What's your biggest fear, the one that makes you sit up at night in a cold sweat? Public speaking? Snakes? The IRS?
Well, for Latin American producers and governments, it's inflation.
Higher interest rates tend to cool an economy down, and inflation typically drops as those rates climb. So, with an annualized inflation rate of 7.4% in February, as the U.S. dollar's climb made everything more expensive, Brazil's monetary gurus bumped up the country's prime interest rate half a point to 12.75%.
Now, few everyday people or businesses manage to get loans at the prime rate, but farmers with good credit ratings in Brazil have long been able to take advantage of subsidized interest rate cropping loans below even the prime rate.
If your operation turns over less than about $550,000, you can get subsidized credit at a rate of 5.5 to 6.5%. If you're bigger than that, your rate could be 10 to 20%. But that could soon change to the disadvantage of Brazil's producers, says Brazil's National Agriculture Policy Secretary André Nassar.
Subsidized loans for the purchase of tractors and combines have already been bumped up half a point, to 7.5% per annum. And that's going to make 2015-16 planting that much more expensive for most producers.
This week, Banco do Brasil vice president Osmar Dias told Brazil's House agriculture committee that an interest rate hike was inevitable, perhaps an increase to as high as 8.5%. And Nassar agrees: "The interest rate will increase given that the prime rate also rose," he says. "But we still can't talk about amounts since it's still being negotiated."
For more Brazilian ag news, see other South American Crop Watch posts.
The Brazilian government made some R$112 billion (about $37.3 billion at the current exchange rate) available for 2014-15 cropping loans, which Nassar figures should cover about a third of total national 2014-15 cropping costs. Another third of the total comes from processors and inputs resellers, and the rest from Brazilian farmers' own pockets.
Paying the piper
So while the rising value of the U.S. dollar against Brazil's real currency has meant Brazilian producers lost relatively less than you did with the long slide in soybean prices, they'll likely suffer more than you when they see how many more Brazilian reals it takes to buy their inputs—and how much more they're going to have to pay for their cropping loans.
And I'm sure Brazilian farmers would rather give a public speech in their birthday suits, in a room full of snakes, than see the subsidized interest rate climb another point - even before they've bought their first bag of seed for 2015-16.
The opinions of James Thompson are not necessarily those of Farm Futures or the Penton Farm Progress Group.