Grain storage is a major opportunity for private credit, says expert

Logistical and storage deficiencies continue to pose obstacles to the development of Brazilian agribusiness. This challenge is evident when comparing the growth in grain storage capacity to the increase in production from 2010 to 2023. According to Cristiano Oliveira, Head of Research at Rivool Finance, storage capacity has decreased by one-third since reaching 91% in 2010, ending 2023 with a capacity of around 60%. This level is significantly below the United Nations Food and Agriculture Organization (FAO) recommendation, which suggests that a country's storage capacity should be 1.2 times its annual agricultural production.

"Differently from the United States, where storage units are either close to or part of the agricultural complex, only 15% of farms in Brazil have warehouses or silos, according to data from the National Supply Company (CONAB). By contrast, this percentage is about 54% in the United States and approximately 80% in Canada. Additionally, in Brazil, grain storage infrastructure primarily consists of bulk storage units (silos), which account for 78% of total capacity. The remaining 22% comprises conventional warehouses, which use bags and bales for storage, presenting disadvantages in terms of conservation and loading and unloading operations compared to silo systems," Oliveira notes.

The Head of Research adds that the greatest grain storage deficit in Brazil is concentrated in the Center-West region, responsible for the largest grain production in the country. This issue is most significant in Mato Grosso, which, despite having the largest grain storage capacity among Brazilian states—approximately 38 million tons—cannot store even half of its grain production.

"The storage deficit exposes grain producers across Brazil, especially in the Center-West region, to significant economic losses. They are forced to sell a substantial portion of their production during harvest, which leads to higher transportation costs (significantly increased during harvest) and receiving prices below international values for their products when referencing the Chicago Board of Trade," Oliveira explains.

Oliveira also highlights that with record harvests in 2024 and the high storage deficit, export prices for soybeans and corn have been below international market levels.

"The first estimate for the 2024/2025 grain harvest by CONAB points to a production of 322.47 million tons. This volume represents an 8.3% increase over the 2023/24 season, an additional 24.62 million tons compared to the previous cycle. With anticipated production growth, low prices are likely to persist in the coming years unless new investments in the storage sector are made. A study by the Grain Storage Equipment Sector Chamber (CSEAG) of Abimaq indicates that about BRL 10 billion per year would be required over ten years to eliminate the storage deficit by 2030," he points out.

However, Oliveira notes that the latest data indicates investments are falling significantly short of the storage capacity required to support production growth. "The main public credit program for this purpose, the National Bank for Economic and Social Development (BNDES) Warehouse Construction and Expansion Program (PCA), allocated only BRL 4.12 billion in 2022. The program offers up to BRL 50 million in credit, repayable over 12 years with a grace period of up to two years, and with interest rates between 7% and 8.5% per year, depending on the storage unit size. Recently, Banco do Brasil and the New Development Bank (NDB) announced BRL 1.5 billion in credit for warehouse construction," he mentions.

Even so, historical averages indicate that only about 70% of the available public credit volume is actually taken up. The reasons for reduced demand include the excessive guarantees required, high bureaucracy, low market interest in this type of project, and a lack of awareness of the storage deficit and its associated costs.

According to Tadeu Vino, Commercial and Marketing Superintendent at Kepler Weber, a Brazilian post-harvest services company, farmers' profits could increase by around 15% with new storage facilities, allowing the investment to be recouped within five to six years. "When well-maintained with preventive care, a storage unit can last over 30 years. A study by the Infrastructure and Logistics Thematic Chamber (CTLOG) indicates that the Internal Rate of Return (IRR) of such an investment would be around 6% per year, with an average occupancy rate of 62% to make the business economically viable," Vino explains.

He adds, "Therefore, an annual storage investment deficit of at least BRL 5 billion in credit accumulates, while the sector incurs losses of BRL 20 billion. There is a strong potential return for producers and entrepreneurs who invest in this sector, particularly in bulk storage (silos), as well as significant potential for expanding private credit in this area. With less bureaucratic and results-oriented credit sources, all parties involved will share in the gains that the Brazilian commodity export sector will bring over the coming decades."