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Brazil soy farmers search for ways out of debt

Agriculture.com Staff 03/02/2006 @ 1:15pm

While visiting Brazil recently, Laura Karlen, Agriculture Online correspondent, reported that some farmers were struggling financially and looking for ways out of debt. She learned this fact from Reid Weiland, Brazil Agrilogic financial consultant, in southern Brazil.

In a follow-up email message on Thursday, Weiland said he continues to receive many calls from soybean producers asking for help. The requests are to help sell land, create partnerships, buy and lease-back, or any way to pay down debt.

"It's a shame that the Brazilian producer put himself in this bind," Weiland said. "Everyone knows that agriculture is cyclical, but in Brazil, a land without tax deferred exchanges and government subsidies, the high of the cycle is higher and the low is much, much lower."

The main problem is that Brazilian soybean farmers had a tough time last year due to the weak dollar, which required them to compromise grain for this year's inputs, Weiland said.

By using a historical price for a (60 kilos) bag of soybeans at $10.00, Weiland outlined a farmer's scenario.

"Two years ago, that sack was associated with an exchange rate of three Brazil Reals to one U.S. dollar, therefore, the price to the producer was 30 Reals. Today, the exchange rate is two Reals to one U.S. dollar, therefore, the price to the producer is only 20 Reals," Weiland said.

Weiland added, "When your costs are in Reals, and suddenly, you lose 30% of your gross returns, things turn difficult."

Looking back four years ago, the Real was three-to-one and farmers were making a bunch of money, Weiland said. "What did they do? They bought land in three- or four-year payments (of soybeans). Then, with the expansion of land, they needed to buy more machinery, so they did. There was also a popular government program with subsidized interest rates that was spread out over seven years," Weiland said.

He added, "Then, two years ago the yield was short and rust was strong. Furthermore, they bought their inputs with a weak Real and sold with a stronger Real perhaps only breaking even. Then, this year came around. No chance for profitability, but still had payments to make for machinery and for land. On top of that, they committed the large percentage of their production for inputs (through Bunge, et al) because they were already short of cash from the previous year."

When asked, Weiland said very few farmers are storing grain because most of it is already tied up in financing. A reflection of farmers having to sell their crop is showing up in a Brazilian government export sales report this week.

According to the Dow Jones newswire, registrations of Brazilian soybean exports for market year 2006-07 are at 22% of the estimated 57.1 million metric ton harvest, compared to 12.6% of the estimated 52.6 million soy crop in market year 2005-06.

Meanwhile, soybean farmers in the south of Brazil have a different reality this year: they will at least break even, Weiland said. "Talking with a good friend in Rio Grande do Sul on Wednesday, he said that the soy crop is 'beautiful,' although the corn crop, due to a dry spell will be at break-even levels," he said.

While visiting Brazil recently, Laura Karlen, Agriculture Online correspondent, reported that some farmers were struggling financially and looking for ways out of debt. She learned this fact from Reid Weiland, Brazil Agrilogic financial consultant, in southern Brazil.

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