April 7, 2014
Program Encourages Grain Storage Expansion in Brazil
The capacity of Brazilian farmers to increase their grain production continues to surpass their ability to store that grain. With relatively little on-farm storage, the cooperatives and grain elevators in Brazil are always scrambling to make room for newly harvested grain. The lack of adequate storage forces farmers and grain merchants to sell and move their grain at times when prices are lower and transportation costs are higher. The Brazilian government recognized the storage deficit as a structural problem in Brazil and they have established a program to address the problem.
Starting with the 2013/14 Harvest Plan, the government initiated the Program for Storage Construction and Amplification (PCA) which established a R$ 25 billion line of credit that will be made available for grain storage construction. The money will be distributed at a rate of R$ 5 billion a year for the next five years. The loans carry an interest rate of 3.5%, several years of grace period before the first payment is due and 15 years to pay off the loan. These are very favorable terms and Brazilian firms have been lining up to apply for the loans.
An adequate grain storage system is normally considered to be 120% of production. This would allow for the storage of carryover stocks and all the anticipated production even if it ends up being larger than anticipated. In most regions of Brazil, the storage capacity is generally in the range of 80% of the production, but the situation in Brazil is not quite as bad as that number would indicate.
In the United States for example, all the summer crops are harvested in a relatively short period of time which requires a storage system that can handle everything at one time. That is not the case in Brazil. The tropical climate in Brazil allows for the planting and harvesting of the summer and winter crops to be spread out over many months and at different times of the year.
The biggest crop in Brazil is soybeans and the soybean harvest starts in January in northern Brazil and ends in April in southern Brazil. Even if you consider one specific geographic region, farmers plant soybeans of different maturities ranging from 95 days to 120 days. The difference in maturity alone can spread out the harvest period for at least a month. Combine that with an elongated planting period, and the soybean harvest in any given region can be spread out over a 2-3 month period. This allows grain elevators to start shipping out soybeans to exporters while the harvest is ongoing, facilitating a turnover of storage space.
Corn is the second largest crop in Brazil and more than half of the corn crop is safrinha production planted as a second crop following soybeans. The corn is then harvested in the June to August timeframe and can be put in storage after a lot of the soybeans have already been exported. This spread out cropping schedule allows the country to operate with what would be considered inadequate storage capacity.
On an individual basis, more storage capacity is highly advantageous because it can allow a farmer or grain elevator to avoid selling during the harvest lows and avoid shipping grain when freight costs are the highest.
The state of Parana for example is the second largest grain producing state in Brazil and the agricultural cooperatives in the state are taking advantage of the PCA program to increase their storage capacity by 10% between 2013 and 2015. The Secretary of Agriculture in the state estimates that the state will produce 35.4 million tons of grain combining summer and winter crops. According to Conab, the state has 27.7 million tons of storage, or in other words, their storage capacity is 78% of their production.
The largest cooperative in the state, Coamo, will expand its storage capacity by 11% by 2015. A similar scenario is playing out all across the state for other cooperatives. Cocamar in northern Parana is in the process of expanding its storage by 27%. The cooperatives Copacol, C. Vale, and Coopavel are in the process of expanding their storage capacity by 33%, 35%, and 10% respectively.