Be Nice to Your (Brazilian) Banker

What it's like to try to get a farm loan in Brazil.

Though he won't say so outright, there's little doubt Lucas the loan officer is eager to get on to a better assignment.

The Bank of Brazil has to have something far more exciting than going through the stack of paperwork I've put before him at the branch in quiet, oppressively-hot Araguaçú, Tocantins, Brazil. 

He's a young guy, after all, and this little town has just about zero in terms of social activities. But it does have lots of land suitable for farming around it, including my little patch. So I'm here to apply for a farm loan of $120,000 or so, at the government-subsidized 6.75% annual interest rate. And I need Lucas to stick around long enough to shepherd the paperwork through.

That's a helluva good interest rate, by the way, in Brazil. After all, in February, the nationwide average interest rate charged for personal credit reached 5.4% - per month.  And, if you think that's a lot, the nationwide average interest rate on your bank's overdraft protection was 9.4% a month. So you make it a point to get in with guys like Lucas.

The problem is that not all producers are as cozy as they'd like to be with their loan officers. Their properties are already held as collateral in old loans, or they've been late on a few payments in the past. And if your credit picture is not pristine, getting those subsidized-interest loans is far from a sure bet. 

As recently as last month, Mato Grosso governor Silval Barbosa asked financial institutions to put at least a temporary halt to in-the-field repossessions of the estimated $1.2 billion of machinery on which payments are behind. 

So lots of producers, especially up in Mato Grosso, Brazil's no. 1 soybean state, have gone to selling beans in the ground in exchange for the fertilizer, seed and chemicals they need to grow it. The state's Ag economics institute announced this week that 77% of the crop had been sold by this week, vs. 63% at this time last year. And those forward sales didn't just happen now. By last November, some 57% of Mato Grosso's 2010-11 soybean crop had been sold already.

The thing is that, while those loans can make the difference between putting in a crop and not putting in a crop (in a country where there are minimum indexes for farmland use), I'm told producers end up paying more for the inputs bought that way, and they lose out on market surges because their price is locked in at planting (though one supposes the complaints would die down if the market were to take a dive after the contract was signed).

Which is good reason to keep your credit up, your debt down, and to make friends with guys like Lucas for as long as they're stuck at your remote branch.

Harvest conditions

I got an e-mail from soybean producer Telma Maganelli, who farms in Piauí, Brazil. She sent this picture. The pace of harvest is picking up in her area, but heavy rains since Sunday have made lots of dirt roads "impassable."

Welcome to Brazil.

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