October 3, 2014
Lack of Grain Storage Chronic Problem in Brazil
With the potential for another record large soybean crop in Brazil, farmers and grain company personnel are already worried that the chronic shortage of grain storage in Brazil could get even worse. In the state of Parana for example, a study conducted by Agronegocio Gazetta do Povo using data from Conab indicated that the state is expected to produce 38.5 million tons of grain in 2014/15 (soybeans, corn, and wheat), but the state only has storage capacity for 27.8 million tons.
The deficit in storage is not equally distributed across the state. In the regions closest to the Port of Paranagua, there is actually a surplus of storage space while in the western and northwestern regions of the state there is a significant deficit.
Farmers in areas of the state where there is a deficit of storage face lower prices for their grain and higher transportation cost due to the increased demand for trucks at the time of harvest.
Without adequate on-farm storage, farmers are either forced to sell their grain at harvest when prices are generally the lowest or pay for storage at outside facilities.
The federal government realized that the lack of storage was a major problem for Brazilian agriculture and they addressed the issue last year with the passage of the Program for Storage Construction and Expansion (PCA). The budget for the 5-year PCA program is R$ 25 billion to be loaned out at the rate of R$ 5 billion per year. Terms of these construction loans for grain storage facilities are very favorable including: a 4% interest rate which is very low in Brazil, three years before the first payment is due, and 15 years to pay off the loan. A lot of the existing facilities in Brazil are obsolete and it would probably be more cost effective to build new rather than modernizing existing facilities.
It appears that cooperatives and grain companies have been much more eager to apply for these loans than individual farmers. According to the Organization of Cooperatives in Parana (Ocepar), cooperatives in the state of Parana have borrowed R$ 1.2 billion from this program to build an additional 1.8 million tons of storage. When completed, the cooperatives will increase their percentage of the total grain storage in the state from 55% to 60% of the total.
Individual farmers have been reluctant to take advantage of the program (at least thus far) due to the bureaucratic maze that must be overcome including onerous environmental permits just to build a grain silo on a farm. Additionally, with increased demand for construction materials and labor, costs have risen at a time when commodity prices have declined making some farmers reluctant to invest in storage, at least for the time being. The PCA program still has four more years to go and it is expected that farmers will be more willing to apply for the loans when commodity prices show some improvement.
According to Conab, the total grain storage capacity in Brazil is 147.88 million tons, which is short of the estimated 177.5 million tons of grain that will be produced in 2014/15 (95.0 mt of soybeans, 75.0 mt of corn, and 7.5 mt of wheat). The states with the greatest amount of storage capacity are: Mato Grosso (30.7 mt), Rio Grande do Sul (28.2 mt), Parana (27.8 mt), Goias (12.8 mt), and Sao Paulo (11.2 mt).