Market is heated and grew until May, but a slowdown is expected in the second half of the year
06/17/2022
After falling 31.2% in Brazil between 2010 and 2020, to about 46,000 units, sales of agricultural machinery grew again last year – 26%, to 58,000 units – and are likely to remain strong in 2022, a report by Consultoria Agro Itaú BBA released last week, based on data from the National Federation of Automotive Vehicles Distribution (Fenabrave), shows. But the high costs and interest rates are expected to limit the recovery.
In May, according to Fenabrave, sales increased 35.1% compared to the same month in 2021 and reached 6,100 units, driven by tractors and harvesters. In the first five months of 2022, the total reached 20,200 units, up 36.6% year over year. This increase, Fenabrave said, reflects the increase in producers’ income due to the high prices of commodities and occurs despite the strong increase in inputs such as fertilizers.
Yet, as a large part of the inputs for the 2021/22 harvest was purchased in advance, the farmers’ margins were preserved and even expanded in the season, whose summer harvest has already ended. Hence the still heated demand for new machines, most of them financed with Moderfrota funds, in the first half of the year. Moderfrota, the main investment line of the federal government’s Crop Plan, is expected to finance around R$6 billion in the 2021/22 cycle, which will end on the 30th.
But there is concern among sources in the segment about the behavior of demand in the second half of the year, since, for the 2022/23 harvest, which will begin to be sown in August, the costs will weigh more. The forecast is for a reduction in profit margins in the fields, although operationally the results forecast by banks and consulting firms are still attractive. No “collapse” is expected, but a cooling-off is on the radar.
Driven by the 58,000 agricultural machines sold last year, the sales of the segment reached R$38.3 billion, up 40.3% year over year, according to the Brazilian Association of the Machinery and Equipment Industry (Abimaq). And, according to Abimaq’s forecast taken into account in the study, revenues are expected to total R$40.2 billion this year, up 5%.
The contracting of Moderfrota funds also reinforces the scenario of lower growth. The amount for 2021/22, although in line with the government’s strategy of shifting more funds from large to small and medium farmers, is the smallest in this recent recovery of sales. In the 2019/20 and 2020/21 seasons, when the total amount also included a non-earmarked line from Banco do Brasil, there were R$7.3 billion and R$7.5 billion in credit, respectively. For 2022/23, neither the volume of funds for Moderfrota nor the interest rates – currently at 8.5% per year and expected to rise because the Selic, Brazil’s benchmark interest rate, is higher now – have been defined yet.
As flush farmers are not a Brazilian phenomenon, the country’s agricultural machinery exports, which peaked in the second half of the decade of 2000 and then went into free fall until 2020, also recovered last year. There were $236.6 million in total in 2021, according to data from the National Association of Motor Vehicle Manufacturers (Anfavea), up 23.4% year over year.
According to Anfavea’s data highlighted by Consultoria Agro Itaú BBA, most exports continued to be directed to Argentina ($25.4 million), but the neighboring country was once a much more relevant client. Machinery imports reached $66.9 million in 2021, compared to $83.6 million in 2020, and purchases came mainly from the European Union (28.8% of the total) and the United States (25.7%).
*By Fernando Lopes, Rafael Walendorff — São Paulo, Brasília
Caixa has grown in agribusiness and wants bigger share; BB fears delays inreleasing credits
06/15/2022
Soy planted in Mato Grosso: state-owned banks compete for clients in Brazilian farms — Foto: Ruy Baron/Valor
Banco do Brasil (BB) and Caixa Econômica Federal are fighting behind the scenes a fierce dispute for the funds of Crop Plan 2022/23. BB, which historically has always been the largest funder of the agricultural sector, fears that it may be left without a sufficient amount to meet the demand of its customers. Caixa argues that it is the largest bank in the country (in credit portfolio and number of customers) and that it makes no sense to stay out of a segment that represents almost a quarter of the Brazilian economy.
The imbroglio has even entered the radar of the Ministry of Economy, one of the organizations responsible for deciding how the funds will be divided. “There is a dispute for space, with Caixa trying to grow,” says a source.
Some in the sector fear that the competition will slow down the procedure to tap the funds. Following the jargon that there is a right time to plant, farmers need funding at the right time – as early as possible – to buy the technological package (seed, fertilizer, pesticides, machinery and so on) that will be used.
The dispute between the two government-controlled banks is not only technical, but also political. BB, led by Fausto Ribeiro, has the sympathy of the Ministry of Agriculture and also of several members of the rural caucus in Congress. Caixa, on the other hand, is led by Pedro Guimarães, who is close to Economy Minister Paulo Guedes and to President Jair Bolsonaro.
Valor has found that Caixa’s demand was over R$50 billion in subsidized funds, six times more than the R$7.3 billion operated in the 2021/22 season. BB wants R$60 billion, above the R$43 billion of this season. Altogether, the government is expected to release about R$120 billion in subsidized financing in the cycle that begins in July, above the R$88.5 billion in the previous year.
These subsidized funds are money lent by banks to rural producers through financing in Crop Plan lines, that receive government support in subsidizing interest rates. With this, instead of the farmer contracting operations with market interest rates, the government guarantees lower rates and subsidizes the difference in rates to lenders.
