Higher fuel and fertilizer costs, weaker crop prices and a strengthening real have knocked more than 20% off Brazilian farmer profit hopes in three months – but growers in fellow Bric country Russia look set for significantly better returns.
Deere & Co, the tractor giant, slashed by $5.9bn to $20.2bn its forecast for total farm net income in Brazil, South America’s biggest agricultural economy.
The downgrade, while still leaving farms on course for record profits, reflected in the main a 40% slump in expectations for profits from soybeans, with forecasts for sugar cane profits, a bigger earner, reduced by 16% from a May forecast.
"The about $6bn decrease since our last forecast is accounted for by higher input costs, lower – but still strong – international commodity prices and the Brazilian currency strengthening against the US dollar," Susan Karlix, manager of Deere investor communications, said.
The real has strengthened to 12-year highs against the dollar, decreasing the competitiveness of Brazilian exports, including agricultural commodities.
‘Notably higher sales’
Some of these dynamics were also reflected in a $900m downgrade to $111.6m in expectations for US farm net income this year, and a $3.0bn cut to $106.1bn in the forecast for 2012.
However, the forecast for Argentine farmers was lifted by $400m to $8.0m.
And Deere, without giving figures, highlighted the better prospects for Russian farmers, whose prospects were hurt last season first by drought, and then by the ensuing ban which denied them access to international prices for selling their reduced harvests.
Growers this year were set for "significantly higher levels of production and grain prices" with milk and beef prices "expected to remain at a high level".
And they were enjoying substantial subsidies too, through fertilizer, livestock and seed subsidies, and fixed diesel prices, besides an enhanced agriculture modernisation programme.
"All these factors, coupled with an easing in financing availability, enable us to expect notably higher industry [farm equipment] sales in 2011," Ms Karlix told investors.