Brazil's farming sector was already battling record defaults, and last week's election results only deepen the gloom for growers hoping for a swift turnaround for one of the nation's most important economic forces. A surprise win for President Luiz Inacio Lula da Silva was a blow for big agriculture, which had seen in right-wing challenger Flávio Bolsonaro a more natural ally to its interests. That adds to a squeeze in the farm economy, with little relief ahead as rising input costs and double-digit interest rates fuel defaults.
"Thousands of producers are going through a serious financial crisis," Lucas Beber, president of soybean growers group Aprosoja Mato Grosso, said in a note a day after the elections. "We need a structural solution for rural debt that goes beyond simply extending due dates." Farmers had expected Bolsonaro to embrace broad-reaching debt relief measures, while markets also saw him as more likely to handle the fiscal overhaul needed to lower borrowing costs.
Farm-loan delinquencies have climbed to the highest level in central bank data going back 15 years. Producers have also been grappling with shrinking grain margins and repeated weather shocks, especially in Southern Brazil. In Rio Grande do Sul, more than 40 farmers struggling to repay their debts have died by suicide over the past two years, according to Arlei Romeiro, head of a regional farm lobby campaigning against what he calls unfair lending practices.
Traders have pared bets on near-term rate cuts and are now pricing in renewed tightening, adding pressure on farmers already facing record delinquencies. The crisis is already curbing investment in crop expansion, with limited growth expected this season and the next in the top soybean producing state of Mato Grosso. A recent provisional measure signed by Lula, which set aside 26 billion reais ($4.8 billion) in subsidized loans, was considered insufficient and left out large lenders, and farmer-backed lawmakers are seeking to expand its reach.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing