São Paulo – In 2015, grain storage capacity in Brazil is expected to register the biggest advance in recent years, driven by works financed by low interest rates from the federal government, but it will still be little to cover the country’s historical deficit in this sector, shows a study to which Reuters had access.
Next year, new silos will be installed to receive 10,5 million tons, raising the country's total static capacity to 160 million tons, according to projections by Carlos Cogo Consultoria Agropecuária.
The volume forecast for next year is 157 percent greater than that delivered in 2014 and 258 percent greater than that of 2013.
“Whoever has a silo on the farm does not need to hire freight at harvest time. It's an investment with a very good rate of return,” said Cogo, who consults for the main companies in the storage sector.
The storage sector gained momentum in mid-2013, when the federal government launched the Warehouse Construction and Expansion Program (PCA), with the intention of releasing 5 billion reais per year over five years, at interest below inflation. .
The new storage, however, still does not reach the size of the national grain harvest. In 2015, the country should harvest a record of around 200 million tons, generating a storage deficit of 39,9 million, equivalent to 20 percent of production, against a rate of 6 percent ten years ago.
“The (PCA) program is everything that has been asked for for years. He's commendable, he's great. But it is 20 years too late,” said Cogo.
The study indicates that the worst situation is precisely in the region that produces the most grains, the Midwest, where there will still be a lack of 29,6 million tons of installed capacity to absorb all the grains harvested next year.
Despite an increase of almost 4 million tons in storage, the crop in the Midwest will grow slightly more. The region will end next year with the capacity to store just 65 percent of its harvest, while the standard recommended by experts around the world is 120 percent of an annual harvest.
perspectives
The volume of credit offered by the government and the recent drop in commodity prices should put a ceiling on the number of new orders for silos and warehouses, which from 2016 should remain within the 2015 level.
For the first time in several years, Brazilian farmers are facing tighter profit margins in the current 2014/15 harvest, due to the drop in soybean and corn prices amid record harvests in Brazil and the United States.
“Commodity prices have dropped drastically and this affects the producer's investment decision. This raises the level of leverage… It may affect his ability to take out new loans”, said Kepler Weber's Vice President and Investor Relations Director, Olivier Colas, from the largest silo manufacturer in Brazil.
Between the investment decision, signing of the contract, obtaining financing, civil works, installation and start-up of the equipment in operation, the period can reach a year and a half, according to market estimates. A downturn in farmer sentiment at the end of 2014, therefore, could impact the number of warehouses delivered in 2016.
The warehouses delivered in 2016, according to Carlos Cogo, should be close to a capacity of 13 million tons, with the total installed in the country rising to 173 million tons.
“The year that the producer will choose not to make a decision is 2015. He has spent five years of 'fat cows' and sees the margins dropping a lot”, said Cogo. “Although it is an investment that lasts 30 years and pays for itself in up to 15… it is a psychological barrier.” Experts point out that investments in storage in the coming years will be equivalent to the resources offered by the government, which should remain stable at around 5 billion reais per year. There will be rare cases in which a producer or a company will hire new storage at market interest, outside subsidized credit lines.
“At best, orders will be flat,” Colas said. “It will continue at a high level of business, but I don’t see growth.”
Source: Reuters
