Brazil farm-credit squeeze unlikely to slash fertilizer use: Cepea researcher

Brazil's tightening of agricultural credit conditions continues to be a financial burden for rural producers, particularly in the South, but is unlikely to substantially reduce fertilizer use or prevent farmers from planting, according to a scholar at the country's top agricultural research center.

Despite the credit difficulties, the current Brazilian crop season is progressing faster than the historical average and ahead of last year in several regions, said Lucilio Alves, a researcher at the Center for Advanced Studies in Applied Economics (Cepea), part of the University of São Paulo, where he is also a professor.

Brazilian soybean planting reached 33% by Oct. 21, ahead of 29% a year ago, according to the S&P Global Soybean Complex Short-Term Outlook, published Oct. 23.

By using barter as a credit alternative, farmers could protect crop productivity amid lower profitability consequences, Alves told Platts in an interview.

"Farmers may adjust fertilizer quality, composition and application volumes as they manage tighter liquidity," he added.

The current El Niño weather pattern has not yet generated major negative effects on crops, Alves said.

Heavier rainfall associated with El Niño has already been observed in southern Brazil, he said. The additional moisture can benefit summer crops, although it has damaged the current wheat crop.

However, Alves said, "We may see some impact on rice crops during the summer, because the heavy rains have flooded the fields and are making fieldwork more difficult."

Challenges

Despite the largely favorable weather, Brazilian farmers still face formidable credit challenges, Alves cautioned.

The state of Rio Grande do Sul, for example, represents about 13% of Brazil's credit portfolio but 21% of its troubled-credit portfolio, he said. The state's reported delinquency rate remains low, but that figure does not fully capture the financial pressure on rural producers who renegotiated loans and moved outside the traditional rural-credit system, he added.

"In some cases, this meant moving them out of the rural credit system and placing them in financing with non-subsidized interest rates of about 18% to 20%," Alves said. "That is where most of the debt is concentrated, in fact.

Current provisional measures intended to extend maturities and provide debt relief may exclude these producers because they have already renegotiated their loans and are no longer formally covered by rural-credit interest rates, Alves said. As a result, they remain indebted but may not qualify as beneficiaries under current rules, he added.

Platts, part of S&P Global Energy, assessed the daily SOYBEX FOB Santos price at $509.84/metric ton on Oct. 26, down from $521.23/mt on Oct. 23.