South America Calling

Brazilian Farmers Rely Less On Trading Firms

By Alastair Stewart

SAO PAULO, Brazil (DTN) -- Five profitable harvests in a row have allowed farmers in Mato Grosso, Brazil's top grains state, to become much less dependent on trading companies and input suppliers for financing.

Well-capitalized farmers financed 40% of soybean production in Mato Grosso from their own pockets in 2012-13, up sharply from 5% in 2007-08, according to data compiled by Agroconsult, a local farm consultancy.

In contrast, the percentage financed by trading companies or chemical companies through forward sales has dropped from 73% to 36% in the same period.

It was ADM, Bunge, Cargill, Louis Dreyfus, Maggi and other trading firms that put up the money for farmers to expand production in the state since the 1980s.

But producers are now better structured and have substantial assets in the form of their multi-million dollar farms. As a result, they have attracted greater interest from banks.

Banks now finance 19% of Mato Grosso production, up from 13% in 2008-09.

"Funding has radically changed, reflecting the better position of farmers," said Andre Pessoa, director of Agroconsult.

This tendency will likely grow over the next few years as trading companies increasingly try to pass on the risk of volatile transport costs to farmers.

"The attraction of closing a deal with trading companies is that you can hedge the soybean price, the exchange rate and the transport costs. If you can't hedge transport costs, you can cover yourself as well at exchanges," Pessoa said during a press conference in Sao Paulo.

(AG)

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