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March 16, 2017

Grain Storage Deficit to be Focus of Brazilian Producers in 2017

Logistical deficiencies in Brazil were highlighted in recent weeks with the blockage of highway BR-163 between Mato Grosso and the Amazon River for approximately three weeks due to heavy rains turning the unpaved sections of the highway into impassable mud holes. These sort of infrastructure problems make for dramatic pictures that everyone can relate too.

Probably a more significant infrastructure problem in Brazil is the lack of grain storage. This deficit in grain storage is harder to see and harder to relate to, but it is probably much more important to farmer's bottom line than the temporary closure of a highway.

Without adequate storage, farmers are forced to sell more of their grain production out of the field at harvest time when prices are generally the lowest and freight rates are generally the highest. This is very important for farmers in Mato Grosso where prices are generally lower than in other regions of Brazil and the freight rates are significantly higher than in other regions of the country that are closer to export facilities. If farmers in Mato Grosso could store their grain until the peak of the harvest and export season has passed, the reduction in freight rates alone could translate to as much as one dollar per bushel in savings.

The state of Mato Grosso is the largest grain producing state in Brazil and it is also the state with the largest deficit in storage. The production of soybeans and corn in the state is estimated at 55 million tons, yet the storage capacity of the state is estimated at 33.4 million tons. The one advantage that Mato Grosso has is the fact that the soybean harvest and the corn harvest do not occur at the same time. The soybeans are generally harvested from January through March whereas the safrinha corn is harvested from June through August. Even with the offset in harvest, there is still an overlap in storage requirement for the two crops especially when there is a record large soybean crop such as this year.

The Soybean and Corn Producers Association of Mato Grosso (Aprosoja-MT) recently announced that the deficit in grain storage would be a focus of the organization in 2017. They realize that increasing the storage capacity of the state, both private and public, would increase their member's incomes. Aprosoja-MT contends that even though more grain from the state is being shipped north to Brazil's "Northern Arc" of ports, this is only a partial answer to reducing storage and transportation costs in the state.

As part of this focus, Aprosoja-MT has solicited the Brazilian Minister of Agriculture to reduce the interest rates charged for production loans and the building of grain storage in the 2017/18 Harvest Plan that is currently being formulated. They are asking for the interest rates on production loans to be reduced from the current 9.5% to 7.5%.

The 2017/18 Harvest Plan should be announced sometime in April or May and it will take effect on July 1st.