The Van Trump Report

What You Need to Know About Brazil’s Developing Farm Crisis

There has been talk lately of rising bankruptcies among Brazil farmers that could dent hopes for continued expansion in the ag sector.  Now, a new report from credit data provider Serasa Experian puts some hard numbers to the troubling rumors, including a +535% increase in farmer bankruptcy filings in 2023.

Marcelo Pimenta, head of agribusiness at Serasa Experian, emphasizes that the increase in farmer bankruptcies is not a generalized crisis. Pimenta points out that the +535% increase reflects a total of 127 farmer bankruptcies, a small fraction of Brazil’s roughly 5 million farming operations. However, he notes that the speed with which the filings are growing is worrying.

According to Serasa, the debts of farmers who have or are about to file for bankruptcy protection have topped around half a billion US dollars. Most of the bankruptcy filings came from soybean growers, followed by cattle property owners and coffee growers. Pimenta cited weather challenges which led to crop failures in several regions, including top soybean and corn producer Mato Grosso, as a key driver of bankruptcies, along with lower commodity prices.

Until very recently, farmers in Brazil relied on a barter system where traders like Bunge and Louis Dreyfus, as well as some agrochemical firms, finance farmers’ seeds, fertilizer, and/or other inputs early in the season in exchange for delivery of their future crops. But in 2021, Brazil’s Congress approved so-called “FIAGROS,” which are investment funds in agro-industrial productive chains.

The FIAGROS work similarly to real estate investment funds and have quickly gained popularity among investors. As of January, the funds had approximately $7 billion under management, up +43% year-over-year, according to capital markets association Anbima. Conab credits FIAGRO’s for financing an additional +4.6 million additional soybean acres per year on average since 2019.

Serasa’s data shows that rural producers filing for bankruptcy were already in financial trouble and at high risk of default when the credit was extended, according to Pimenta. “In the overwhelming majority of cases, these producers already had problems,” Pimenta told The Agribiz. “They were quite leveraged two, three harvests ago. These were bad credit decisions.”

He adds that the exuberance of grain producers’ profitability in the commodities boom that followed the pandemic may have created a feeling that prices would never return to normal, which in turn hurt both farmers who over-leveraged themselves, as well as those who tried to surf the wave on the credit side without properly weighing the risks.

Grain merchants in Brazil have expressed concerns about the rise in bankruptcies and the possibility that contracted crops don’t get delivered. That’s a worry that will obviously grow if more farmers seek bankruptcy protection. While increasing bankruptcies across Brazil’s farm sector could leave trading firms scrambling to secure supplies, it could ultimately benefit US producers with increased sales and possibly higher prices.  

There is also concern about farmers’ ability to finance future crops and continue Brazil’s agricultural expansion with the health and popularity of FIAGRO’s and other ag credit instruments is now at risk amid a rash of defaults. “It’s highly likely that lending will become constrained, maturities will be shorter, and capital will be more expensive,” said Carlos Fonseca, a partner at the Sao Paulo-based fund management company. (Sources: Bloomberg, Conab, Serasa Experian, The Agribiz)

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