September 25, 2012

Brazil Embarks on Program to Build More Grain Storage

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

A lack of adequate storage for the ever increasing grain production in Brazil has been one of the chronic problems confronting Brazilian farmers. The country does not have enough storage capacity in place to store both the soybean and corn crops at the same time. Even though the crops are harvested at different times of the year allowing for a rapid turnover of the storage units, the lack of storage continues to cause problems.

In Mato Grosso for example, there is still corn piled on the ground at grain elevators because they did not have enough space for the record safrinha corn crop. The problem has been compounded by a lack of trucks and the high cost of transporting the corn to livestock producers in northeastern and southern Brazil or exporters in southeastern Brazil. Storing corn in the open air during the dry season is no problem, but the summer rains have started again and the corn needs to be shipped out as quickly as possible.

In order to help remedy this chronic problem, the Brazilian Minister of Agriculture, Mendes Ribeiro, along with President Rousseff, recently announced a new line of credit designed specifically for the financing of new storage units. The new loans carry a very low interest rate (less than inflation) and the borrowers have two years before the first payment is due and nine years to pay off the loan.

With more storage options, farmers in Brazil could hold onto their crops and avoid selling at harvest lows. They could also transport their crops in the off season when freight rates are much lower than during the peak of the harvest. With on-farm storage, they could also harvest faster by not having to wait for trucks to haul the grain to the nearest grain elevator.

In a recent meeting, the minister acknowledged that the lack of adequate storage has been building for many years in Brazil and hopes that the first benefits of the program will come as soon as next harvest season. When asked about the amount of financial resources available for the program he assured everyone that a lack of funds will not be a problem and that increasing the storage capacity in Brazil is one of his highest priorities.

The minister stated that it's possible that Conab might sell some of its older grain storage units in areas where they are no longer needed and apply the money to build new units where there is a shortage of capacity.