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May 23, 2014

Brazilian Gov. Supplying Low Interest Loans for new Grain Silos

In the new 2014/15 Harvest Plan announced by the Brazilian government last week, they continued to offer low interest loans for the construction of badly needed grain storage facilities in Brazil. The grain storage construction program was initiated last year with a R$ 25 billion line of credit that will be dispersed at 5 billion per year for five years.

Results from the first year of the program were disappointing because only R$ 1.8 billion of the projected 5 billion in loans were issued. The Minister of Agriculture attributes the lower than expected number to startup problems and the cumbersome environmental licensing protocol in Brazil. Some of those issues have been resolved and he feels that they will reach their target of 5 billion in loans in 2014/15.

The company Kepler Weber has approximately 50% of the market share for grain silo construction in Brazil and a company executive, Joao Tadeu Vino, expects strong sales to continue for the next five years. During a recent series of farm shows throughout Brazil, he indicated that there was very strong interest in grain silo construction from farmers attending the shows.

The low interest rates for the grain storage loans (3.5%) and the generous repayment terms (10 to 30 years) makes these loans very attractive even for small or medium size producers. In northern Rio Grande do Sul where the average farm size is 300 to 500 hectares (740 to 1,230 acres), farmers are anxious to build on-farm storage instead of paying as much as R$ 6 per sack (US$ 1.25 per bushel) for outside storage. With the generous repayment terms, even smaller producers can see the benefits of on-farm storage. On-farm storage also offers farmers much greater flexibility in marketing their grain production.

Interest in grain storage construction is also running very high in western Bahia where the average farm size is 2,000 hectares (4,900 acres). At the recent Bahia Farm Show, Kepler Weber displays drew a lot of interest from medium size producers as well as extremely large producers such as SLC and Maggi.

The current grain storage capacity in Brazil is approximately 80% of the nation’s grain production, whereas the ideal would be 120% of production. Brazil may not need to reach the 120% threshold because of the staggered nature of grain production in the country. Brazil does not need to store their two largest crops of soybeans and corn at the same time. The peak storage demand for soybeans in Brazil is between February and July, whereas the peak demand for corn storage is between July and October.

Even in a specific location, there can be a wide window for soybean planting which then results in a wide harvest window as well. Brazilian farmers also plant different maturities of soybeans which can mature as much as a month apart. By the time the latest maturing soybeans are harvested, some of the earlier maturing soybeans may already be on their way to export facilities thus freeing up storage space.