May 27, 2010
Rate of Input Purchases Has Been Slow in Central Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
This is the time of the year when farmers in Brazil start purchasing the inputs needed for their next crop, but in Mato Grosso, farmers have been slow in purchasing their inputs. According to estimates from the Association of Soybean and Corn Producers in Mato Grosso (Aprosoja), approximately 50% of the needed chemicals (herbicides, insecticides, fungicides) and they have purchased and only 30% of the needed fertilizers for the next growing season have been booked.
Many of these inputs are purchased from grain companies in exchange for future delivery of soybeans. The recent decline in soybean prices has made farmers reluctant to commit to the purchases in hopes of improved grain prices due to potentially adverse weather in the United States. Farmers are also waiting for the government to announce their credit packages for the 2010-11 growing season and if there will be another rollover of old loans to the Bank of Brazil. These loans are scheduled to be paid in 2010, but farmers have been allowed to roll them over several times already.
Another reason why the sales have been slow is the fact that farmers are waiting to see how their safrinha corn crop is going to turn out. Many areas of Mato Grosso have been in a drought since the beginning of April and as a result, the safrinha corn crop has been adversely affected. Farmers would normally be forward selling their anticipated corn production to generate some cash flow, but they have not done that this year because cash corn prices are extremely low in Mato Grosso and they are unsure of their potential corn production. They would prefer to wait and sell their corn to the government at a guaranteed minimum price. The government announced last week that they will start purchasing the corn at weekly auctions scheduled to begin this week. Until then, farmers are not going to have much of a cash flow that could be used to purchase inputs.
Additionally, fertilizer sales may be lagging because farmers adjust their fertilizer usage depending on the profitability of growing soybeans. In times of low soybean prices farmers cut back on their fertilizer applications as a way to reduce their cost of production. Currently, soybean prices in central Brazil are low, 40% below last year's prices, and it is entirely possible that farmers will just hold off on buying inputs until they see if soybean prices strengthen.
Fertilizer purchases in Brazil can sometimes be a tricky proposition. During years of high price volatility, some farmers who waited until the last minute to purchase their fertilizers ended up paying more due to skyrocketing prices. In other years, farmers may have purchased their fertilizers early in order to avoid potential shortages only to see prices collapse as planting approached. If soybean farmers reduce their fertilizer usage for one year, there may be no adverse affect on yields if the weather during the growing season is favorable. If they reduce their fertilizer applications and there is adverse weather during the growing season, there can be an adverse impact on soybean yields.