Tumbling soybean prices worry Brazilian farmers

McClatchy NewspapersNovember 13, 2008 

PRIMAVERA DO LESTE, Brazil — This place used to be the middle of nowhere.

Then Brazilians desperate to escape poverty settled the region beginning in the late 1970s. They cut down the trees and scrub bushes that covered the land. First, they planted rice. Then they hit pay dirt with soybeans.

Within a decade, settlers founded the town of Primavera do Leste and rode a soybean boom that's turned Brazil into a leading breadbasket to the world. Primavera do Leste swelled to 60,000 residents and is expected to double in size within 10 years.

However, soybean prices have cratered in the past three months. Credit has disappeared.

Many farmers face selling their crop next year at a loss, and they wonder how they'll pay off loans taken out during the 2007-08 bumper harvest. In a town that's dependent on soybean's fortunes, fear and worry have replaced optimism and hopefulness.

"It's a coming storm," said Milton Rossetto, who's about to become the president of a local farmers group. "Everybody is apprehensive."

What's happening in Primavera do Leste is playing out across soybean country in Brazil and indeed in rural towns elsewhere that depend on other crops. Prices for wheat, corn and rice also have plummeted in recent months. This comes on top of a general weakening of the Brazilian economy.

All across South America, a continent that's prospered thanks to record high commodity prices, uncertainty abounds with the crashing prices.

Oil-dependent Venezuela suddenly faces a bleaker future. The decline in copper prices is reducing government income in Chile. Bolivia's economy will grow less with the drop in tin and zinc ore prices. The decline in soybean prices also affects soy farmers in Argentina and Paraguay.

It also will hit Flabio Pawlina, a farmer in Primavera do Leste.

Balding and potbellied, Pawlina, 42, has 16 farm hands who work the fields for him.

Pawlina came to Primavera do Leste 20 years ago and bought 300 acres of frontier for a pittance. Running water, paved roads and telephones didn't exist.

Pawlina now owns a 1,000-acre farm that's worth $1.6 million. He rents another 3.000 acres.

His bill this year for imported fertilizer was $675,000, $100,000 higher than he expected thanks to the recent rise of the dollar against Brazil's currency, the real.

"I'm planting knowing that I'm going to lose a lot of money," Pawlina said as workers nearby poured fertilizer into a cultivator as an attached tractor sat idling. "But I have to plant. I need income to pay the loan for that tractor."

No one in Primavera do Leste saw the trouble coming.

The 2007-08 soybean harvest may have been the best ever. Marcos Freu opened Armazem, a restaurant where waiters slice meat and chicken from cooking skewers brought to a customer's table. Sales of groceries and sundries at Supermercados Paranaense rose 26 percent. Sales at the local John Deere equipment dealership soared by 30 percent.

That was then.

Now Freu worries that business at Armazem will drop next year. Supermercados Paranaense is expecting growth to be halved in 2009. Sales at John Deere have begun to slip in the past 20 days with the credit crunch, local general manager Loercio Vincentin said. He's ordering fewer tractors and combines for next year.

"We're preparing for the crisis," Vincentin said.

Soybean prices peaked at $16.40 a bushel in July and now hover around $9, said Richard Brock, a U.S.-based agriculture consultant.

Soybean production in Brazil had nearly doubled over the past 10 years.

The country now vies with the United States to be the world's biggest soybean exporter. Soybeans have become Brazil's biggest farm export, worth $16.5 billion for the first 10 months this year, according to Agriculture Ministry figures. Growing demand by China and improving production have driven Brazil's soybean industry.

However, Brazilian soybean production is expected to fall slightly for the 2008-09 harvest, said Edilson Guimaraes, the undersecretary of the Agriculture Ministry.

"The lack of financing is serious," Guimaraes said in an interview. He said that soybean farmers would have access to a portion of the $2.5 billion that the government is making available for loans to Brazilian companies that need financing.

To be sure, some farmers expect to make money this harvest.

Paulo Cesar Borghetti came to Primavera do Leste in 1980 and now farms 10,000 acres. As a hedge, he locked in a lower sale price when prices were high this year.

"I don't see the soybean crisis as being that serious," Borghetti said, standing by his swimming pool.

Primavera do Leste is one of many towns that have sprung up in the state of Mato Grosso. It lies 140 miles to the east of Cuiaba, the state capital.

Until now, Mato Grosso, which means "dense jungle" in Portuguese, had been making a mockery of its name by steadily turning flat frontier land into soybean farms.

Last year, 1,033 square miles of Mato Grosso were deforested, according to the Brazilian government, and that was the smallest amount since at least 2000.

A paved highway cuts through Primavera do Leste. Ford, Toyota and Firestone dealerships line the highway. So do grain silos and warehouses owned by the major grain companies: Cargill, ADM and Bunge.

Farmers report that the grain companies either have stopped offering them credit or have sharply scaled it back. Representatives from the three companies either declined or didn't respond to requests for interviews.

Among those getting squeezed is Mayor Getulio Viana, who in many ways is emblematic of Primavera do Leste.

Like many settlers, Viana eked out a living in one of Brazil's southern states before heading north to Mato Grosso with several of his 12 siblings. Viana feared making the trek initially because he thought that jaguars and Indians posed a threat.

In time, Viana bought a gas station and built it into one of the biggest in the state. Ten years ago he began planting soybeans, and he became one of the biggest farmers in Primavera do Leste.

Viana, 50, is known for an ever-present hunting cap, which he admits he wears to hide his balding pate.

In October, he was re-elected for a second term as the mayor of Primavera do Leste.

"I've been very daring," Viana said, noting that he left school after eighth grade. "It's been a constant struggle."

The struggle continues. Viana is reducing soybean plantings from 76,600 acres to 54,000. He just bought 1,500 tons of fertilizers.

"But I need another 300 tons, and I don't know where I'll get the money for that," he said.

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McClatchy Newspapers 2008

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