Sugarcane Growers Face Increased Risks as Mills Operate Below Cost

Access to credit in Brazilian agribusiness is becoming increasingly restricted, exposing sugarcane growers to greater risks. While this trend is more pronounced for grain producers, it is now impacting the sugar-energy sector and, particularly, sugarcane farmers. Manoel Pereira de Queiroz, a senior partner at Mapa Capital, notes that the grain sector is experiencing a 'near-perfect storm,' burdened by past debts, high production costs, and a potential risk of fertilizer shortages if ongoing conflicts persist. He adds that while a restriction on these products in Brazil is 'not probable, it is possible.' Furthermore, high interest rates are a significant factor, with Brazil's Selic rate currently at 14.5% per year. Queiroz mentions that while there were earlier rumors of a reduction to 12%, the market now anticipates 13.5% or 14%—a decrease that, if confirmed, could easily be offset by banking spreads. Currently, the Interbank Deposit Certificate (CDI) and spreads combine for 18% to 20% annually. Queiroz summarizes, 'When risk increases significantly, spreads typically rise. This situation of high interest rates combined with elevated costs and stable commodity prices makes the market very distrustful.' He believes this challenging scenario is evidenced by the growing number of judicial recoveries among rural producers. He projects, 'My perspective—and I hope I'm wrong—is that this will grow. The situation at the beginning of next year could be worse than what we have today.'