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August 31, 2018

New Programs Launched for Construction of Grain Storage in Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

One of the main problems faced by Brazilian farmers is the lack of on-farm storage that forces farmers to either sell their crop at harvest or pay for storage at the local cooperative or grain elevator.

The Food and Agriculture Organization of the United Nations recommends that a country should have enough grain storage capacity to store 120% of its annual grain production. Brazil has the capacity to store less than 80% of its grain production and less than 15% of the grain can be stored on-farm. There has been a push in recent years to increase the on-farm storage capacity, but unfortunately, the increase in grain production has outpaced the increase in storage capacity.

Two Brazilian financial institutions are now trying to address the issue of inadequate grain storage by offering new lines of credit for the construction of on-farm grain storage. The two institutions are Sicredi, which is a cooperative financial institution similar to a credit union and the Brazilian National Development Bank or BANDS.

In Sicredi's PAC Program (Construction and Expansion of Storage Program), they will finance up to 100% of the cost of the storage unit with a limit of R$20 million. The program is for the construction, expansion, or modernization of grain storage facilities and it is open to small, medium, and large producers.

The borrower will have 180 months to pay off the loan with no payments for the first 36 months. The interest rate on the load will depend on the size of the storage unit. For storage units up to 6,000 tons, the interest rate will be 5.25%. For storage units larger than 6,000 tons, the interest rate will be 6%.

The program from BANDS is open to micro, small, and medium size producers. They can finance up to 100% of the cost and the limit per individual will also be R$ 20 million. The loans are for 120 months, also with no payments for the first 36 months. The interest rate on the loan will be equal to the prime rate.

Having adequate grain storage on-farm could easily pay for itself by allowing farmers to sell their grain generally at higher prices after the harvest pressure has passed. They could also save money on transportation costs if they could store their grain. Freight rates are generally the highest at the time of harvest and shortly thereafter when the export season is in full swing. If a farmer could wait a few months to move his grain, there could be a saving of up to one dollar per bushel just on transporting costs.

Additionally, being able to store the grain on farm would speed up the harvesting process. Without on-farm storage, the combines must offload into contracted trucks that then haul the grain to the local cooperative or grain elevator. At harvest time, there may be very long lines of trucks waiting to unload and there can be significant delays (several days) before the trucks can return to the field. If the trucks are not available, the farmer cannot harvest his crop and the longer the crop stays in the field, the greater the risk that it could be impacted by adverse weather.

Between the two main crops in Mato Grosso, corn would benefit the most from increase storage capacity. Currently, a lot of the safrinha corn is piled on the ground due to the fact that many of the grain storage units are still occupied by the last soybean crop. Any time grain is stored outside, there is the possibility of losses.

Nationwide, Sicredi operates in 22 states with more than 1,600 offices and 3.8 million members. Sicredi Centro Norte is composed of the states of Mato Grosso, Rondonia, Para, and Acre with 166 offices in 134 municipalities and 388,000 members, 16% of which are directly involved in agriculture.