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Credit to Limit Brazil Production

00:00AM Oct 21, 2008

Greg Vincent, Top Producer Editor
The worldwide credit crisis hit right as Brazilian planting was getting underway, and it's leaving that country's acreage and production open to questions. Credit problems Brazilian farmers have experienced for the past three years are suddenly worse, and acreage expansion and production will fall, say industry insiders like Weisul Agricola's analyst Éder Silveira.
He says Brazil's Central Bank is pressuring lenders to loan farmers money, but loans are not coming through as struggles to pay previous debts continue. "The situation is dramatic because the credit crisis matches with expiration of last year's loans,” he says. "Last year around 70% of Mato Grosso producers got credit for soybean planting. This year only 24% got it.”
Missouri native turned Brazilian farmer Brian Willott says the rules have changed for lenders this year and history with specific bankers is key to success in securing credit. "Credit is tight and yes, it will trim a few acres. Lending here was being done on cash flow projections and balance sheets.
"Now, they are loaning only on character. If you are the type that doesn't pay your bills, forget it. If you have a good reputation, then money is still available.”
Originally expected to increase as much as 5% in April and May, anticipated 2008-09 soybean acreage gradually dwindled through the Brazilian winter as input prices rose. Soybean acreage is now expected to increase only 1.3% to 3.2%. Total production will be cut even more as operating credit will reduce input purchases. Silveira says the Brazilian government pegs total production to increase 0.1% to 2.1% because many farmers will rely on credits in the soil, if not from the bank.
"Despite real conditions of soil, this is the only way farmers have deal with prices. So it's probably that, in some regions, soil still has enough energy to grow an ‘almost in the average' crop, even without investments,” Silveira says. "I have been talking with some private survey agencies and heard that they still believe we will have an increase in soybean area in 2%, but just cant wonder what will happens with yield. A larger reduction in corn, whet and cotton acreage is expected.”
In the giant agriculture state of Mato Grosso, fertilizer use is expected to decrease by 25%, says crop consultant Pedro Schneider. It also will cut into acreage expansion, but soybeans will expand as cotton acres are sacrificed.
"Here in Mato Grosso, there is no way to increase the soybean area. Some farmers need financial support and they are still waiting. Just the big farmers have started planting because they have to if they want to plant cotton or corn after that to fulfill futures contracts.”
Hopes for loosening of credit may be waning as the planting window narrows, says Silveira. "The government's talk is changing,” he says. "Until (the first week of October) they were saying all credit needed for agriculture would be provided,” signaling that Brazil's government will become more pragmatic about its support for agriculture depending on worldwide demand.
While fertilizer and inputs are front and center for anticipated production decreases, there are other concerns, Silveira says. A late crop last year, and current dry weather in key production areas has halted planting, opening the soybean crop to potential threats down the road.
"Due to lateness of the last crop, the sanitary pause time in soybean was reduced a lot, as well in cotton. It should bring a higher risk for rust in case of a humid season. Added to current situation of low investments in crops, rust could become to be a heavy problem.”

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