It's winter in Brazil now; time to take stock of the last crop year. And it ain't a pretty picture for Brazilian soybean farmers.
Depending on where they farm, Brazilian producers usually plant between October and December, and often make their planting and purchase decisions in May and June. With soybean prices high, and the dollar to Brazilian real exchange also sky-high, farmers loaded up on soybean seed and planted lots of beans.
Then in February, the wheels fell off for a lot of producers here. In the southern part of the country, the rains came to a full stop so that by harvest many southern Brazil farmers did not even bother to send their combines out into the scorched fields. Meanwhile in Mato Grosso, many producers sat watching it rain, unable to get into their soaked fields. Bad weather, combined with the continued presence of Asian rust, brought down yields in several growing areas. But that wasn't all.
The dollar went into free fall against the real, Brazil's currency, meaning farmers here got less local money for each bushel they sold than the year before, no matter the price. Between planting decisions and harvest, the U.S. dollar lost about 30% of its value against the real, and soybean prices are set in dollars. And, of course, soybean prices also fell — in dollars.
Those Brazilian farmers who could, waited for better prices. By July 20 around 45% of the Mato Grosso harvest was still unsold — almost 3 mmt in the hands of farmers, another 4 mmt in the hands of trading companies. The rest was sold, of course, producing low rural incomes and a record-breaking loan repayment delinquency rate.
Rural associations gathered to demand both federal aid and debt renegotiation. In the South, new credit lines are badly needed for input and seed purchasing, and for irrigation systems to avoid a repeat of this year's total loss caused by the drought, especially in Rio Grande do Sul, Brazil's third largest soybean producing state.
Now the owners of most small and medium farms throughout the nation are unable to effect their purchasing of inputs. According to the chemical industry's estimates by June, fertilizer demand had already fallen by 28% compared to the same period in 2004.
Thousands of these farmers joined slow but unstoppable tractorcades, and drove to the nation's capital of Brasilia to say: “The bread basket needs help.”
Federal Agriculture Minister Roberto Rodrigues is fighting to help farmers get credit and debt refinancing, while Economy Chief Antonio Palocci locks the coffers and plays the role of Scrooge. Both have their reasons, but thanks to a little push from President Luiz Lula da Silva, debt repayments coming due in June, July and August of 2005 were rescheduled for payment after the 2005-06 harvest. Promises of credit were made, agreements were signed, but farmers are still waiting for the money to reach regional banks.
It's still too early to tell how much Brazilian soybean production will suffer from this combination of negative factors. Farm cooperatives are a strong force in the nation, many have the financial wherewithal to face hardships, and they are already buying seed and inputs that will be passed on to producers at reasonable terms.
The Rural Caucus in Brazil's congress is powerful, President Lula usually supports farmers, and the sector answers for a third of the nation's GDP. But for the time being, farmers in Brazil can only shake their heads in disbelief as they face this Annus Horribilis, a truly horrible year.