Sep 27, 2013

High Demand for Loans to Build Grain Storage Facilities in Brazil

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

After only one month into the program, farmers in Mato Grosso have already applied for R$ 40 million worth of low interest loans from the Brazilian government for the construction of additional grain storage facilities. The new line of low interest credit from the federal government totals R$ 25 billion and it will be loaned out at a rate of five billion per year for the next five years.

The Program for the Construction and Expansion of Storage (PAC) was part of the Harvest Plan 2013/14 announced by the Brazilian government in June and its goal is to alleviate the chronic lack of adequate storage space for Brazil's expanding agricultural production. It is estimated that Brazil needs to increase its storage capacity by 62 million tons in order to meet the demand and the PAC program will provide funds to build an estimated 68 to 73 million tons of storage over the next five years.

The start of the program was delayed for two months while the federal government secured adequate funds for the new program. The loans will be administered through the Bank of Brazil which has promised to expedite the loan request. In addition to financial records and technical details concerning the facilities, applicants must also secure three licenses from the State EPA. The first license indicates that the site of the facility will not cause ecological harm, and the other two are for the construction and operation of the facility.

Bank officials have indicated that funds for the first applicants may be available with a month, which could allow construction to be completed in time for harvest early next year.

The chronic lack of on-farm storage is very costly for Brazilian farmers. Without adequate on-farm storage, farmers must either pay for storage at the local grail elevator or sell their grain at harvest when prices are usually at their lowest level. As a result, the lack of storage limits the marketing options for Brazilian farmers. It also forces farmers to transport their grain when the demand for trucks is the highest and the freight rates are also highest.

The lack of storage can also slow down the harvest pace and result in extra harvest losses. Without adequate on-farm storage, the combines unload the grain into trucks parked along the side of the road. Those trucks then haul the grain to local grain elevators that in some cases may be many miles away down muddy and nearly impassable rural roads. If the trucks are delayed in returning to the field, harvesting must be halted. This can be a significant problem during the rainy season when harvest delays can result in poor quality seed and lower yields. If farmers had adequate on-farm storage, they would not need to rely on trucks to transport their grain to local grain facilities.