Trading companies eye fertilizer barters in Brazil
Fertilizer barter rates — the ratio between a price of a 60kg bag of soybean or corn traded toward a tonne of fertilizer — are becoming a more attractive way to fund crops in Brazil as the default risk on such transactions is lower than other forms of crop financing.
Trading companies are the most common source for financing agriculture in Brazil compared to other countries, where banks are largely responsible for financing harvests. One reason is in Brazil farmers typically grow two different crops per year on the same parcel. This means a bank would need to finance two crops at the same time, increasing costs and risks associated with two different growing and harvesting scenarios. Typically the financing is for whole crop-year, a long-period to calculate and anticipate those risks.
Fertilizer consumption is growing in Brazil, boosted not only by higher acreage but also by more investments to enhance productivity. This has helped increase the attractiveness of using barter rates.
Cash financing also carries more default risks than financing a crop with fertilizer, since trading companies have more confidence the input — the fertilizer — will be used and result in actual production.
In 2019 a number of major trading companies threatened to stop funding Brazilian crop production because of possible changes in the judicial recovery plan for farmers, a process that is similar to bankruptcy protection. The new rules currently under discussion in the courts may facilitate the recovery plan for individual farmers, instead of the current structure that allows only companies to file for recovery.
If the change goes through, it has the potential to increase the number of recovery plans, which means greater default risk.
Trading companies finance 30-35pc of the national soybean and corn crop, mainly through barter operations with chemicals, seeds and fertilizer, which incorporate interest rates of 20-25pc per year. A market participant said the default rate for one trading company that uses mostly fertilizer barter operations to finance agriculture in Brazil has less than 1pc of default rate. The chemicals industry faces a default risk of around 10pc when financing crops with pesticides.
Another factor behind the growth of fertilizer barter rates in Brazil is the corn ethanol industry, which is growing in the central-west region of the country. The industry pays farmers more to guarantee reasonable volumes of corn. Trading companies can disrupt this market with barter rates and guarantee the volumes required in take-or-pay contracts with railways.
This scenario may change, though, if rural insurance becomes more popular among Brazilian farmers. Currently insurance companies have limited participation as they still do not not know how to calculate the risks involved in the system of planting two crops in the same year.
By Kauanna Navarro
Related news posts
Floods delay, damage Brazil’s Rio Grande do Sul crops
Floods delay, damage Brazil’s Rio Grande do Sul crops
Sao Paulo, 10 May (Argus) — The unprecedented floods that have hit Brazil's Rio Grande do Sul starting on 29 April challenged the state's harvest progress and caused concerns related to crops conditions. The state leads Brazil's rice and summer corn production and is expected to be the second-largest soybean producer in the 2023-24 crop. Harvesting works for oilseed, corn and rice were approaching their final stretches when rainfall intensified. Rains have halted and in some cases completely paralyze d activities, while also ruining some crops. Soybeans Rio Grande do Sul's 2023-24 soybean crop is estimated at 22.2mn metric tonnes (t) by regional rural agency Emater-RS, while national supply company Conab expects 21.9mn t. Both forecasts would be a record for the state, which would become the season's second-largest oilseed producer. Rio Grande do Sul would account for approximately 15pc of Brazil's soybean production. The 2023-24 crop was 78pc harvested as of 9 May, advancing by 2 percentage points from a week prior, according to Emater-RS. Activities were suspended in almost the entire state since the rainfall period began, with few exceptions. Farmers managed to advance works in the northwest and in the southern region known as Campanha — bordering Argentina and Uruguay — on 29-30 April, but reported problems because of the high moisture levels. Works in Campanha have resumed since 3 May. Rio Grande do Sul's soybean harvest had maintained a weekly progress of at least 10 percentage points throughout April, while