Brazil rail operator frets as El Nino threatens soy, corn crops

Brazilian railway and port terminal operator VLI is bracing for a challenging 2024 given the expectation of smaller corn and soybean harvests in the north of Brazil, a key region for the company's shipping operations, a director said.

VLI moves soybeans, soymeal and corn, which accounted for more than 37% of the total cargo it handled last year. VLI also transports fertilizers, sugar, fuels, forestry products, steel and minerals.

In 2023, grains should account for around 40% of the total cargo shipped by VLI, amid record soy and corn crops in Brazil this year, said Carolina Hernandez, VLI's commercial executive director.

She declined to give an estimate for total cargo to be shipped by VLI in 2023. For 2022, it was 58 million tons, she said.

"The commercial strategy is to maintain the railway's shipping volumes," said the executive, a Colombian national who has been in Brazil for 17 years and took up her role at VLI this year.

But keeping steady shipping volumes won't be easy.

With the climate phenomenon El Niño, less rain is expected for the Matopiba, Brazil's new agricultural frontier, while central-west states such as Mato Grosso and Goias also suffer from drought and high temperatures, hurting soy and corn production.

Hernandez said she expects a drop of around 15% in the corn harvest in the VLI's main operating areas in the north of Brazil.

For soybeans growing in the north, around the Matopiba area, the drop in output should be below 5%, she said.

"There is greater concern with corn than with soybeans," she said. "In El Nino years, the Matopiba harvest suffers..."

Vale VALE3 owns nearly 30% and Mitsui 8031 20% of VLI with the remainder split among other shareholders, primarily investment funds.