Brazilian farmers squeezed by currency, interest rates
As American producers start thinking about harvest, Brazilian growers are thinking about planting. But most experts expect Brazilian producers will plant fewer soybean acres this year.
Fabio Meneghin is an analyst with Agroconsult in Florianopolis, Brazil. He says the strong U.S. dollar and high interest rates have put the squeeze on Brazilian farmers. "The currency is too strong in Brazil," he says, "and the other big problem is the interest rate that's too strong, too... 14.75%."
Tyler Bruch and his family farm near Emmetsburg, Iowa. They also have an 11-thousand acre operation in Brazil's Bahia state. According to Bruch, Brazilian farmers suffer when the dollar gets stronger because they buy inputs with Brazilian currency but get paid with U.S. dollars. "So essentially what really put a lot of Brazilian producers in a tailspin, they were buying inputs at 3 1/2-to-1 on the dollar, and selling soybeans at 2-to-1," he says. "And they took a 35-to-40% loss on their profitability just like that due to the market."
But Bruch says his operation hedges its currency risk, and he says the better Brazilian producers do, too. Bruch says that means already big Brazilian growers will likely get even bigger as they take over the operations of unprofitable producers.
"Everything you hear in the papers, 'Brazilian producers are going broke,'" Bruch said. "The bad ones are; the good ones are growing, "he adds. "And you know, when the whole world's crying, you can cry with them or sell Kleenex. And that's what a lot of producers are doing."
Indeed, Bruch says difficult times in Brazil mean opportunity for those who are positioned to capitalize on it. "There's a tough time right now in Brazil," he says, "and if you have capital, and you have the management capacity to expand, there's a heckuva lot of opportunity to grow," says Bruch.
(Published Brownfield, August 28, 2006)