Coffee farmer Joao Carlos Terra says his trees will yield about a third less than planned next year because he can’t get a big enough loan to buy fertilizer and pesticide as the global credit crunch bites in Brazil.

 

Terra received only 10,000 reais ($4,300) of the 35,000- real loan he needed this month, so trees that should yield 250 bags of coffee next season will likely produce just 170, he said. Terra is planning to pick up extra work as a farmhand to support his wife and two sons.

 

“It’s kind of impossible to keep going like this,” said Terra, 29, who grows arabica coffee on about 10 hectares (25 acres) in Bom Jesus da Penha, a city in the southeastern state of Minas Gerais. “I don’t know what will happen.”

 

The collapse of global credit markets that is pushing the U.S., Europe and Japan into simultaneous recessions for the first time since World War II also threatens farmers in Brazil, the world’s biggest grower of coffee, oranges and sugar cane, the second-largest producer of soybeans and third-biggest of corn. Smaller harvests in Brazil may increase costs of commodities next year, said Andre Pessoa, an analyst at Agroconsult who conducts the country’s broadest crop survey.

 

“When we look ahead, we see demand continuing to grow, while supply will face difficulties,” Pessoa said in an interview from the Florianopolis, Brazil-based company.

 

Futures contracts in Chicago show corn will jump 18 percent by the end of 2009 to $4.1775 a bushel and soybeans will gain 2 percent to $9.015 a bushel. Coffee will rise 10 percent to $1.2545 a pound, according to contracts in New York.

 

Crop Shortfall

 

Reduced fertilizer use will lower Brazil’s soybean output as much as 2.7 percent, while corn may decline 7.3 percent, the government said Nov. 6. Brazil’s coffee harvest may drop 26 percent next year, said Lucio Araujo, the commercial director at Cooxupe, a cooperative representing 11,000 growers in the Guaxupe region.

 

Brazilian growers were short of at least 15 billion reais needed to invest in crops, Agriculture Minister Reinhold Stephanes said Oct. 9. Banks and financial companies worldwide, suffering from $969.5 billion of losses and writedowns since the start of 2007, are restricting credit as they struggle to replenish reserves, according to data compiled by Bloomberg.

 

“This will be the harvest of uncertainty,” said Carlos Augustin, who grows cotton and soybeans on about 30,000 hectares in Mato Grosso, Brazil’s biggest soybean-growing state. “Losses are guaranteed.”

 

Economy Slows, Prices Fall

 

The growth of Brazil’s economy, Latin America’s biggest, may be cut in half next year after credit dried up and slumping commodity prices pared export revenue, Central Bank President Henrique de Campos Meirelles said Nov. 21. He didn’t provide a specific forecast. The expansion will slow to 4.9 percent this year and 3.6 percent next year, from 5.4 percent in 2007, according to a Bloomberg survey of 12 economists.

 

Before today, corn plunged 56 percent since touching a record $7.9925 a bushel on June 27 on the Chicago Board of Trade, while soybeans fell 46 percent from an all-time high of $16.3675 on July 3. Coffee slipped 34 percent from a 10-year high of $1.719 a pound on Feb. 29 on the ICE Futures U.S. in New York.

 

Brazil freed about 20 billion reais of bank reserves for farm lending to alleviate damage from the credit squeeze and falling prices. The measures failed because lenders are hoarding cash, Enori Barbieri, vice president of the National Corn Producers Association, said Oct. 23.

 

“The government is helping the banks, not the producers,” said Augustin, the Mato Grosso farmer who is also an adviser at the state’s agriculture federation. “There’s no credit renewal going on.”

 

No Loans

 

Banks will probably hold funds for farm lending until at least the end of the first quarter, said Jose Antonio Gragnani, chief financial officer of Concordia Banco SA, the finance arm of Brazilian foodmaker Sadia SA that lends to producers.

 

“The money is so stalled that it’s not getting to the end borrower,” Gragnani, a former deputy secretary at the Brazilian Treasury, said in a Nov. 11 interview in Sao Paulo.

 

Brazil’s national development bank plans to lend as much as 500 million reais to help farmers refinance debt, the central bank said on Nov. 19. That’s about 3 percent of what minister Stephanes said farmers needed in October. Additional steps, including measures to boost the working capital of cooperatives, are also under consideration, Stephanes told reporters in Brasilia on Nov. 19.

 

“The government is utilizing every instrument at its disposal to minimize the impact of the crisis,” Stephanes said. More measures “are being discussed and should occur next week.”

 

ADM, Bunge, Cargill

 

Agricultural traders and crop processors including Archer Daniels Midland Co., Bunge Ltd. and Cargill Inc. have pared loans, said Eduardo Daher, who represents the firms as president of the National Association of Fertilizer Distributors. The companies, which were the source of about a third of the farm credit in Brazil, funded farmers in exchange for part of future crops as payments.

 

“No one is doing it,” Daher said. “It’s stopped.”

 

Pedro Arantes, a farmer in Rio Verde, in the center western state of Goias, said he may cut corn production by about two- thirds after Bunge and other crop processors stopped financing his purchases and prices slumped.

 

White Plains, New York-based Bunge didn’t return calls seeking comment.

 

David Weintraub, director of external communications for Decatur, Illinois-based Archer Daniels Midland, said “the company’s ability to provide credit to farmers in Brazil has not been affected by the credit markets.” Disbursements hinge on credit approvals, he said.

 

Increasing Costs

 

Cargill, based in Minnetonka, Minnesota, said in an e-mail statement that the amount available for financing increased 42 percent from last year to $400 million.

 

Fertilizer costs remain high, even as funding dries up and prices fall. The price of the nitrogen-potash mix that Terra, the coffee grower, uses has more than doubled in the past year to 1,800 reais a metric ton, he said. Terra usually buys about 10 tons for his trees. This year he’ll go without.

 

The lack of sufficient fertilizer will compound an already smaller crop in Brazil as trees enter the lower-yielding half of the two-year cycle for coffee harvests.

 

Terra’s trees, which yielded about 572 bags this year, would typically increase output in 2010 after dropping next year. Instead, malnourishment may reduce production for two straight years, with his harvest falling to as little as 150 bags in 2010, he said. One bag weighs 60 kilograms, or 132 pounds.

 

“A lot of people are ceasing to plant because it’s not viable,” the corn association’s Barbieri said. “People have lost hope.”