Don’t look for Brazil’s current economic morass to hurt the country’s soybean production and exports, though it could dampen the production of other crops.

While some observers project less than 1% economic growth for the year, there’s little government money around for helping agriculture. Even so, the sector is the one bright spot in a balance of trade picture where all other sectors remain stubbornly in the red.

Agriculture represents about half of everything Brazil exports each year.

“Agriculture was more than 13% of (Brazil’s) Gross Domestic Product this quarter,” said Ag Minister Blairo Maggi at a ceremony unveiling the Brazilian administration’s 2017-18 agriculture plan.

He went on to admit the amount available for subsidized cropping loans—Brazil’s chief form of rural financial support-- would only cover about half the demand for producers’ cash flow, and that higher-cost private loans from processors in exchange for a portion of the bean crop would probably end up covering about half of all such transactions this season.

Lower interest, higher inflation
Antonio Alvarenga of Brazil’s National Agricultural Society agreed, pointing out that a 1%t decrease in nominal interest rates still remains an interest rate increase in real terms. After all, Brazilian inflation last year came to about 11%, eroding the value of the local currency.

“For the current crop year we had growth of 3.7% in terms of planted area (all crops) and a production increase of 26% over the year before. Now with real interest higher and a reduction in the availability of resources, we are going to have a hard time keeping up good increases in planted area and in grain production in the 2017-18 year.”

Antonio Alvarenga is president of Brazil’s National Agricultural Society.

But in an ailing economy, you take what you can get. “This might not be the ag plan of farmers’ dreams, but it is what is possible,” responded Minister Maggi.

Holding steady
Despite severe budget cuts elsewhere, that’s a bit more than a 3% increase in local currency terms. At around 3.2 reals to the dollar, the mid-June 2017 exchange rate is down about four percent from mid-June, 2016, meaning the ag budget will remain more or less steady even as other federal programs live under the shade of the budget axe.

Out of the July 2017 through June 2018 total ag allocation, some $36.3 billion will be spent for cropping and marketing loans to farmers—mostly at subsidized interest rates. And the administration will sweeten the pot by shaving an extra point off the cropping loan interest rate, bringing it to 7.5% or 8.5%, depending on the size of the applicant’s operation. This in a country where the best rate you can get on a used car loan is 22.2%.

So you can see why practically all Brazilian ag programs are no more than interest rate subsidies even given the fact that inflation tends to eat away any cost savings in interest rates. The government is hoping to bring the inflation rate to just 6% this year, which will be crucial if producers are to get by on a mere 1%-2% reduction in subsidized interest.

Still, lower interest is a good thing about the government-subsidized interest rate plan, along with longer terms for repayment than a bank might normally allow. For example, loans connected with “priority programs” like grain storage- funded at $500,000,000 with up to 15 years to pay-- and research drop to just 6.5% annually.

The 2017-18 ag plan also calls for nearly $349 million for the purchase of precision ag equipment, with a limit of around $340,000 per producer. And some $172 million will be set aside to help cover producers’ crop insurance costs.

Not easy
It all sounds pretty good, huh? Well, despite owning my place outright, I never managed to swing one of those loans. It’s no wonder so many Brazilian producers finance themselves or pay more for their borrowed money by going to the processors for help with cropping costs.

To apply for a government subsidized cropping or marketing loan, Brazilian producers have to come up with as many as 21 documents proving they’ve paid property taxes and have kept up with environmental demands; that the boundaries of the property in question have been duly established by satellite and so on.

Cropping loans from processors are more expensive, but come with far less red tape.

All this pushes Brazilian producers to soybean production. Processors are happy to provide cropping loans for beans, and the beans in the ground are sold for a price based on the Chicago price for an agreed date in the future. The fact that beans are basically dollarized means the commodity’s value generally keeps up with inflation.

And so the very fact that the administration’s ag plan falls far short of what agriculture—the leading sector of Brazil’s economy—needs right now means more pressure to dedicate Brazilian acres to soybeans.

The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.