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March 28, 2016

Lack of On-Farm Storage Hurts Brazilian Farmers

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

Most farmers in Brazil do not have on-farm storage for their grain, which puts them at a big disadvantage when it comes to marketing the crop. Either they sell the crop right out of the field when prices are generally the lowest or they must pay for storage at the local co-op or grain elevator. With adequate on-farm storage, they could wait for an improved price and also pay lower freight rates because freight rates decline after the bulk of the harvest has been completed and sent to exporters.

There is another advantage of having your own on-farm storage and that is when the quality of your crop is poor such as it was this year in southern Mato Grosso do Sul. Farmers in southern Mato Grosso do Sul were impacted by heavy rains during the entire growing season including during harvest. As a result, the soybean seed quality was very poor due to small, shriveled, and damaged seeds and moldy seeds. Additionally, many farmers had to harvest their soybeans at higher-than-desired moisture in order to keep the seed from deteriorating even further.

When farmers sold the high moisture poor quality soybeans, they were confronted with heavily discounted prices. The limit for dammed or moldy seed is 8% and any deliveries above that threshold are discounted. For example, if a farmer delivers 1,000 kilograms of seed with 10% moldy or damaged seed, he is discounted 2%, because it is 2% above the 8% limit. That equates to 20 kilograms of seed for which he is not paid anything.

Farmers in Brazil have long complained that the seed classification is overly strict and that the classification of seed is not consistent between companies or from year to year within the same company. In many cases they are not only discounted due to the poor quality, they are also discounted for the cost of drying the seed.

If they had the capacity to store the seed on their own farm, it could be possible to mitigate some of the problem. The farmer could do just like the grain company does to overcome this problem by blending together better quality seed with poorer quality seed to meet the minimum standards and avoid any discounts.

Most Brazilian farmers do not have adequate on-farm storage capacity due mainly to a lack of available credit to build the storage units. The Brazilian government realized that this is a significant problem and they attempted to address the problem by instituting a 5-year, low interest loan program strictly for the construction of private grain storage. The R$ 25 billion programs was supposed to have been dispensed at R$ 5 billion per year for five years. The results of the program thus far have been disappointing and farmers have complained about bureaucratic obstacles and a lack of funding for the program.