yields remained within a range of peaks of 5,400 kg/hectare (ha) in areas considered to produce excellent results and an average of approximately 3,000 kg/ha. But the remaining 24pc of areas that had yet to be harvested when the flood began is set to register heavy losses, Emater-RS estimates. Storage units were also damaged, which may lead to cuts in a portion of production already counted as safe. Farmers say that grain quality in the latest harvested areas is unsuitable and they have given up harvesting other remaining crops, as that has become economically unfeasible. The high humidity levels of these soybeans reduce their profitability considerably, hardly covering their production costs. For the remaining 22pc still on fields, Emater-RS projects losses of 20-100pc. The agency has yet to officially revise downwards its 3,329 kg/ha yield estimate, but expects its outlook to decrease. Rice Rio Grande do Sul is Brazil's largest rice producer and should account for over 70pc of the national output this season, according to Conab data. The progress of rice harvesting was severely compromised by the heavy rainfall, with Conab estimating that works remain halted at 83pc since 28 April. The location of remaining areas is another factor weighing on the delay. Rice is sowed in floodplains, which are difficult to access and now coincide with major flooding points in the state. Crops in the Bage region — where activities were the most advanced — report losses of up to 30pc in some areas, but further damages are possible because of another flood forecast caused by the Uruguay River's elevated levels. Farmers also report problems related to the process of drying the grains — resulting in further quality and yield losses — caused by power outages and road blockages that hamper transportation to storage facilities. The 2023-24 rice crop in Rio Grande do Sul was initially set to yield over 8,300 kg/ha and produce almost 7.5mn t, according to Emater-RS and Conab. But the local agency now expects to revise these figures down. Summer corn Emater-RS expects the state to produce 5.2mn t in its 2023-24 first corn crop, 100,000t below Conab's estimate. Rio Grande do Sul is Brazil's top summer corn producer, with 20pc of the national production. The 2023-24 first corn crop harvest advanced by 3 percentage point to 86pc of Rio Grande do Sul's planted area in the week ended 9 May. Producers have so far prioritized advancing works and observing the damage for soybeans, which is the state's main crop. Damages in most summer corn areas have yet to be accounted for, but farmers are reporting losses of up to 100pc in crops in the northern regions of Lajeado and Caxias do Sul. The remaining areas in Santa Maria city — where harvest is 72pc complete — are also expected to register losses close to 100pc. Looking ahead Brazil's national meteorological institute Inmet expects more heavy rainfalls in Rio Grande do Sul this weekend, with volumes may surpassing 100mm (4 inches) on 10-12 May. The state's center-north and west will be the most affected areas, alongside the northern coastal areas and the south portion of neighboring Santa Catarina state. The rains and floods in the state have left at least 113 dead, 146 people missing and more than 165,000 people displaced, according to the civil defense. By Nathalia Giannetti Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Brazil launches R51bn program to help flood victims
Brazil launches R51bn program to help flood victims
Sao Paulo, 10 May (Argus) — Brazil launched a R50.9bn ($9.9bn), multi-step program to help victims of the historic floods that have hit southern Rio Grande do Sul state since late April. The measures seek to aid workers, social program beneficiaries, companies, rural producers and individual cities. Some of them include the early payment of salaries and social welfare, priority in tax refunds and two additional installments of unemployment insurance, among other actions. The government will also set aside R200mn to help public banks finance proposals to reconstruct Rio Grande do Sul's infrastructure. The program will help over 3.5mn people, the government said. Earlier this week the federal government also launched a decree to ease relief spending to Rio Grande do Sul . The rains and floods in the state have left at least 113 dead, 146 people missing and more than 165,000 people displaced, according to the civil defense. By Lucas Parolin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Lack of infrastructure to hamper VLAC development
Lack of infrastructure to hamper VLAC development
