Mar 27, 2015

Brazilian Farmers Having Difficulty obtaining Low Interest Loans

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

Many farmers in the center-west region of Brazil are looking forward to the 2015/16 growing season realizing that their cost of inputs will increase thanks to a weaker Brazilian currency. A weaker currency makes imports more expensive and approximately 70% of Brazil's fertilizers are imported, so farmers are facing increased costs due to the higher priced fertilizers.

Therefore, they would like to purchase their inputs as quickly as possible before prices increase even further and also to take advantage of cheaper transportation costs by delivering the inputs well before planting begins in September.

Normally by this time of the year, that process would be well underway, but agricultural input retailers in the center-west region of Brazil are reporting that input sales for the 2015/16 rowing season are at a standstill. The director of the National Association of Agricultural Input Distributors in Goias (Andav) recently told Reuters that input sales are paralyzed due to a lack of credit at the Bank of Brazil.

Many farmers purchase their inputs with low interest subsidized loans from the Bank of Brazil. Usually by late March, those loans start to be issued and farmers then proceed to purchase their inputs. Apparently, that is not happening this year. Officials from the Bank of Brazil stated that credit is available for production loans, but that they are being cautious in granting loans while they monitor market conditions.

Under the 2014/15 Harvest Plan the interest rate on these production loans is 6.5%, but speculation is that the interest rates will increase 2-3% for the 2015/16 Harvest Plan that will take effect on July 1st. When asked about the lack of credit at the Bank of Brazil during a recent news conference earlier this week, the Brazilian Minister of Agriculture, Katia Abreu, stated that she did not know of any delays in issuing new production loans.

Producers and retailers are expecting details of the new harvest plan to be announced in May. The Minister stated that interest rates on the new production loans would increase following the general trend in Brazil of increasing interest rates, but that there would be ample credit available for the 2015/16 growing season.

The vice president of the Agricultural Federation of Goias (Faeg) indicated that farmers all throughout the state of Goias are having difficulty obtaining new loans and he speculated that the government does not want to issue new loans under the old harvest plan with the lower interest rates knowing that the rates will increase under the new plan.

Bank of Brazil officials have indicated that there are resources available for production loans at the normal interest rate of 16%. Farmers of course, would be very hesitant to borrow money at such a high interest rate when they are facing increased costs and low commodity prices.