Times are tough on Brazilian farms. Lack of credit for farmers could erase any thoughts of a production increase, which could tighten up this market and push prices back up again.

Here's what's going on as the Brazilians finish up their off-season work on planters and equipment.

DELIVERIES OF FERTILIZER to Brazilian farms in the first half of 2009 came to 9.3 million tons, down 26% from the same period last year. The first semester of 2008 was the high-water mark for fertilizers in Brazil, with 12.6 million tons sold against the backdrop of vigorous crop prices.

The blame for the decline falls on lower commodity prices and an even tighter credit picture. Last planting season Sen. Gilberto Goellner, a Mato Grosso soybean producer, introduced legislation to stop banks from repossessing planting equipment from the fields.

More credit in Mato Grosso — the Brazilian state whose governor is reportedly the world's largest soybean producer — would appear to be the answer to what's ailing Brazil's soybean sector. Enter the government and the crushers. In mid-July, the state's government announced a 30% increase (to $1 billion) for help with putting in the 2009-2010 crop. One state official said that soybean producers could get Banco do Brasil loans (with a subsidized interest rate) of up to $297,000 for the coming crop.

But subsidized credit through the Banco do Brasil can take time to reach the producer. “They're slow to get the resources out,” says Naildo Silva, a Mato Grosso farmer. What's more, after years of exchange rate oscillations that made the dollar expensive at input-purchasing time and weaker at harvest, many Mato Grosso farmers have less-than-perfect credit. That makes it hard to get those subsidized loans.

And even if a loan is obtained, say agriculture leaders here, the banks just aren't offering enough credit. According to Marcelo Monteiro, executive director of Apro-soja, the Mato Grosso soybean producers' association, “Of the total amount (of credit) for agriculture, around $500 million is for cropping costs, when $360 million is needed just for soybeans.”

AS A RESULT OF the chronic shortage of cropping cash from banks, the soybean processing companies have offered some credit in years past. The Mato Grosso-based processor Grupo Amaggi supplied a reported $200 million in credit to producers for cropping costs last year. And the president of Cargill in Brazil told reporters in January that the company aimed to make $500 million available to farmers this year.

There's plenty of time for a change in market signals between now and the first September rains in Brazil that signal it's time to calibrate the planters. And, as one market watcher in the U.S. notes, “The lack of credit for Brazilian farmers could put the production increase that USDA is expecting in jeopardy, which could tighten up this market and push prices back up again. Should be another interesting year.”

James Thompson is a writer and marketing consultant based in Uberaba, Brazil, a center of soybean, corn, cattle and sugarcane production. You can contact him at [email protected].