Oct 24, 2018

Strong Machinery sales in Brazil expected to continue into 2019

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

According to the Brazilian Association of Industrial Machines and Equipment (Abimaq), agricultural equipment sales receipts are expected to increase between 10% to 15% in 2018. In 2017, receipts totaled R$ 13.5 billion.

Abimaq had originally anticipated an increase of 8% in 2018, but they are now more optimistic due to: reduced soybean and corn production in Argentina, the trade dispute between the United States and China, higher domestic commodity prices, favorable early planting conditions, and the prospect that the right-wing candidate Jair Bolsonaro will be Brazil's next president.

Sales during 2018 already looked good due to an average reduction of 1.5% in the interest rates for equipment purchased in the 2018/19 Brazil Harvest Plan that took effect on July 1st of this year. From January to October, sales increased 10% and the agricultural community is now even more optimistic with the prospect of a Bolsonaro administration. That optisium has resulted in even stronger sales over the last four months.

Brazilian farmers are coming off of two record crops in a row and the soybeans this year are being planted at a record fast pace. The favorable planting conditions are not only good for the 2018/19 soybean crop, an early soybean harvest could also be very beneficial for the safrinha corn which will probably be planted early as well.

The one negative could be the Brazilian currency. Commodity prices in Brazil were helped earlier this year with a weakening of the Brazilian currency, which at one point was trading at 4.2 to the U.S. dollar. That has now turned around and the currency has strengthened as a Bolsonaro administration becomes more probable. Currently, the Brazilian currency is trading in the range of 3.7 to the dollar.

The director of agribusiness for the Banco do Brazil confirmed an increased interest in machinery and equipment purchases, and even for truck purchases. He credits the increased interest to Brazil's record large crops the last two years and the prospect of potentially another record soybean crop in 2018/19. He expects the increased interest in machinery and equipment purchases to continue into 2019.

Brazil's runoff presidential election will be held Sunday, October 28th, and Bolsonaro is heavily favored to win. He has not released a detailed plan for agricultural, but he has expressed his intention to roll back environmental regulations impacting agriculture. He has also expressed his desire to increase investments in logistics in order to reduce what is referred to as the "Brazil Costs", which is the high costs of transporting and marketing Brazil's ever expanding grain production.