SAO PAULO (Reuters) - Grains origination company Gavilon do Brasil could become Brazil’s largest non-traditional, “asset-light” soybean exporter to China in three years despite being a relatively new player here, a top executive said.
Brazil general manager Fabrício Mazaia said in an interview the firm could reach that goal without immediately investing in assets such as port facilities or processing plants.
Gavilon, a subsidiary of Japan’s Marubeni Corp and an indirect subsidiary of U.S.-based Gavilon Agriculture Investment, traded in 5.36 million tonnes of agricultural commodities in fiscal 2017, mainly soybeans and corn, a 73 percent overall rise from the previous year.
Under its “conservative” projections, total traded volumes could reach at least 7 million tonnes in fiscal 2018 and 10 million in three years, Mazaia said.
“Under our asset light model, I believe this is the limit we can grow to,” he said in an interview last week, referring to the 10-million-tonne mark.
Gavilon’s strategy in Brazil, where it has operated for four years, marks a shift from the model used by the big commodity traders, which own logistical infrastructure and processing plants.
The firm now ranks eighth among the largest soybean exporters, according to data from shipping agency Cargonave for the year through July. This year, Gavilon could become Brazil’s top wheat exporter, accounting for up to 40 percent of total estimated exports of 1 million tonnes, Mazaia said.
Despite the early success, Gavilon faces headwinds as margins tend to remain tight due to fierce competition in sourcing grains in Brazil, where future sales have lagged due to uncertainty over trucking freight costs.
New freight rules, set by the government as one of the measures to end a crippling truckers strike in May, hampered future grains sales and made Gavilon increase transport-related provisions against higher freight costs, Mazaia said.
As a result of the freight uncertainty, more grains tend to be traded on the spot market, which can be detrimental to margins and long-term planning for all grain handlers, he said.
“The bid-ask spread widened from cents to up to 5 reais per bag,” Mazaia said, referring to the state of soy negotiations after freight rules changed.
While buying infrastructure assets is not a priority under Gavilon’s model, port terminals and trans-shipment hubs could be added in the future, the executive said.
Mazaia said the company does business with farming operations that already have infrastructure in place.
Reporting by Ana Mano; Editing by Jeffrey Benkoe and Leslie Adler