Brazil Soy Expansion on Hold as Prices Drop

May 15, 2015 10:53 AM
 
Brazil Soy Expansion on Hold as Prices Drop

After increasing soybean acreage for eight straight years, Brazilian farmers are putting their expansion plans for next year on hold as prices plunge and costs climb for the country’s most important crop.

 

The international price of soy, used in everything from animal feed to fruit beverages, is down 35 percent in the past 12 months after farmers in the U.S., Brazil and Argentina, oversupplied buyers in a race for market dominance, boosting inventories to an all-time high.

Agriculture and related activities account for about a fifth of Brazil’s GDP, and the 93 billion-real ($31 billion) soy crop has been an important mainstay in the struggling economy. That’s now threatened by the rising cost of credit and the sliding value of the local currency.

“Prices don’t justify the expansion into remote areas anymore,” said Anderson Galvao, director of the Uberlandia, Minas Gerais-based crop forecaster Celeres. “The locomotive is stopping.”

Brazil, the world’s second-biggest soybean producer and exporter, after the U.S., will harvest a record 95 million tons of soy this year, according to the government forecaster Conab. With export demand slowing, that’s pushed domestic inventories to record levels, a key factor in falling prices.

At the same time, the cost of imported fertilizer and pesticides has been on the rise.

Booming prices and easy credit helped Rodrigo Borghetti, a 35-year-old soy farmer in Mato Grosso state, expand his fields every year since 2007. Now he sees “a hard year” ahead.

‘Farmers Afraid’

“Most farmers are afraid,” according to Borghetti. “Margins are going to be much smaller,” he said. “It’s not the time to take on risk.”

 

Since 2006, farmers have expanded the planted area by 11 million hectares, led by surging prices and record-low interest rates. That’s the most among major producing countries and almost four times more than the U.S. Soybean shipments including meal and edible oils rose 56 percent over the past decade to become Brazil’s main export item, accounting for about 14 percent of the country’s export revenues. Soybeans in Chicago have fallen 1.7 percent this week to $9.595 a bushel.

Now, surging borrowing costs are discouraging investment as Brazil struggles with the highest inflation rate in 12 years. Banks may reduce loans to farmers by about 20 percent this year, according to the crop forecaster Agroconsult.

“Farmers will have less credit than necessary to expand planting next crop,” said Andre Pessoa, head of Agroconsult. “They will have to spend their own savings, reduce area or use less technology.”

‘Banks Cautious’

Farmers are struggling to get loans for the next season, said Igor Biancon, a 28-year-old farmer from Lucas do Rio Verde, Mato Grosso. “Banks are reducing credit limits, and seem to be getting more cautious.”

 

With less investment from farmers, sales of tractors and harvesters declined 23 percent in the first four months of the year, following a 17 percent drop in 2014, according to data compiled by the manufacturers’ association Anfavea.

Vanguarda Agro SA, Brazil’s second-biggest publicly traded soybean producer, is putting expansion plans on hold, along with investments in new farming equipment, according to Chief Executive Officer Arlindo Moura.

“It’s not the moment for seeking growth,” Moura said by phone from Sao Paulo. “The challenge is to keep the area and increase productivity.”

 

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