South America Calling

Brazilian Grain Farmers Make Record Fertilizer Purchases

While U.S. farmers fret about tight margins, Brazilian growers are spending, buying record volumes of fertilizer in 2016.

Fertilizer deliveries in the first seven months are up 10.4% on the year at 16.5 million metric tons (mmt), according to the Brazilian Fertilizer Distributors Association (ANDA).

Favorable terms on the purchase of fertilizer and other inputs in return for delivery of the future crop has led to a rush of deals ahead of the 2016-17 planting season.

The figures reinforce ideas that Brazilian farmers will expand the soybean and corn area in 2016-17 and that farmers are once again investing in crops after limiting spending last year. Soybeans and corn account for 60% of Brazilian farm input sales.

Fertilizer sales fell 6% in 2015 in large part because of limits in the availability of farm credit due to the economic and political crisis that Brazil has been going through.

Bank credit remains limited and so farmers have sought out deals with trading companies and input companies.

According to Rabobank data, operating credit lending for farmers rose from 84.9% of revenues in 2013-14 to 115.6% in 2015-16, while bank lending has remained fairly flat.

Brazilian grain margins remained attractive last year, primarily because of a devaluation of the Brazilian real. Rabobank estimates 2015-16 average Brazilian operating margins at around 31.6%, slightly above historic averages.

The outlook for 2016-17 also appears positive with farmers locking in good margins offered by a bounce in soy prices in the second quarter, a weak real in the first half of the year and record local corn prices amid shortages.

A decline in international fertilizer prices has offset a strengthening of the Brazilian real in the last quarter.

As a result, farmers are investing in fertilizers once again, in part to make up for the deficit caused by under-fertilizing last year.

(AG)

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