June 17, 2015
2015/16 Crop Input Purchases in Brazil Remain Sluggish
Input purchases for the 2015/16 crops in Brazil continue to be sluggish raising the prospect that there could be logistical problems getting everything delivered before planting of the next crop starts in mid-September.
According to the vice president of the National Association of Agricultural Input Distributors (Andav), Roberto Motta Segundo, input sales are usually nearing completion this time of the year, but as of now, sales have only reached 60% to 70% of the expected volume. Andav is also expecting that fertilizer sales may be down 5% to 7% as farmers try to control their costs due to low commodity prices.
The biggest logistical challenge could be with the delivery of fertilizers which should be on site as the soil is being prepared for planting. The problem is that most of Brazil's fertilizers are imported with the Port of Paranagua being the main entry point for fertilizers. Getting a large amount of fertilizers transported from the Port of Paranagua to the interior of Brazil takes time and if the influx of fertilizers is too large at any given time, it could drive up the already high freight rates.
Executives from the fertilizer company Yara, which has a 25% market share of the Brazilian fertilizer market, warned at the end of April that fertilizer sales were already sluggish due to a lack of credit and caution on the part of the farmers.
The lack of credit is due mainly to the delay in announcing the new Harvest Plan in Brazil. Even though the new plan came with an increase in funding, the increase was entirely eaten up by inflation and higher production costs. Additionally, the credit is being made available at much higher interest rates than in past years. None of the new credit has yet been made available to farmers and it remains to be seen how aggressive farmers will be to borrow money at much higher interest rates than what they are accustomed to.
Input costs for the 2015/16 crops in Brazil are expected to increase between 10% to 30% due mainly to the weaker Brazilian currency, which has lost 40% of its value compared to the U.S. dollar over the past 12 months. The weaker currency resulted in higher prices for Brazilian farmers when they sold their grain and it saved Brazilian farmers from even lower commodity prices. In contrast, the weaker currency is now making imported fertilizers and chemicals for the next growing season more expensive.