Tight credit hampers South American farmers

Tight credit hampers South American farmers

As the economy slows, interest rates climb for South American farmers

Don't even ask what you pay for overdraft protection on your Brazilian checking account. Or if you do, check to see there's a defibrillator nearby. Even the interest rate on a straightforward consumer loan will cost you 6.15% a month (that's 105% a year).

Subsidized credit for cropping and other farm operations in Brazil is more important than you might think.

Subsidized cropping loans at 6.5% annual interest were a pretty good deal for Brazilian farmers, but the rate this year will jump to 8.75% annually as the economy struggles to keep its head above water. No producer, in Brazil or elsewhere, is going to jump for joy at an overnight 2.25% hike in interest rates.

Day laborers help load a truck with sugar-canes on April 8, 2003, at a farm in Patrocinio Paulista, Sao Paulo, Brazil. (Photo by Andre Vieira/Getty Images)

Even so, it's not the biggest problem they're facing right now.

"Ag interest rates are still attractive," says Juarez Gavinho, a John Deere dealer in Mato Grosso. "It's political and economic uncertainty that's causing the problems." Read: growing displeasure at Brazil President Dilma Rousseff's policies as the rising dollar pushes inflation upward.

Still attractive - but less so
The Brazilian administration's decision for tighter and more expensive credit comes after three profitable ag years, as farmers had begun turning away from the easier-to-get but typically more expensive non-subsidized cropping loans from processors and resellers, in exchange for beans in the ground.

While those loans aren't as inexpensive (You may pay more for the inputs at the retailer where the lender authorizes you to buy) as the official, subsidized loans, they're easier to get and you can bet as much on whether the dollar will be worth even more on the day you deliver those beans.

And in a country where "How much did you pay for that tractor?" is often answered in the number of bushels needed to buy it, Brazilian producers have become adept at betting on the currency.

Look for Thompson's story, U.S. vs. Brazil – Low price battle, in the October, 2015 issue of Farm Futures

The opinions of James Thompson are not necessarily those of Farm Futures or the Penton Farm Progress Group.

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