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July 5, 2017

Chronic Lack of Grain Storage Difficult Problem to Solve in Brazil

Everyone in the agricultural sector in Brazil realizes that a chronic lack of grain storage in the country puts Brazilian farmers at a disadvantage compared to its main competitors - the United States and Argentina. Despite agreement on the problem, a suitable solution to the problem continues to elude the Brazilian government. To make the situation even worse, grain production in Brazil continues to expand faster than the meager gains that have been made in increasing the grain storage capacity.

According to the Brazilian Ministry of Agriculture, less than 60% of the credit offered by the Brazilian government over the last four years for the construction of grain storage has been accessed by farmers to build on-farm grain storage.

Since the 2013/14 growing season, the Ministry of Agriculture has made available R$ 12 billion for subsidized investments in building grain storage, but only R$ 7 billion has been utilized. The way the government subsidizes the investment is to offer below market interest rates to qualified farmers. The interest rates on the loans have varied over the years, but they will decline to 6.5% in 2017/18 compared to 8.5% last growing season. During most of the time that this program has been in effect, the interest rates at a private banks have been in the upper teens or higher depending on each farmer's financial situation.

The Brazilian government has been unable to determine why the program has underperformed. One hypothesis put forth by the government is that farmers have turned cautious during a time of economic uncertainty in the country. For their part, farmers know why the program has underperformed. They claim the entire process is overly complicated and they blame unnecessary bureaucratic hurdles such as requiring an environmental licenses to build a grain silo and banks making it hard to qualify for the loans as to why the program has underperformed.

For whatever reason or reasons, the Ministry of Agriculture estimates that only 8% of the grain storage in the state of Goias is on-farm with the remaining in the hands of the grain companies and cooperatives. The lack of storage means that at least 40% of the safrinha corn in the state of Goias will not be stored in a permanent storage facility. The remainder may be piled outside at the grain elevator or stored in silo bags on the farm.

Silo bags offer a cheap but temporary storage solution for farmers who do not want to pay for storage at the grain company or cooperative. The equipment needed to fill and empty the silo bags cost approximately $25,000. A typical silo bag cost about $575 and it can only be used only one time. The average size bag can hold 6,600 bushels for up to 18 months if the grain is dry and in good condition when the bag is filled. Not counting the equipment or labor needed to fill and empty the bag, it is a very economical way to store grain, only costing about 9 cents per bushel.

The popularity of silo bags has increased tremendously in recent years in both Brazil and Argentina as farmers struggle with low commodity prices. This temporary storage option allows farmers to hold their grain off the market in the hope of improved prices going forward.