London, 10 May (Argus) — Development of a very large ammonia carrier (VLAC) market could be delayed by a lack of terminal infrastructure to allow discharge of 40,000-60,000t cargoes, said Steem1960 ammonia shipbroker Lisa Maria Assmann at the Argus Clean Ammonia conference in Tokyo. Around 40 VLACs are scheduled to hit the water between 2026 and 2028, when an uptake in clean ammonia trade is likely to be pushed by public tenders from South Korea and Japan. "VLACs cannot discharge these large volumes using the existing infrastructure," Assmann said. "We have storages that are much smaller than that, terminals with draft issues, LOA (length overall) issues. With all these problems, I do not see these large volumes being discharged in a speedy manner in the short-term, not before 2035-40 at least." In the larger segment of gas carriers, the very large gas carriers (VLGCs) built between 2009 and 2022 cannot carry ammonia cargoes, according to the shipbroker. These vessels were built when there were no expectations of carrying ammonia at such volumes, and the capability was not included to save costs at that time. "By 2030 we may have about 150 VLGCs available to carry ammonia, either at 86pc or 95pc capacity, but that is still a discussion for the future because we still do not have the infrastructure in place for the discharge," Asmann said. Ship-to-ship transfers from larger to smaller vessels could be a solution in the medium term, Assmann said, but she pondered that even then there are regulation issues that would hamper its widespread use. By Yohanna Pinheiro Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Japan’s J-Power steps up coal-fired power phase-out
Japan’s J-Power steps up coal-fired power phase-out
Osaka, 10 May (Argus) — Japanese power producer and wholesaler J-Power is stepping up efforts to halt operations of inefficient coal-fired power plants, while pushing ahead with decarbonisation of its existing plants by using clean fuels and technology. J-Power plans to scrap the 500MW Matsushima No.1 coal-fired unit by the end of March 2025 and the 250MW Takasago No.1 and No.2 coal-fired units by 2030, according to its 2024-26 business strategy announced on 9 May. It also aims to decommission or mothball the 700MW Takehara No.3 and the 1,000MW Matsuura No.1 coal-fired units in 2030. The combined capacity of the selected five coal-fired units accounts for 32pc of J-Power's total thermal capacity of 8,412MW, all fuelled by coal. While phasing out its ageing coal-fired capacity, J-Power is looking to co-fire with fuel ammonia at the 2,100MW Tachibanawan coal-fired plant sometime after 2030 and ensure it runs on 100pc ammonia subsequently. The company plans to increase the mixture of biomass at the 600MW Takehara No.1 unit, along with the installation of a carbon capture and storage (CCS) technology after 2030. The CCS technology will be also applied to the 1,000MW Matsuura No.2 unit, which is expected to co-fire ammonia, after 2030. J-Power plans to use hydrogen at the 1,200MW Isogo plant sometime after 2035. The company is also set to deploy integrated coal gasification combined-cycle and CCS technology at the 500MW Matsushima No.2 unit and the 150MW Ishikawa No.1 and No.2 units after 2035. The company aims to cut carbon dioxide emissions from its domestic power generation by 46pc by the April 2030-March 2031 fiscal year against 2013-14 levels before achieving a net zero emissions goal by 2050. This is in line with Tokyo's emissions reduction target. The company aims to expand domestic annual renewable output by 4TWh by 2030-31 compared with 2022-23, along with decarbonising thermal capacity. Its renewable generation totalled 10.4TWh in 2023-24. Tokyo has pledged to phase out existing inefficient coal-fired capacity by 2030, which could target units with less than 42pc efficiency. The country's large-scale power producers have reduced annual power output from their inefficient coal-fired fleet by 13TWh to 103TWh in 2022-23 against 2019-20, according to a document unveiled by the trade and industry ministry on 8 May. It expects such power generation will fall further by more than 60TWh to 39.700TWh in 2030-31. Global pressure against coal-fired power generation has been growing. Energy ministers from G7 countries in late April pledged to phase out "unabated coal power generation" by 2035 or "in a timeline consistent with keeping a limit of 1.5°C temperature rise within reach, in line with countries' net zero pathways". By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more