Jun 03, 2019

Historic Low Prime Rate of 6.5% could benefit Brazilian Farmers

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

The Central Bank of Brazil has maintained the prime interest rate at 6.5% since March of 2018, which is the lowest it has been since they started tracking it in 1986. From October of 2012 to April of 2013 the prime rate was at 7.25%. From that point it was gradually adjusted upward reaching 14.25% in July of 2015. Then it started to gradually decline to 6.5% in March of 2018 where it remains.

The Central Bank of Brazil uses the prime interest rate as its primary means of controlling inflation, which has been hovering above 4%. The goal of National Monetary Council for 2019 is to maintain inflation at 4.25% with a tolerance of 1.5% or in the range of 5.75% to 2.75%. For 2020, their goal is 4%, also with a tolerance of 1.5%.

Inflation during March was 3.9% according to the Central Bank, while Brazilian financial institutions put it at 4.04%.

These financial indicators could influence Brazil's 2019-20 Harvest Plan, which will be released this month and take effect on July 1st. The annual Harvest Plan is the Brazilian government's equivalent of the 5-Year Farm Program in the United States, but on an annual basis.

The primary focus of Brazil's Harvest Plan is always subsidized low interest loans for crop production, equipment purchases, etc. Recent economic news out of Brazil indicate that the Brazilian economy is struggling to emerge from a deep and prolonged recession.

Brazilian farmers are hopeful that they will benefit from recent trade disputes around the world and adverse weather in the United States. They are concerned though because a weak Brazilian currency will increase their cost of inputs and higher freight rates could also cut into their profit margins. They are anxiously awaiting how much credit will be available from the government and at what cost.