March 5 (Bloomberg) -- Brazil’s BNDES state development bank will lend 2.5 billion reais ($1.05 billion) to ethanol producers to stockpile the biofuel and help prevent prices from falling.

The funding will be used to stockpile 3.3 billion liters (870.7 million gallons) of ethanol, the Agriculture Ministry said today in a statement. Producers who tap the credit line will be required to commit some of their own funds to store ethanol, boosting total inventories under the program to 5 billion liters, the ministry said.

“We’re doing this to maintain the supply of ethanol for the whole year and avoid price volatility, especially at the start of the harvest when prices fall a lot,” Agriculture Minister Reinhold Stephanes said today at a press conference in Brasilia.

The Center-South Sugar and Ethanol Association, known as Unica, announced earlier this week that Brazil’s government may lend as much as 3 billion reais to finance the stockpiling of 4.5 billion liters.

To contact the reporter on this story: Iuri Dantas in Brasilia at idantas@bloomberg.net

Last Updated: March 5, 2009 13:33 EST