May 17, 2013

Public Grain Storage Facilities in Brazil in a State of Disrepair

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

The lack of public storage space available to store Brazil's record large crops is adding to the logistical problems in Brazil. Many of the public storage facilities being operated by Conab are underutilized and in some cases not utilized at all due to structural deficits. These public storage facilities are used by the federal government to establish a strategic reserve, but they can also be leased out to grain companies for a monthly fee. In addition, new regulations requiring that storage facilities be certified by the federal government have also limited the amount of storage space available in Brazil.

In the city of Ponta Grossa in eastern Parana for example, Conab has one of their largest storage facilities in Brazil, but they are utilizing less than 50% of the capacity due to structural deficiencies of the grain silos. In the state of Mato Grosso do Sul, the situation is even worse with 15 of Conab's 26 storage facilities closed due to structural problems.

The director of Conab's storage division, Rafael Bueno, acknowledges that there are many problems with Conab's storage facilities, but they represent only a small fraction of Brazil's total storage capacity. He has also indicated that the federal government will announce a major incentive program to accelerate the construction of private storage facilities when the Harvest Plan 2013/14 is released by Brazil's President. The incentives will include a new line of credit for low interest loans for the construction of grain facilities.

Conab's storage director also indicated that it may be more cost effective for the agency to construct new metal grain silos at a cost of R$ 350 per ton than it would be to try and renovate old and outdated concrete silos.

This lack of public storage could complicate Conab's recent announcement to purchase 3 million tons of corn from farmers. In order to purchase that much corn, Conab would have to store the grain in private facilities, but a new certification program has taken affect this year and Conab is prohibited from storing grain in a facility that has not been certified. The problem is that the government has been very slow to certify grain facilities.

The new certification program calls for the new storage requirements to be introduced gradually. By the end of 2013, 15% of a company's storage capacity must meet the new regulations. In 2014, another 15% must meet the new requirements and by 2016, 75% of the storage units must adhere to the new regulations. The last 25% of the storage capacity must be updated by the end of 2017.