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November 27, 2014

Silo Bags could boost Brazilian Farmer's Profit Margins

Brazilian farmers are already worried about a deficit of storage space in Brazil in early 2015 when the anticipated record large soybean crop starts to come onto the market. The storage problem might even be worse than normal in 2015 because of the large carryover of corn. It is estimated that there will be 15 million tons of corn carried over in Brazil this year, which is about three times more than normal.

Due to current low prices, farmers in Brazil are also expected to be slow sellers of their 2014/15 soybean crop, which could aggravate the storage situation even more. By the end of October, Brazilian farmers had sold 21% of their anticipated 2014/15 soybean production compared to 34% by the end of October 2013.

A partial solution to the storage deficit could be the increased use of silo bags. These one-time use bags have been a mainstay in Argentina for decades, but their use in Brazil is just now becoming more widespread. According to Ipesa, which is an Argentine company that has two thirds of the market share for silo bags in Brail, in 2014 there was 10-12 million tons of grain stored in silo bags in Brazil and that is expected to increase to 13-15 million tons in 2015.

Only about 13% of the permanent storage space in Brazil is located on-farm and this lack of storage forces many farmers to sell their grain at harvest when the prices are generally the lowest and freight rates are generally the highest. If farmers could store more of their grain on-farm, they could potentially sell the grain for 10-15% more just by waiting several months to market the grain.

By holding the grain on-farm, they would also realize a considerable savings on freight rates. In fact, the majority of the cost of the silo bag could be paid for by the reduction in freight rates to move the grain later in the year.

Each 60 meter bag cost approximately US$ 700 and has the capacity to store 6,600 bushels of grain. The cost of the bag is therefore about US$ 0.10 a bushel not counting the equipment to fill and unload the bags. The equipment cost about US$ 45,000 and it should pay for itself in 4-5 years. If used correctly, these silo bags can maintain the quality of the grain for 12-18 months. Farmers must be certain not to put high moisture grain in the bags because the bags cannot be aerated. It is recommended that the grain moisture be no more than 14% when it is put into the bags. The bags should be put on compacted soil where water does not stand and away from farm animals. The area around the bags should be kept as clean as possible in order to not attract rodents. In Mato Grosso the use of silo bags started to gain force four years ago when approximately 1,000 bags were sold in the state. In 2014, an estimated 14,000 bags were sold in Mato Grosso. Even with the government program encouraging the construction of additional storage space, the situation may not improve any time soon because of the increase in grain production in Brazil is outpacing the construction of new storage units. Therefore, it is highly likely that the use of silo bags will continue to increase in Brazil.

Brazil is in the process of building new storage capacity and 10.5 million tons of new storage is expected to be completed in 2015 bringing the total grain storage capacity in Brazil to 160 million tons, still short of the expected 200 million tons of expected grain production in 2015.