Last year, the Crop Plan had a total of R$251.2 billion, of which R$162 billion were non- subsidized funds, and R$89 billion were subsidized. BB took 48% of the subsidized volume. However, with the voracious appetite of Caixa and more and more banks participating in the program, the bank’s fear is to have an insufficient share to meet the demand of its clients. In this case, the borrowers can always go to another bank, but they would lose time to open an account, send all the documents and wait for the loan to be approved – which can take much longer.
The sector is in a hurry. The new Crop Plan begins on July 1st, which means that the government has a few days to arbitrate the dispute between banks and define who will get what. Passed in early 2020, the so-called Agro Law changed the program and the number of banks increased significantly. It went to 12 in 2021 from five that year, and is likely to reach 21 now, but Caixa is the most relevant.
A former secretary of the Ministry of Agriculture says that the teams that draw up the Crop Plan follow technical rules and that Caixa does not fit into many of them, which would reduce Mr. Guimarães’s chances of having his request granted. Still, considering the qualitative bias used by the government, it is possible that, politically, Caixa ends up winning a bigger slice.
“Caixa is pushing to divide the cake of the Crop Plan, which brings an unnecessary risk to the agricultural sector. We run the risk of ceasing to be the granary of the world,” a person familiar with BB’s plans said.
A source close to Caixa says that the bank has full operational capacity to meet the demand and that what irritated Mr. Guimarães was an attempt to exclude the bank from the program, and that the lender’s management team considers its debut in the 2021/22 harvest a success.
Operational capacity is one key point in the discussion. At the peak of the harvest, BB can do more than 4,000 transactions a day. In a recent presentation to the Parliamentary Agricultural Front (FPA), the bank’s CEO said that it executed 486,500 transactions in the current Crop Plan, while the cooperative system made 347,600, and Caixa only 11,700. BB says behind the scenes that Caixa failed to use all funds, an accusation rejected by the rival.
Sources say BB approached Caixa some time ago, seeking a greater synergy between the federal government banks. The idea was for BB to virtually leave the housing market for individuals and start distributing Caixa’s products in its branches. Caixa would give up agribusiness, leaving BB, which has more experience in the sector, to lead the segment. The proposal, however, would have been rejected by Mr. Guimarães, who argues that more competition is good for the system.
Behind the scenes and even in public events, Mr. Guimarães has already admitted that Caixa had some mishaps at the beginning of its operation, but that it has fixed them and has improved month by month. Proof of its success is that it went from eighth to second place in rural credit in two years. It plans to reach 100 agencies specialized in agribusiness.
In one of the most important agricultural shows, Agrishow, Mr. Guimarães was supposedly questioned by agricultural machinery manufacturers about the delay in releasing funds. On the stage of the event, he pushed back on criticism. “We were here and there are several criticisms in relation to Caixa. Great. That is why I am here, to learn. Today we are only ‘very bad’. The day that Caixa is ‘so-so’, we will be the biggest agribusiness bank in Brazil.”
At the beginning of the month, Caixa disclosed that it registered a monthly historical record of rural credit contracting in May, with R$6.1 billion granted for rural transactions. “The results highlight Caixa’s stance to support the Brazilian agribusiness, benefiting especially family farmers, such as fishermen and fish farmers, small and medium-sized rural producers, as well as cooperatives and agribusinesses,” the bank said.
Caixa’s foray in agribusiness makes sense because small producers often have a correlation with the social programs managed by the bank and also because it has a high potential to generate cross-sell, or the sale of more products to the same customer. Some crops have two or even three harvests per year. Besides this, farmers need credit cards, insurance, financing for machinery and so on. “In housing credit, Caixa will only see the client again 10 years later. In the case of agribusiness, they may see them three, four times in a year,” a source said.
Last month, when disclosing the bank’s earnings report, Mr. Guimarães commented that Caixa already uses 3% of what it raises in savings for rural credit and that it could reach the limit of 10%, if necessary. “We have total capacity to do housing and agricultural credit. We have R$10 billion for agro and we can go to R$36 billion.”
The bank has almost R$360 billion in savings deposits. Currently, Caixa does not comply with the percentages of directing savings to rural credit, which can be done with a communication to the Central Bank. If it opts for the hybrid system, it can maintain 90% of the volume in the real estate sector and allocate 10% to the rural sector. The bank would have an enormous amount of funding, but also the obligation to use these funds, under penalty of paying the financial cost to the Central Bank at the end of the harvest.
Mr. Guimarães had already said the bank has a market share of 4.5% in agribusiness and hopes to end the year with 10%, and that the plan was to achieve leadership by 2024.
Another crucial point that has opposed BB and Caixa is the Central-West Constitutional Financing Fund (FCO), which is operated by BB. Caixa thinks it is unfair that BB has exclusivity in the FCO and argues that this gives it an advantage in agribusiness, since the region concentrates the largest products in the country.
The FCO credit operations are subject to the so-called “del credere,” a commission of up to 6% received by BB due to the credit risk assumed. “With this fee, they can charge lower interest rates and endure a much higher default. We can’t compete with them. And 90% goes to big producers,” a source close to Caixa said.
BB and Caixa declined to comment.
*By Álvaro Campos, Rafael Walendorff, Estevão Taiar — São Paulo
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