Jul 11, 2014

First Semester Ag Equipment Sales decline 19% in Brazil

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

The sale of agricultural equipment in Brazil slumped 19.8% during the first half of 2014. According to the National Automobile Distributors Association (Fenabrave), from January through the end of June there were 30,600 units of tractors and other agricultural equipment sales in Brazil.

Sales were expected to be softer in 2014 compared to 2013, but several specific occurrences contributed to a steeper sales slump than what had been anticipated. The most significant factor early in 2014 was a 45 day period during which special financing for ag equipment sales was not available. In 2013 the federal government initiated a special low interest loan program for the purchase of agricultural equipment. The program was so popular that it was extended past its initial end date of December 2013. Unfortunately, the federal government held back funding to the National Development Bank for a period of 45 days at the start of 2014, thus reducing sales during that period.

There was also a severe drought in southern Brazil during December, January, and February of this past growing season. The primary impact was in the state of Sao Paulo which is the second largest agricultural state in Brazil. Farmers in the state suffered significant losses in their row crops (soybeans and corn) and sugarcane production resulting in slower equipment sales in the region.

An overriding factor during the first half of this year has also been declining commodity prices. Prices started off strong during the first few months of 2014, but they have been declining ever since. With big crops expected in the U.S. in 2014, there is little prospect of improved prices any time soon.

A number of days were also lost during the month of June when the entire country was fixated on World Cup soccer games. National holidays were declared on the days when the national team was playing reducing sales opportunities.

An industry spokespersons is confident that sales will rebound during the second half of 2014, but if commodity prices continue to decline, it is going to be hard to recuperate sales. Brazilian farmers have had a number of years of record high commodity prices, but prices for soybeans and corn are now in a down turn and not expected to improve any time soon. Domestic prices for corn in Mato Grosso is below the cost of production and soybean prices are approaching the cost of production. Continued low prices are going to make Brazilian farmers cautious in the equipment purchases.