May 6, 2013

Brazil Gov. to Increase Credit for Construction of On-Farm Storage

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

As Brazilian farmers harvest their record large 2012/13 crops (a total of 185 million tons for all grains), it is evident that the lack of adequate storage and infrastructure to handle such a large production is putting Brazil at a disadvantage compared to its competitors in Argentina and the United States. As a result, the Brazilian Minister of Agriculture and the federal government is expected to include a National Storage Plan for 2013/14 as part of the Harvest Plan for 2013/14, which is expected to be announced by the government in the coming days.

According to the director of storage for Conab, Rafael Bueno, the lack of storage space in Brazil started to intensify in 2002. Since then, Brazilian grain production has been increasing at a much faster pace than the construction of new storage units. Part of the problem has been the lack of credit availability to build new storage units caused by the world-wide financial crisis. To address this issue, the director of agribusiness for the Banco do Brasil has indicated that a new line of low interest loans specifically designated for storage construction will be part of the Harvest Plan for 2013/14.

The lack of adequate on-farm storage is one of the reasons for the recent surge in Brazilian freight costs. The lack of on-farm storage causes many Brazilian farmers to sell their grain at harvest time when prices are generally the lowest and freight rates are the highest. If they could store the grain on-farm, they could sell the grain at a later time when freight rates would be lower and prices could potentially be higher. It is estimated that a Brazilian farmer with as few as 200 hectares of grain production could benefit from constructing more on-farm storage.

The biggest deficit in storage is in the agricultural expansion areas of central and northern Brazil. Most of Brazil's grain storage is still concentrated in the traditional areas of grain production leaving the frontier areas in desperate need of more storage. According to Conab, 43% of Brazil grain storage is in southern Brazil and 33% is in the center-west region. In fact, 42% of the grain storage in Brazil is in urban areas, whereas all the agricultural expansion is occurring in rural areas.