February 8, 2013

Increased Grain Production Worsens Storage Deficit in Brazil

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

The record large 2012/13 grain harvest predicted for Brazil by Conab (185 million tons of grain) means that there will also be record amount of storage needed as well. Unfortunately, the increase in storage capacity in Brazil has not kept pace with the increasing grain production.

The combined total amount of storage available in the 176 grain storage facilities (both private and public) in Brazil is 145 million tons, which is only 78% of the anticipated production. The Food and Agriculture Organization of the United Nations (FAO) recommends that countries maintain a storage potential of 120% of the anticipated production. To meet the standard indicated by FAO, Brazil would need 220 million tons of storage or 77 million tons more than the current capacity.

Industry experts feel the deficit is even larger than indicated by the numbers because some of the existing storage is not suitable for soybeans or corn, which are the crops increasing the fastest in Brazil. Mato Grosso is the largest grain producing state and the storage deficit in that state alone is estimated at 10 million tons. The situation in the state has gotten worse over the last two years during which time the production of soybeans and corn in the state has increased 9 million tons.

Over the last several years, soybean production has surged in eastern Mato Grosso as farmers convert some of their pastureland to row crop production. Unfortunately, in some areas the nearest grain elevator is up to 300 kilometers away, which increases the already high transportation costs.

Industry sources state that R$ 10 billion would need to be invested in new storage capacity just to meet the current demand and that R$ 29 billion would be needed to meet the anticipated increase in production expected over the next decade.