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April 2, 2013

Farmers in Mato Grosso Financed 40% of Cost from own Resources

Strong commodity prices over the past few years have resulted in soybean farmers in Mato Grosso being much better capitalized and less dependent on production loans to pay for their production costs. According to the consulting firm Agroconsult, during the 2012/13 growing season, farmers in Mato Grosso financed 40% of their soybean production costs with their own funds. Five years ago during the 2007/08 growing season, farmers in the state financed just 5% of their production costs with their own resources.

During the 2007/08 growing season, the multinational grain companies financed 51% of the cost of producing soybeans in Mato Grosso, the banks financed 13%, the farmers themselves financed 5% and the remainder coming from the federal government. This past growing season, the grain companies and the banks both financed 19% each of the production costs.

This comes as welcomed news for the grain companies that were forced into the role of being a banker due to limited resources from the federal government. The Brazilian government used the majority of the financial resources to finance small and medium size producers and to promote crops other than soybeans. They correctly assumed that the large soybean producers in Mato Grosso were in a much better position to obtain financing from sources other than the federal government. The grain companies reluctantly took on the role of banker in order to maintain their customer base, but in so doing, they exposed themselves to the fluctuations of the currency markets.

The farmers themselves also disliked burrowing money from the grain companies because it limited their options when it came time to sell their crops. Part of the agreement between the grain companies and the farmers was that the loans would be paid back in grain at the time of harvest. With the farmer committed to delivering his grain to the company to pay off his load, it limited his ability to shop around for the best prices for his grain.

The farmers are also using their own resources to improve their production technologies by going from 50% GMO soybeans in 2007/08 to 88% GMO soybeans in 2012/13. They have also invested heavily in new and more efficient equipment as well.