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Brazilian agriculture facing difficult obstacles in 2015qrcode

Mar. 31, 2015

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Mar. 31, 2015
The Brazilian economy is facing some of the most difficult times in recent memory with the prospect of a recession looming on the horizon. Agriculture though may end up not being impacted as severely as other sectors of the Brazilian economy such as manufacturing or construction.

For the 2015/16 growing season, farmers costs are going to increase, credit is going to be tighter, and the interest they pay on their production loans will increase as well. This has led some analysts to speculate that the soybean and corn acreage in Brazil may not expand in 2015/16 for the first time in many years.

Thus far, the problems with the Brazilian currency have actually helped Brazilian farmers. They purchased their inputs for the 2014/15 crop when the Brazilian currency was stronger and they are now selling their grain as the currency is weakening. At the end of last week, the Brazilian currency was trading at 3.23 to the dollar. In October of 2014 when Brazilian farmers were planting their 2014/15 crops, it was trading at 2.3 to the dollar. In other words, they "bought their inputs low and sold their grain high" so to speak.

Brazilian farmers may not be as fortunate during the 2015/16 growing season. The most optimistic scenario has the Brazilian currency holding steady in 2015, while the pessimistic scenario has it weakening still further in 2015. Either way, the currency will probably not work to the farmer's advantage as much in the next growing season as it did this past growing season.

Farmers already know that their input costs are going to increase and that credit is going to be tighter and more expensive. They must now purchase imported fertilizers with a weaker currency, thus making it more expensive. Their production loans last year had an interest rate of 6.5% and for the 2015/16 growing season, the rate will probably be 8.5%, although it has not yet been officially announced. Therefore, their cost are going to increase, but their income may not increase especially if the summer weather is good in the U.S. resulting in good corn and soybean production and lackluster commodity prices.

Much of the expansion in soybean acreage in recent years has been from the conversion of pastures to row crops. This is a relatively easy conversion to make and once farmers made the commitment to purchase the equipment to produce row crops, maybe some additional conversions will continue to occur even at lower soybean prices. The soybean acreage in Brazil expanded approximately 4.5% in 2014/15, which was down from the 8-10% expansion in recent years. For the 2015/16 growing season,  the Brazilian soybean acreage may expand in the range of 1-3%.

Brazilian farmers are primarily in business to grow soybeans, they are not in business to grow corn. With the big shift in corn production to the safrinha crop, corn now tends to just follow along with soybeans, but farmers do not have to grow a second crop of corn to stay in business. Therefore, it is possible that the Brazilian corn acreage may not expand in 2015/16 if prices remain low.

There is a tremendous amount of uncertainty in Brazil at the present time. The economy is in "free fall" and the expanding corruption scandal at Petrobras has put President Rousseff's future in jeopardy as well. On the agricultural front, commodity prices look lackluster at the present time, but if there is adverse weather in the U.S. during the summer growing season, commodity prices could improve. Any predictions for the next growing season in Brazil is just that, a prediction which may or may not come to fruition.


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