South America Calling

Brazilian Agribusiness Hopeful on Hints of Economic Bounce

Signs that the Brazilian economy may be close to coming out of the worst trough since the Great Depression are heartening agribusiness.

Data show that investment may be returning amid growing confidence in the economy and that confidence may have reached the farm sector, agribusiness leaders said.

"Recent numbers indicate we could be on the path to recovery... The last couple of years have been tough, forcing many to adapt to survive, but we may be coming out of that," said Luiz Carlos Carvalho, president of the Brazilian Agribusiness Association (ABAG).

A key indicator for the farm investment outlook is machinery sales. In July, farm machinery sales reached 4,017 units, up 1.3% compared with the year before, according to the Brazilian Vehicle Makers Association (Anfavea). That may not look impressive but represents a significant recovery compared with the start of the year. In 2016 so far, farm machinery sales are 26% down on the same period of 2015. That represents a major drop when you bear in mind that sales were already down 35% on the year before in 2015.

Brazil has been through some tough times with a 3.8% contraction in the economy in 2015 likely to be followed up by a 3.2% downsizing in 2016, according to a Brazilian Central Bank market survey of forecasts. Economists expect activity to pick up in the fourth quarter, although any bounce back will likely be modest: The central bank survey predicts GDP will grow just 1.1% in 2017.

Any recovery will mean an easing of the credit crunch that has stymied farm investment.

"After a couple of years of low investment, farmers will be looking to catch up with their timetable," said Francisco Matturro, an experienced farm machinery executive and vice president of ABAG.

While businesses selling tractors, silos and, to a lesser extent, fertilizers and chemicals have suffered during the downturn, Brazilian agriculture as a whole has been one of the bright spots of the economy. The devaluation of the Brazilian real and declining input costs have allowed grain farmers to profit despite falling international prices, while sugar, ranching and meat have all been super competitive and sold strongly.



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