Brazil-Bio Fuels.

The Brazilian arm of U.S. grain processor Archer Daniels Midland Co is close to a deal to lease several assets of a defunct grain cooperative in Mato Grosso do Sul, a local paper said on Friday.

On Feb. 13, the administrative assembly of the Cooagri cooperative is scheduled to vote on ADM’s proposal to reactivate and lease its 18 grain warehouses in the state in a three-year contract, the financial daily Valor Economico said.

A local ADM spokesman was not available for comment on the report.

The agreement could be extended beyond three years and ADM hopes to eventually buy some of the cooperative’s assets, the paper said citing what it called an unnamed sources familiar with the negotiations.

Cooagri, with its 4,000 associates, started having problems in mid-2008 after credit lines dried while the cooperative was in the middle of leveraged expansion plans. Cooagri has outstanding debts of roughly 240 million reais ($107 million), the paper said.

Brazil’s grain crushing industry had been in decline until a few years ago, when the government implemented a national program to mandate a blend of biodiesel in all petroleum-based diesel sold at the pump. Currently, all retail diesel is blended with 3 percent biodiesel. The government will raise this to 5 percent by 2013.

Nearly 80 percent of all vegetable oils for biodiesel in Brazil comes from soybeans and 10 percent from beef tallow, despite government efforts to get family farmers of castor beans and palm to supply the feedstock oils for the biofuel.

ADM, a leader in corn-based ethanol production in the United States, entered Brazil’s cane-based ethanol industry in 2008 by announcing plans to build a new plant in Goias. The company is studying strategic partnerships with distressed local cane millers, the paper said.

ADM operates several grain crushing plants, storage units and port facilities in Brazil, one of the world’s largest agricultural producers and exporters.