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May 23, 2017

Silo Bags could fill Gap in Shortage of Grain Storage in Brazil

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

Farmers in Mato Grosso are going to harvest record large crops in 2016/17 and they are wondering where they are going to store all the crop. The latest estimates are that the state will produce 59.3 million tons of grain (31.2 million tons of soybeans and 28.0 million tons of corn), but the state only has 33.7 million tons of storage according to Conab.

The Mato Grosso Institute of Agricultural Economics (Imea) indicated that as of May 1st, farmers in the state had sold 69% of their 2016/17 soybean production. Due to the weakening of the Brazilian currency, the average soybean price in the state last week increased 1.1% to R$ 54.13 per sack (approximately $7.95 per bushel), which is still R$ 17.68 less than last year at this time (approximately $2.60 per bushel). Even with 69% of the soybeans sold, that still means there are approximately 9.6 million tons of soybeans in the state that are not sold.

A few fields of safrinha corn in the state have been harvested, but the main harvest will begin in early June. When the safrinha corn harvest gets underway, the majority of the corn will have to be piled outside due to the lack of storage. Imea reports that farmers in the state have forward contracted 46% of their anticipated corn production.

According to Conab, the state has the capacity to store 33.7 million tons of grain distributed over 2,200 storage units. Data from the Soybean and Corn Producers Association of Mato Grosso (Aprosoja) indicate that the storage capacity is growing slower than the increase in grain production. Over the past 12 years, the storage capacity increase 108%, which is less than the growth in grain production.

The Food and Agriculture Association of the United Nations recommends that a country should have a storage capacity of 120% of their anticipated production. At the current production rate, Mato Grosso should have approximately 69 million tons storage capacity, but it has only 33.7 million tons.

As Brazil struggles to increase its grain storage, one immediate solution to the problem could be the increased use of silo bags. Silo bags are very popular in Argentina and they are gaining in popularity in Brazil.

The equipment needed to fill and empty the bags costs approximately R$ 80,000 in Brazil or about $26,000. The average size silo bag costs approximately R$ 1,800 ($580) and it can hold 3,000 sacks of soybeans or 6,600 bushels. Excluding the original cost of the equipment, the cost of the bag is about 9 cents per bushel and if the soybeans are in good condition when they are put in the bag, the soybeans can stay in the bag for at least a year if needed. The silo bag would easily pay for itself just in reduced freight charges alone. Freight rates are very high at the peak of the harvest and they can drop by a much as a dollar per bushel if the transportation of the soybeans is delayed until the off-season.

Increased on-farm storage in Brazil would be a tremendous benefit for farmers. It would allow farmers to increase their harvest pace by not having to wait on trucks to haul the soybeans to the nearest grain elevator. Farmers could wait to sell their soybeans at a later date instead of having to sell at the harvest lows or pay for storage. They could save significant amounts of money in freight charges just by delaying the transportation of the soybeans.

According to Carlos Alberto Nunes Batista, coordinator of the Infrastructure and Logistics Sector of the Ministry of Agriculture, the Brazilian government started to devote significant resources for the construction of grain storage facilities in 2014 through the Program of Storage Construction (PCA). The program started with interest rates of 4.5% for storage construction including a three year grace period for the first payment and 15 years to pay off the loan. Unfortunately, after the program got underway, interest rates were increased to 8.5%, which resulted in less interest on the part of farmers. The government hopes to rekindle interest in the program by reducing the interest rates in the next Harvest Plan.