June 3, 2013

Only 5% of Brazil's Burgeoning Grain Production Stored On-Farm

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

Brazil's new Harvest Plan 3013/14 is expected to be released to the public on Tuesday, June 4th, and one of the main provisions of the program is to significantly increase the amount of funding to build additional storage capacity for Brazil's grain production. According to comments made by Brazil's Minister of Agriculture, Antonio Andrade, at the recent Bahia Farm Show, only 5% of Brazil grain production is stored on-farm, which is much less than the 30% to 60% that is stored on-farm in other major agricultural countries. I think 5% is too low, but I will defer to the Minister. The lack of storage capacity in Brazil is going to be addressed by offering an expanded line of credit and low interest loans for the construction of new storage facilities, both private and public.

One of the main reasons why Brazil's infrastructure did not collapse under the weight of record large soybean and corn crops in 2012/13 is because the two crops are harvested at different times of the year. The soybean harvest begins in January and ends in May. The full-season corn harvest starts in February and ends in May as well, but the larger safrinha corn harvest starts in June and ends in September.

The general lack of storage is one of the driving forces behind the very high transportation costs in Brazil. Without adequate storage, everyone needs to transport their grain at the same time which results in long lines of trucks at grain terminals and port facilities and increased costs. Other driving factors include a reliance on trucks to transport nearly two-thirds of Brazil grain production, and the long distances from the production fields in central Brazil to port facilities in southeastern Brazil.

Research in Brazil indicates that on average it costs R$ 170 per ton (US$ 85 per ton) to transport the grain to export facilities in Brazil. This is nearly four times more than just eight years ago and it is four time higher than in neighboring Argentina. The transportation problems in Brazil are estimated to cost the Brazilian economy upwards of R$ 5 billion per year.

Brazil will never be able to compete with Argentina in terms of transportation costs because of the nature of the grain production in the two countries. Approximately three quarters of Argentina's grain is produced within a few hundred kilometers of the port facilities along the Parana River, whereas in Brazil, some of the principal grain producing regions are up to 2,000 kilometers from the port facilities in southern Brazil.

Another problem in Brazil is that only 24% of the 17,560 grain storage facilities in Brazil are certified to store publically owned grain. The federal government purchases grain in order to support prices or assist small farmers impacted by drought in northeastern Brazil, but the government's own facilities are inadequate to do the job so they must rely on private facilities. The problem is that they have been very slow to certify these private facilities for storage of publically owned grain.