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Brazil's Top Soybean State Faces Acreage Drop
With banks and consultancies predicting a GDP contraction in Brazil from -0.5% to -2%, this would be the most severe crisis in the South American country in the last 25 years after a 2014 marked by zero growth. On the other hand, agriculture would not be beaten down as other sectors, especially car manufacturing, housing, and oil.
At a traditional farm show recently in Rio Grande do Sul, Agriculture and Livestock minister Kátia Abreu confirmed a consequence of the crisis that many Brazilian farmers had expected. Average farm business interest rates will increase from 6.5% to 8.5% starting with the contracts signed by next June. This led several analysts to predict that corn and soybean surfaces will not grow in the next season, even in Mato Grosso. Brazil's top soybean producing state would not have an area expansion of grains for the first time in several years.
One of the most respected economists in the country, Alexandre Mendonça de Barros, an analyst at MB Agro (São Paulo), made this prediction at a lecture at Expodireto Cotrijal, the same farm show: "So far, the recession has helped farmers. They purchase inputs with a strong Real. As the economy weakened, the Real has devalued against the U.S. dollar. Now, they are profiting at the time of harvest. But for the next crop, credit tends to be scarce and more expensive," summarized Mendonça de Barros.
When the value of the Brazilian Real goes lower compared to the U.S. dollar, soybean growers have better payments even when the price is flat. When the opposite happens, farmers are paid less for the soybeans that they sell on the export market.
As of Tuesday, one U.S. dollar is worth R$ 3.13. In October 2014, during Brazil’s soybean planting season, one U.S. dollar was worth R$ 2.30. As a result, the Brazilian farmers are paid in Reals for soybean sales. But if the farmer’s soybeans are exported, he or she is paid in dollars.
The economist also added that there will not be a significant range of the price of the oilseed because investors would not look so much to commodities as before, benefiting the U.S. and hitting emerging nations.
"The world came back to a pre-2008 status, where the U.S. is the strong economy that pushes everything else," explained the expert.
Carlos Cogo, a market analyst from Porto Alegre, Rio Grande do Sul, agrees that the grain surface will not increase during the 2015/2016 season. He believes that the uncertainty can bring tough times to grain farmers in the country because most inputs are priced based on the U.S. dollar value.
"Everybody is in this hesitation. People do not know where the adjustments take place. This explains why sales did not go forward in some cases," he observes. He also highlighted that since the last crop, the dollar value increased 29%. "This percentage will be passed for all dollarized input packages. I'm talking about a readjust of at least 30% in a group that weighs 65% of the total costs," detailed Cogo.
A fear of an increase of the Brazilian Real value during the time of the harvest in next season, a reverse phenomena of what has happened recently, was mentioned by Antônio da Luz, a chief economist at the Federation of Agriculture and Livestock of Rio Grande do Sul. "If the dollar value goes lower, it would be a tragedy for us," said Antônio da Luz.
Questioned by Agriculture.com whether small farmers, a significant contingent in Brazil, could show a potential big exodus to urban areas during the recession, José Carlos Hausknecht, an associate of Mendonça de Barros at MB Agro, denied that this would be very likely.
"I think that the farm business is in general more preserved in this recession. [An exodus] can happen in isolated sectors. But smaller farmers are more protected by the government," says Hausknecht.
Meanwhile, Porto Alegre consultancy Safras & Mercado announced last Friday that Brazil will produce nearly 45.48 million tons of corn during the second 2015 corn crop. The surface would be increased, if this forecast is confirmed, by 2.1% to 20 million acres. In Mato Grosso alone, nevertheless, there would be a drop of 2% to 7.9 million acres. The surface increase was pushed by Paraná and Goiás, mostly.