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July 13, 2011

Fertilizer Costs in Brazil Increase 15% in Two Months

Brazilian farmers came out of the 2010/11 growing season well capitalized and they used some of their profits to forward purchase much of their fertilizer needs for the 2011/12 growing season. According to the Mato Grosso Institute of Agricultural Economics (Imea), by May of this year, farmers in Mato Grosso had already purchased 82% of their fertilizer needs compared to 65% in 2010. Farmers in the state have also purchased 77% of their chemical needs compared to 71% last year at this time.

Forward purchasing of the fertilizer was a wise choice this year due to recently increasing fertilizer prices. From April until the end of June, fertilizer costs in Mato Grosso have increased an average of 15%. In Mato Grosso, a ton of fertilizer that was selling for up to R$ 867 on April 30th is now selling for an average of R$ 950 per ton, or an increase of 9.5%. Phosphorus that was selling for R$ 651 per ton is now selling for R$ 780 a ton. Potassium chlorate that was selling for R$ 1,040 a ton is now R$ 1,300 per ton or an increase of 25%. According to the University of Sao Paulo researchers, fertilizers in Mato Grosso now account for 23% to 30% of the cost of producing soybeans, and 22% to 30% the cost of producing corn.

Approximately 56% of the fertilizers purchased in Mato Grosso were to be paid for at a later date and nearly 90% of those transactions involved farmers purchasing the fertilizers from the grain companies in exchange for future delivery of grain.

It's always difficult to know when to purchase inputs. If farmers buy too early, they may miss declining prices closer to planting. If they buy too late and supplies get tight, they may pay much higher prices than needed.

Even before the 2011/12 crops are planted in Brazil, the rising cost of fertilizers have farmers worried about their profit margins. Fertilizer costs have increased such that they now account for as much cost as the lack of infrastructure which results in high transportation costs.