Apr 13, 2010
Kepler Weber Hopes Large Brazilian Crops Will Revive Company
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
In its April crop production report released last week, Conab estimated that the total grain production in Brazil for the 2009-10 growing season would be 146.3 million tons. If realized, it would set a new record for grain production in Brazil. The increased production is bringing to light once again the chronic problem of inadequate storage capacity in Brazil.
The current storage capacity in Brazil is approximately 15% short of what is needed to adequately store the grain crop produced in Brazil. That equates to 25 million tons of storage capacity that needs to be built in Brazil and that does not count future increases in Brazil's grain production. This is good news for the major supplier of grain silos in Brazil, the Kepler Weber Company that has fallen on hard times recently.
The Kepler Weber Company at one time held a 60% market share in Brazil, but they saw that market share slip to as low as 20% in recent years. Most of their current financial problems date back to 2004 when Brazil also produced a record grain crop. After the record grain production, the company invested heavily in increasing its production capacity only to be disappointed in sales the following years. The growing season of 2005 and 2006 were adversely affected by drought in southern Brazil, which resulted in lower production and thus no need to build additional storage capacity. Farmer incomes were also reduced by low commodity prices and a strong Brazilian currency, so they had less interest in building storage capacity as well.
As a result, the company sales declined at the same time that their debt increased. The downturn in the world economies added to their problems. Sales in 2009 (R$ 250 million) were down 33% compared to 2008. In 2009, the company owed R$ 500 million, so they brought in a new management team which included experts on restructuring troubled companies. The new management team reduced employee levels by 12% and they restructured their debt so now they have a 13 year window to pay their debts.
Company officials are now conservatively optimistic that they have turned the corner. Sales are up thus far in 2010 and the company recently announced the sale of two of the largest silos in Brazil of 18 thousand tons each. The company is expecting to have their best year in ten years and they are expecting their market share to once again hit 50% in 2010. While the company's fortunes appear to be improving, they are still cautious about how low prices and high production costs could affect the 2010-11 acreage and production.