May 3, 2010

 

 

Brazil's bumper soy and corn crops, as well as this year's slow sales, are testing the country's storage capacity.

 

Brazil, the world's No. 2 grain producer after the US, forecasts that its grain crop now being harvested will be 8.3% bigger than last year's, hitting an all-time record. This includes 67.3 million tonnes of soy and 54.1 million tonnes of corn.

 

Warehouses across Brazil are bursting at the seams. As a result, giant mounds of grain are piling up in producers' yards and truck beds.

 

This lack of storage is a stark illustration of Brazil's supply glut, which has depressed grain prices there. However, it also underscores the South American country's logistics problems of overstretched ports and precarious roads that often hinder transporting food to big Brazilian cities and global markets.

 

"Brazil does not have enough storage capacity for last year's corn, this year's corn, and a record soy crop," said Michael Cordonnier, a Brazilian crop consultant with Soybean & Corn Advisor Inc. Government guarantees to buy the crop at a minimum price that is well above current physical market prices are discouraging farmers from dumping their grain, Cordonnier added.

 

Silos in central Brazil are already full, and the new Minister of Agriculture, Wagner Rossi, is visiting the state of Mato Grosso to assess the storage situation.

 

Indeed, problems are already surfacing. Otmar Hubner, a technical specialist at Parana's agricultural secretariat, or Seab, said farmers and cooperatives in Parana, the No. 2 soy-producing state after Mato Grosso, are already witnessing corn and soy being left out in the open.

 

In the short term, that does not pose an immediate threat to the crop's quality because dry weather typically persists until September, Cordonnier said. As long as the grain is placed on a concrete pad and under a tarp, it can last for months.

 

In the region of Cascavel, for instance, farms are expected to produce 1.7 millions tonnes of corn and soy this crop season compared with 900,000 tonnes last season when a prolonged drought slashed production.

 

"So far problems are isolated, but some cooperatives in Cascavel have already run out of space," Hubner said. This will be further exacerbated when the second corn crop is harvested later this year, he warned. Brazil has two corn crops a year.

 

An analyst at Mato Grosso's Agricultural Economy Institute, or Imea, said the region has around 25.7 million tonnes of storage capacity. Mato Grosso could do with at least one million additional tonnes of space, she said.

 

Cordonnier said that Brazil will likely produce 143 million tonnes of its key crops - corn, soy and rice - in the current harvest while storage capacity is around 128 million tonnes.

 

Any strains in infrastructure will become more evident in July, when farmers start to harvest their second corn crop.

 

One potential solution, Mr. Cordonnier said, are silo bags, giant plastic bags placed on the ground that can hold about 8,000 bushels of grain. They are relatively cheap and are already very popular in Argentina.

 

The bigger near-term problem for Brazil farmers, Cordonnier said, is poor transportation infrastructure that has hurt the potential export business. Buyers have instead gone to the US, which has boosted prices there but hurt Brazil's prices.