By Alastair Stewart
DTN South America Correspondent
SAO PAULO, Brazil (DTN) -- Brazil's soybean market went crazy in June and July.
"It was the most intense marketing of the soybean crop in history," said Fernando Muraro, grain analyst at AgRural, a local farm consultancy.
On the face of it, farmers forward sold their 2015-16 crop well, locking in positive margins when most consultants were predicting negative margins for most of the year.
But the surge in business highlights the impact of the credit crunch Brazil is currently suffering and a lack of operating capital among farmers.
Brazilian farmers typically forward sell their next soybean crop soon after the harvest, fixing prices on inputs in return for committing to deliver the eventual harvest.
In recent years, these deals account for about a third of financing, with official and private funding accounting for another third and the final third is covered using the farmers' own capital.
However, this year credit evaporated in the first half of 2015 amid the economic crisis, partly fueled by the political uncertainty which has engulfed Brazil.
Traditionally, banks and input companies started offering loans to buy inputs starting in May. That didn't happen in 2015 as they sought to limit exposure in an environment where the soybean market was bearish, the local economy was shrinking and local markets were extremely volatile.
"We have seen the local input sellers be extremely cautious in the first half of the year," said George Wagner, chairman of the Brazilian Fertilizer Distributors Association (ANDA).
Availability of credit for soybean farming was down 79% between January and May, according to figures from the Sao Paulo Industrial Federation (FIESP).
That situation turned around in June and July after Agriculture Minister Katia Abreu sought to alleviate the pressure, announcing a 20% increase in the official credit budget to R$188 billion ($73 billion).
The release of these funds did help the situation, as did the surge in international soybean quotes combined with a 15% devaluation of the real in June and July, which turned margins positive from June and made input and trading firms more relaxed about lending.
As a result, farmers took out R$8 billion in soybean credit in June and July, up more than 50% on the same period previous year.
But the headline numbers hide the problems that the under-capitalized farmers, those who need credit most, are experiencing in obtaining lines.
Farmers around the country complain about the difficulty they experience in securing subsidized credit lines. Meanwhile, the banks ask for much greater guarantees in return for lending money. In previous years, a commitment to deliver the resulting soybeans was enough. This year, banks are asking for mortgages on the land as well.
"The banks are taking a long time to release the money and sometimes asking for huge guarantees. It's a tough spot," said Laercio Lenz, president of the farmers union in Sorriso, the largest soy municipality in Mato Grosso.
As a result, when trading companies and input firms started to offer more forward contracts and local prices jumped, farmers fell upon the offers, selling massive portions of their crop.
Brazilian forward sales of soybeans jumped from 6% at the start of June to 25% at the start of August, up dramatically from 7% at the same stage last year, according to AgRural.
In frontier regions and northern Mato Grosso, it is common for farmers to have already sold more than 60% of their next crop and some have sold up to 80% of the crop.
With margins that cover costs, excluding land costs, that's not too bad. But the quick sale shows that a common assumption, that Brazilian farmers are well capitalized, does not hold true anymore.
Many farmers across the Cerrado have made good money over the last five years. But most of these funds have been plowed back into the business, either with the purchase of land or equipment. If you talk to any large farmer in northern Mato Grosso, they have nearly all been acquiring land.
With margins tight and credit short, many are now finding it tougher to make payments.
For the first time, lack of credit appeared in the top five concerns of farmers in the second quarter of 2015, according to FIESP's IC Agro survey.
"It's a very delicate situation for farmers in Mato Grosso," said AgRural's Muraro.
Last season, farmers were aided by a devaluing real. In the upcoming 2015-16 season, the exchange rate seems also to be coming to farmers' aid. But many are worried about what will happen if the real strengthens.
"Brazilian farmers have turned into forex speculators. But that can also turn against them," said Muraro.
With the cost of farming on the increase, that represents a big problem.
According to IMEA, total costs have risen 17% to R$2,879 per hectare ($322 per acre). But interestingly, inputs as a percentage of total costs fell from 61% in 2002-03 to 48% in 2014-15.
Alastair Stewart can be reached at firstname.lastname@example.org
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