Brazilian farmers face mounting financial pressures that could slow their decade-long expansion, even as geopolitical conflicts threaten to intensify competition with American agricultural exports.
Interest rates in Brazil by year’s end are projected to be close to 13%, according to ATI’s Cesar Cruz, the director of research who is a native of Brazil.
Beset by the same high fertilizer costs and global conflicts that challenge U.S. farmers, the added pressure of high interest rates is curbing the agricultural expansion in Brazil that quickly drove the South American country to the top of commodity exports.
“Brazilian producers, they have been fighting these high interest rates, high inflation rates also,” Cruz says, speaking on this week’s Ag Marketing IQ In Depth. These challenges, he says, "could probably restrict, slow down" the area expansion that has characterized Brazilian agriculture.
Key market advantages
Despite these headwinds, Brazil has land mass advantages and climate change marketing advantages that give them an edge in commodity production.
- Land mass. Though Brazil in past years has been criticized for converting rainforest to cropland, farm expansion now is fueled by people moving from pasture to row crops. Citing research from Embrapa, Brazil's government research organization, Cruz notes that converting pastureland to row crops can significantly expand production capacity over the next 10 years.
- Climate change marketing. Additionally, Brazil also benefits from low carbon intensity scores for its safrinha, or second crop, corn and sugarcane products, which “gives them an advantage in exports when looking for these special markets," Cruz notes.
Additionally, Brazil has robust domestic biofuel mandates, including flex-fuel vehicles running on 100% ethanol and biodiesel blends reaching B15, which creates strong internal demand.
Middle East tensions push export competition
The ongoing conflict with Iran presents additional complications for U.S. export competition with Brazil.
As one of the main corn export markets for Brazil, the worry is that logistical disruptions for shipping to the Middle East could intensify global market competition “if that corn has to look for a different home,” Cruz says. Increased market share pressure from Brazil could particularly impact U.S. crop exports this fall.
The competitive pressure remains intense. “The spread between Brazil and U.S. market share has been widening over the years. Brazil has been taking more and more market share from us,” Cruz says.
What can U.S. farmers do? Cruz offers two tips:
- Manage costs and risks
- Advocate for stronger domestic policies.
Hear more from Cruz on this week’s Ag Marketing IQ In Depth.