Sep 16, 2013

Mato Grosso Needs to Double Grain Storage Capacity

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

At a recent Fifth Post-Harvest Grain Symposium held in the city of Sinop in northern Mato Grosso, a hot topic of discussion was the need for more storage capacity in the state. During the last growing season, farmers in the state produced 45.8 million tons of grain, but the storage capacity in the state totals only 29 million tons.

The lack of adequate storage has a lot of implications for farmers and grain companies in the state including: excess corn production being piled on the ground, forcing more of the grain to be moved at peak times when transportation costs are the highest, limiting marketing options for farmers, and slowing the harvesting pace due to long lines of trucks waiting to unload at local grain elevators. If there were more on-farm storage facilities, many of these problems could be avoided.

While everyone recognizes what the problems are, the solutions are not as obvious. Participants in the symposium estimate that the state should have at least 54 million tons of storage capacity to meet immediate needs and more in the future as grain production in the state continues to expand.

In recent years, the grain production in the state has increased much faster than their ability to store the grain. One of the reasons for this inequity has been the lack of credit available to build storage facilities. Many farmers in Mato Grosso obtain the financial resources to grow their crop by bartering with the grain companies for their inputs. In order to purchase the seed, fertilizers, and chemicals needed to grow the crop, the farmer forward sells a portion of his production to the grain company in exchange for the inputs. Since the grain company is in the business of storing and moving grain, they have no incentive to loan money to farmers to build on-farm storage facilities.

That is an area where the federal government must step in and provide the credit. In the latest Harvest Plan-2013/14, the federal government said it would make available R$ 25 billion in low interest loans for the construction of more private storage units and the expansion of the public storage facilities. Five billion would be available each year for the next five years. These loans would have a reduced interest rate compared to a commercial bank, a grace period of several years before repayments start, and an extended period for repayment, generally fifteen years.

Part of this new program (R$ 500 million) is also the upgrade and expansion of the public storage facilities operated by Conab. The goal of this part of the program is to allow the government to purchase and store more grain as a way to even out price fluctuations. Currently, many of Conab's facilities throughout Brazil are in such a poor state of repair that can only be utilized at a fraction of their original capacity.

While this program seems to address this ongoing problem, many are concerned that the promised funds will not be available in the future. The Brazilian economy is slowing down at the same time that public expenditures for the 2014 World Cup and the 2016 Olympics are taking away needed funds for infrastructure improvements. It remains to be seen if these needed resources will actually be available in the future.

Grain production in Mato Grosso is expected to increase in coming years as world demand for grain increases. Much of the increased grain production in recent years has come from two sources. The first is the conversion of degraded pastureland to row crop production. There are no environmental restrictions for this conversion and in fact it is highly encouraged by the government. The second source is the expanding acreage of safrinha corn production planted as a second crop after soybeans are harvested. As long as prices are favorable for soybeans and corn, this expansion is expected to continue.