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June 2, 2015

Brazilian Farmers Slow to Purchase their 2015/16 Inputs

Brazilian producers have been very cautious this year in purchasing their needed fertilizers, seeds, and chemicals for the 2015/16 growing season. The reasons for the slow purchases are low commodity prices and uncertainty surrounding the government programs for the 2015/16 crops.

By the end of May in the state of Mato Grosso, generally 80% to 90% of the inputs for the next crop have already been purchased. But, according to retailers in southern Mato Grosso, only 40% of the inputs had been purchases by the end of May this year.

Low commodity prices have made Brazilian farmers slow sellers of their existing soybean inventories as well as their anticipated corn production. It is estimated that farmers in Mato Grosso have sold 25% to 30% of their anticipated 2014/15 corn production compared to 40% in 2014 and 60% in 2013. As a result, farmers are not as well capitalized as in previous years.

Another reason for the slow purchase pace is uncertainty over the government's new 2015/16 Harvest Plan. Release of the plan has been delayed due to severe budget cuts underway in Brazil including agriculture. The Brazilian president is scheduled to release the new plan on Tuesday, June 2. Included in the plan will be the new interest rates for production loans. In the 2014/15 plan, interest rates were 6.5% on production loans and they are expected to increase at least 2% in the new plan. The new plan takes effect on July 1st and farmers use these loans to purchase their inputs. A significant increase in the interest rate will drive up their cost of production and it could limit the amount of credit available for the loans.

Farmers in Brazil generally save money if they purchase their inputs early. For example, if farmers had purchased their chemicals in January they would have saved 23% compared to if they purchased the same chemicals today.

Input prices have increased due to the weaker Brazilian currency and the Mato Grosso Institute of Agricultural Economics (Imea) expects that the cost of producing the 2015/16 soybean crop will be the highest on record. Over the past year, fertilizer costs are up 6%, seeds are up 24%, and chemicals are up 40%. Just for the needed inputs, farmers in Mato Grosso are expected to spend R$ 1,800 per hectares for their 2015/16 soybean crop which is R$ 340 more than last year.

Future fluctuations in the exchange rate between the Brazilian real and the U.S. dollar could still have a significant impact Brazilian farmer's bottom line. A weaker currency would result in more money in their pocket when they sell their soybeans and corn, but it would increase the cost of the inputs they have not yet purchased.