Oxford Analytica
Monday, November 10, 2008
The financial crisis and subsequent credit squeeze, coupled with global recession fears, are having a serious impact on agriculture and agribusiness, a crucial source of both foreign exchange and employment.
Elusive finance. The sharp drop in the value of the real has in theory largely compensated for the fact that prices of most grains and oilseeds have fallen by 30% since mid-year highs; if the exchange rate remains weak, farmers will receive significantly more in the local currency in which most expenses are incurred. However, exchange rate uncertainty is making trade finance difficult to obtain, both for exporters and many importing countries.
The government has injected some 15 billion dollars into currency markets in recent weeks, more than half of that amount from international reserves, in part in a bid to get more money to farmers and to finance trade. However, banks are presently reluctant to lend for the long time period that elapses between commodities sales being agreed and goods being paid for.
Sugar and alcohol. In the midst of a 30 billion dollar expansion plan, Brazil's sugar industry is facing a severe crisis:
•Loans made to some 300 companies to finance expansion projects fall due in the next 12 months. While state banks may refinance debts, private banks are reluctant to do so.
•A record amount of the sugar crop is now used to produce alcohol for fuel. However, with credit restricted, new car sales will fall by up to 20% next year, slowing growth in domestic demand for alcohol. Moreover, exports of alcohol may remain static or fall next year, mainly due to the cutback in usage in the United States, the leading market.
Hedging headaches. Brazil's leading poultry producer and exporter, Sadia, has reported losses of about 400 million dollars in unwise hedging and currency speculation, exposing it to large penalties. Sadia, together with Brazil's largest pulp producer and exporter, Aracruz, and a large steel mill, has proposed to challenge contracts that oblige it to pay heavy penalties, although the steel company has admitted that its profits from hedging have far exceeded its losses thus far. It is not yet known whether other large agribusiness companies, including sugar mills, have also suffered large losses due to poor hedging decisions.
Meat matters. The chicken, beef and pork industries should have a record year in 2008. However, this situation will clearly not be repeated in 2009:
•Industry leaders have urged chicken producers to cut back production sharply, in an attempt to avoid large surpluses early next year that would push prices down further.
•Several large beef packers that bought processors in Latin America, the United States, Europe and Australia in the past two years, may have overstretched themselves financially and encounter serious difficulties. Three such companies went public in 2007 and raised large sums on the stock markets. Although their share prices have now collapsed, they received large loans from the National Development Bank.
President Luiz Inacio Lula da Silva has said maintaining the relatively high growth rate of the past few years is a "matter of honor" and has promised to aid companies in agribusiness, including those which made hedging operations which turned sour. It is not clear that this will prove feasible.
Monday, November 10, 2008
The financial crisis and subsequent credit squeeze, coupled with global recession fears, are having a serious impact on agriculture and agribusiness, a crucial source of both foreign exchange and employment.
Elusive finance. The sharp drop in the value of the real has in theory largely compensated for the fact that prices of most grains and oilseeds have fallen by 30% since mid-year highs; if the exchange rate remains weak, farmers will receive significantly more in the local currency in which most expenses are incurred. However, exchange rate uncertainty is making trade finance difficult to obtain, both for exporters and many importing countries.
The government has injected some 15 billion dollars into currency markets in recent weeks, more than half of that amount from international reserves, in part in a bid to get more money to farmers and to finance trade. However, banks are presently reluctant to lend for the long time period that elapses between commodities sales being agreed and goods being paid for.
Sugar and alcohol. In the midst of a 30 billion dollar expansion plan, Brazil's sugar industry is facing a severe crisis:
•Loans made to some 300 companies to finance expansion projects fall due in the next 12 months. While state banks may refinance debts, private banks are reluctant to do so.
•A record amount of the sugar crop is now used to produce alcohol for fuel. However, with credit restricted, new car sales will fall by up to 20% next year, slowing growth in domestic demand for alcohol. Moreover, exports of alcohol may remain static or fall next year, mainly due to the cutback in usage in the United States, the leading market.
Hedging headaches. Brazil's leading poultry producer and exporter, Sadia, has reported losses of about 400 million dollars in unwise hedging and currency speculation, exposing it to large penalties. Sadia, together with Brazil's largest pulp producer and exporter, Aracruz, and a large steel mill, has proposed to challenge contracts that oblige it to pay heavy penalties, although the steel company has admitted that its profits from hedging have far exceeded its losses thus far. It is not yet known whether other large agribusiness companies, including sugar mills, have also suffered large losses due to poor hedging decisions.
Meat matters. The chicken, beef and pork industries should have a record year in 2008. However, this situation will clearly not be repeated in 2009:
•Industry leaders have urged chicken producers to cut back production sharply, in an attempt to avoid large surpluses early next year that would push prices down further.
•Several large beef packers that bought processors in Latin America, the United States, Europe and Australia in the past two years, may have overstretched themselves financially and encounter serious difficulties. Three such companies went public in 2007 and raised large sums on the stock markets. Although their share prices have now collapsed, they received large loans from the National Development Bank.
President Luiz Inacio Lula da Silva has said maintaining the relatively high growth rate of the past few years is a "matter of honor" and has promised to aid companies in agribusiness, including those which made hedging operations which turned sour. It is not clear that this will prove feasible.
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A Place in My Country
Ian Walthew
Farm Blogs
Ranch Blogs
Rural Blogs
Countryside Blogs
Smallholding Blogs
Urban Homesteading Blogs
Homesteading Blogs
Homestead Blogs
Allotment Blogs
Apiculture Blogs
Bee-keeping Blogs
Auvergne
Auvergnate
Auvergnat
Auvergnats
France
Rural France
Blogs about France
Paris / Montmartre/ Abbesses holiday / vacation furnished apartment rental
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