.

d) We assumed a sale price for soybeans at harvest date of USD 267 per ton, based on futures prices from ROFEX and MATBA.

e) Lease costs were estimated at 1.5 tons/ha, 0.6 tons/ha and 0.4 tons/ha for each of the cases mentioned above.

The results are summarized in the following table:

 

To avoid overestimating the impact of freight costs on profit margins, we adopted the following assumptions:

a) The distance of short truck freights was set at 20 km. Freight rates were obtained from FADEEAC in force since August 1 2017.

b) We applied a 20% discount on freight costs.

 

The following can be concluded from the presented data:

a) Freight costs represent USD 93/ha, USD 117/ha and USD 141/ha for producers located at 150 km, 700 km and 1,150 km respectively. This is 9%, 16% and 21% of gross profit for a producer who owns land in each case. In terms of net profit, freight costs represent 30%, 92% and 177% in each case.

These numbers show how crucial transport costs have become for producers located away from port regions. In order for them to become more competitive, further development in the use of trains and barges is necessary. However, we must also mention the challenges faced by truck transport. In a report from FADEEAC commissioned by IAPUCO , truck freight rates were found in average to be composed of:

a) Taxes and other charges represent 37.4% of the freight rate.

b) Salaries, fuels and overhead costs represent 40% of the freight rate.

c) Truck maintenance and replacement represent 7% of the freight rate.

d) Profits represent a mere 6% of the freight rate.

As we can see, tight profit margins remain a challenge in reducing truck freight rates.

In the search for a more efficient and integrated transport system that minimizes costs, the intermodal use of trains, barges and trucks becomes a necessity. The latter is key to this system and serves an irreplaceable role in the local economy, but is inadequate for long distance travel, which should be served by trains and barges. Public works on the Belgrano railway line in the Joaquín V. González – Avia Terái – Greater Rosario segments keep advancing. This work will be crucial for the development of the northern regions of the country, and is expected to be finished in about 3 years.

We are thankful for the collaboration and contributions from Diego Bernardo Putingnano and Aníbal Córdoba from the Chacabuco Department in the Province of Chaco.

 

 Institutional video


Institutional Video of the Bolsa de Comercio of Rosario (Rosario Board of Trade)

 Rosario Board of Trade

The Rosario Board of Trade is a centennial institution located in Rosario, in the most important agroindustrial zone of Argentina. Throughout its history it has created and boosted transparent, solid and reliable markets: the Grains Physical Market, the Futures Market, the Capital Market, and the Livestock Market.

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Bolsa de Comercio de Rosario Córdoba 1402 - S2000AWV
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Rosario - Santa Fe - Argentina

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