Jun 08, 2020

Agricultural Equipment Sales Surge in Brazil

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

Brazilian grain farmers are coming off of a very good year with generally good yields and record high grain prices and profits. Farmers appear to be investing some of those profits into new equipment purchases. The news is not as good though for sugarcane producers and cotton producers, both of which have been negatively impacted by the Covid-19 pandemic.

Grain producers in Brazil are now using those profits to upgrade their equipment. According to the National Automobile Manufacturers Association (Anfavea), agricultural equipment sales in Brazil were up 61% in May compared to April and up 23.3% in May compared to May of 2019. The agriculture equipment sector registered sales of 3,858 units during May and 15,715 units for the first five months of 2020 or an increase of 0.9%.

There were 317 combines sold in Brazil during May, which was up 84% compared to April and up 117% compared to May of 2019. There were 3,006 tractors sold in May, which was up 58.8% compared to April and up 20% compared to May of 2019.

Grain farmers can attribute their good economic situation to a number of factors including: a significant devaluation of the Brazilian currency compared to the U.S. dollar, the ongoing trade dispute between the United States and China, and a generally good growing season with the exception of the state of Rio Grande do Sul which was impacted by a severe drought during the 2019/20 growing season.

It is a different story though for the sugarcane producers and cotton producers. The Covid-19 pandemic has resulted in a significant reduction in ethanol consumption and lower ethanol prices. As a result, the sale of sugarcane harvesters fell 53% in May compared to April and sales are down 71% compared to May of 2019.

Numerous sugar/ethanol mills are in financial distress with fewer places to sell their ethanol production. As a result, some mills have slowed down the sugarcane harvest so they do not over produce ethanol while other mills are hurriedly constructing additional storage units for their ethanol to utilize at a later date.

Cotton producers in Brazil are also having a bad year. Covid-19 has reduced the Chinese demand for cotton which is the destination for the vast majority of Brazil's cotton exports. The domestic demand for cotton has also declined in Brazil due to Covid-19 factory closings. As a result, the domestic price of cotton is at breakeven levels or lower and May producers are expected to lose money on their 2019/20 cotton production.

Brazilian cotton producers are expected to reduce their 2020/21 cotton acreage 10% to 20% with those hectares going to additional safrinha corn and soybean production.