Brazilian Farmers Flush with Cash

In far away Washington D.C., Democrats and Republicans have faced off in a game of chicken over raising the U.S. debt ceiling a few trillion bucks. Economists on TV tick off a list of bad things that will happen if Uncle Sam fails to pay his bills on time, including, possibly, a further slide in the value of the U.S. dollar.

Plenty of Brazilian farmers, these past few years, though, have failed to pay lots of bills on time. A couple of seasons ago, the Brazilian senate went so far as to pass emergency legislation to make banks stop repossessing planting machinery right out of Mato Grosso farm fields.

Heavy farmer debt loads here, along with occasionally less-than-perfect records of making payments on time, have burdened much of Brazilian agriculture these past few years. And that has helped lead to the phenomenon of Brazilians covering cropping costs with loans from processors. Big processors advanced credit for the purchase of chemicals and fertilizer, and were paid back by the sale of up to 80% of the beans produced from those inputs, at the bean price for a specific date or dates in the future.

It isn't necessarily as good a deal for the producer as snagging a subsidized interest loan through a government program, as a few producers have told me that the prices of the inputs bought as part of the package offered for loans against "green beans," are usually higher than the prices you could get if you were to slap some cash down on the counter. One study estimates such deals mean producers get about 15% less in their pockets than if they simply sold on the futures market. But it's better than nothing—which is the amount of government subsidized-interest money you could get if you didn't have a squeaky-clean credit history.

I asked Brazilian ag economist Anderson Galvão about it.

"The reason," he says, "is money in farmers' pockets."

Galvão points out that Brazilian soybean farmers are in their third good crop year in a row. "In broad terms," he says, "2008 was a break-even year. Farmers had a slight positive result in 2009, and 2010 was a good year. Now, in 2011, they got excellent results."

As a result, Brazilian farmers have been buying inputs like crazy. In the first half of 2011 fertilizer sales were up nearly 30% over the first six months of 2010. And there are signs that a lot of those sales were made in cash.

Meanwhile, Galvão says it ain't just fertilizer sales that are ahead of the game. "In seeds, 90% of sales goals have already been met," he says.

And that's on what he's projecting to be a big crop. Galvão says, "I think that in 2011-12, we'll easily hit 61.75 million acres planted."

Nearly 62 million acres of inputs bought early (one organization says something like 12% of the 2011-12 Mato Grosso crop had been sold by April) is a lot of money.

Having dug themselves out of a hole over recent years, Brazilian farmers have a bit more money right now, and even left many flush with cash. Let's invite them to D.C.