June 5, 2015

Brazilian Farmers Delay Input Purchases due to Lack of Credit

A study conducted by the Mato Grosso Institute of Agricultural Economics indicated that farmers in the state have been very slow to purchase their needed inputs for the 2015/16 growing season. Generally, by the end of April farmers in the state would have purchased approximately 70% of their inputs. By the end of this past April, they had purchased only 22% of their inputs (seeds, fertilizers, and chemicals).

That implies that farmers in the state still need to purchase R$ 12 billion worth of products compared to last year when they needed to still purchase R$ 3.8 billion worth of products by the end of April 2014.

The slow purchase pace is due to a number of factors including: lack of available credit, uncertainty concerning the new 2015/16 Harvest Plan, low commodity prices, a deteriorating Brazilian economy, and currency fluctuations.

Earlier this week President Rousseff announced the 2015/16 Harvest Plan which included a 20% increase in funding compared to last year, but the increased funding came with much higher interest rates for production loans. Combining inflation (8% to 9%), the increased cost of production (+10%), and the increased interest rates on production loans (7.5% to 8.75%) the farmers in Brazil will basically hold even on the amount of credit they will be able to direct toward their next crops.

The amount of credit offered at market interest rates increased 130% in the 2015/16 Harvest Plan, while the amount of credit offered at subsidized interest rates increased only 7.5%. As a result, 64% of the credit in the 2015/16 Harvest Plan will be offered with subsidized interest rates compared to 80% in the 2014/15 Harvest Plan. Most of the increased funding for the 2015/16 Harvest Plan will be for loans that carry market interest rates in the range of 17% to 23%

The new 2015/16 Harvest Plan takes effect on July 1st, and by then the start of soybean planting will only be two and a half months away in Mato Grosso and farmers are concerned if they will be able to get their needed inputs in time for early planting. Fertilizer imports into Brazil have been slow this year due to delayed purchases by farmers. Farmers are expected to increase their fertilizer purchases once more credit becomes available in July, but a surge in purchases could result in increased congestion at the Port of Paranagua, which is the main entry point for imported fertilizers. It could also over-burden the transportation infrastructure needed to deliver the fertilizers to interior states such as Mato Grosso that are 1,500 to 2,000 kilometers away from the port.

Over the last three growing seasons, inputs had accounted for 58% of the total cost of growing soybeans in Mato Grosso with chemicals accounting for 53% of the input costs followed by fertilizers at 29% and seeds at 17%.