Brazilian grain and soybean producers are increasingly filing for bankruptcy protection

Brazilian grain and soybeans producers are increasingly filing for bankruptcy protection with prices dropping amid ample offers despite lower-than-expected output in 2023-2024

In 2023, 127 producers requested bankruptcy protection, while in 2022, only 20 farmers filed for the protection – a 535% increase, according to data from Serasa Experian.

Most of the producers who requested the protection, 35 are “big producers.”

“The number of judicial recoveries seems small when we consider the number of rural properties in Brazil, but the speed at which these requests have been growing quarter by quarter is worrying,” Marcelo Pimenta, Head of Agribusiness from Serasa Experian said in a statement.

Climate and economic challenges

In addition to climate issues, which have caused crop failures in various regions and increased management challenges, the economic scenario, both domestic and international, has made it difficult to maintain financial stability, he added.

The rise in requests was expected due to difficulties in accessing credit and rising interest rates while farmers were leveraged and optimistic after successful harvests in previous crop years.

“It’s not surprising to have some producers in need of [bankruptcy protection], a lot of producers will have to turn to that mechanism this year whether due to management problems or crop failures. The surprise is the volume, the speed and the timing of their appearance – even before the harvest is over,” André Pessôa, president of local consultancy Agroconsult, told Fastmarkets Agriculture.

According to the bankruptcy protection monitor developed by the Brazilian consultancy RGF Associados, in the last quarter of 2023, 53 soybean producers had received bankruptcy protection, seven producers less than the 60 farmers who received bankruptcy protections in the third quarter of 2023

Among corn producers, the number was steady at 10 producers over the past three quarters of 2023.

“The index of bankruptcy protection in the soybean and corn sectors should remain at a high level because the sectors have a relatively high rate of companies in recovery compared to others, therefore the scenario should not change so quickly as to reach the national average,” Roberta Gonzaga, a consultant specializing in restructuring at RGF, said, noting the number of cases will remain high in the first and second quarters of 2024.

Bankruptcy rate has been decreasing over the last three quarters

In Brazil, for every 1,000 companies active in all economic sectors, 1.85 are under bankruptcy protection, while for every 1,000 companies active in soybean production in Brazil, 9.7 were in bankruptcy protection in the last quarter of 2023.

Although high, this rate has been decreasing over the last three quarters, Gonzaga said.

Back in 2019, a similar pattern happened and since then, the law regarding bankruptcy protection requests has changed so that a document called a Cédula de Produto Rural (CPR), in which the producer agrees to deliver a determined amount of product to a buyer and to get credit to pay for production costs in return, is not required.

A CPR is the main private instrument to finance agribusiness in the country.

However, some producers are filing suits requesting these financial securities to be considered as part of the bankruptcy protection, allowing them not to deliver the products traded.

“As margins have fallen and are likely to remain lower, the risk for credit givers is likely to be higher, which naturally restricts the credit market. If you add the trivialization of the use of this tool, you increase the risk factor even more and therefore restrict credit even more”, Pessôa added.

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