July 27, 2004

 

 

Brazil's Warehouse Shortage Forces Soy Farmers To Sell

 

A lack of warehousing space means many Brazilian farmers are forced to sell their enormous soybean and corn crops soon after harvesting when prices are usually at their lowest, a government survey said.

 

Brazil is an agricultural powerhouse but only has warehouse capacity to store 79% of its grains and oilseed crop, while the U.S. has room to store 120% of the crop and Canada can stock their harvest two times over, said a survey conducted by the Agriculture Ministry's National Commodities Supply Corp., or Conab.

 

"We need to promote building to ensure farmers sell at the best time for them," said Pedro Beskow, head of Conab's business and agribusiness programs.

 

Brazil is the world's No. 2 soybean producer, based on some of the world's lowest production costs. But the nation loses out badly to its U.S. and Argentine competitors when it comes to infrastructure.

 

The lack of silos is most acute in the frontier states of the center-west, where soybean production has been advancing at breakneck pace recently. The region only has silos to store 7.79 million metric tons of soy and grain, or just 20% of output.

 

"The gap is enormous. ... And with soybean production growing at breakneck pace, they will always be battling to catch up," said Anderson Galvao Gomes, soy analyst at the local Celeres agricultural consultancy.

 

Soybean output is expected to rise around 30% to around 66 million metric tons next season, which begins in October, according to initial estimates.

 

The survey showed that Brazil currently has space for 94.12 million tons of grain, while 2003-04 production is expected to total 119.41 million tons and 2004-05 output is tentatively forecast to reach 140 million tons.

 

The government has set aside 700 million Brazilian reals ($1=BRL3.08) this year to finance warehouse and farm infrastructure building this year. But the Agriculture Ministry admits that this is not enough. It says some BRL1.8 billion must be invested to resolve the deficit.

 

However, dropping international soybean prices and rising input costs may limit investment this year, said Gomes.

 

"Farmers have invested a lot in expanding their holdings in recent years and there is no incentive to go further into debt at the moment," he said.

 

But this may be a false economy as local soybean and grain prices oscillate enormously. Currently, soybeans are quoted at around BRL42 per 60- kilogram bag at Paranagua port compared with BRL57 and BRL58 in March before the bulk of the crop had been harvested.

 

"Farmers are making decisions to sell based on logistics rather than price. That really shouldn't happen," said Flavio Franca Jr., soy analyst at the local Safras e Mercado consultancy.