Brazil's 2012 Ag Outlook: Mostly Sunny, With Some Clouds

Some signs point toward slower demand and tighter credit in Brazil.

The National Agriculture Confederation—Brazil's official association for the ag sector—said this week 2011 agricultural GDP growth here will come to 6.1 percent in 2011. And that's pretty healthy, considering the signs China may be ready to push itself back a bit from the table after a spree of grain consumption that would make even a glutton blush.

The potential for emerging markets like China to start slowing down, though, isn't the only cloud on the demand horizon, according to the Confederation's Perspectivas da agropecuária para 2012 e balanço de 2011. There's also the likelihood of slow growth, or no growth, in the developed world. While the Confederation says the U.S. is likely to fumble along in 2012 at about the same rate of growth seen this year (sorry, Obama,) Europe and its debt crisis could bring serious problems to Brazilian agriculture in two ways.

If things go further south in southern Europe in 2012, Brazil's expected $92.9 billion in 2012 agricultural exports could take a serious hit—most especially, meats and forestry products.

In addition, says Senator Kátia Abreu, who moonlights as head of the Confederation when she's not in her Senate seat, a deepening of the European credit crisis could mean less credit for Brazilian producers. "The biggest risk we'll run in 2012 will be credit for (agriculture,) because 65% of the soybeans, corn and grains in general are financed by the (soybean processors) and banks based in Europe," she told a reporter. "That suggests there's a risk of a retraction of credit. To plant, we will need $96 billion (in credit.)"

The Confederation's report provides some background: In times of greater economic insecurity, investors may back away from more volatile places to park their money, such as in commodities. And a scenario of Asian demand slowing and European retraction could drive money to what are perceived as safer ports. As a result, credit for cropping costs could become scarcer and costlier. And that clamps down further on margins. In 2010/11, Brazil needed something like $99 billion, according to the Confederation report—an amount slated to rise.

Now, it's true the administration here has made more money available for loans at subsidized interest rates, but that money is slow to come. I first applied for a livestock loan in January, reapplied when the bank's exigencies changed in June, and am still waiting to hear back. And it's true that, after a couple of pretty good years, more and more Brazilian producers are financing their own cropping costs. But credit remains an important issue here.

And that's why Kátia Abreu is rooting for China to grow at 8% in 2012.

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