In U.S., Producers Brace for Trouble

Minnesota farmer Doug Magnus is bracing for trouble when the first shipload of cheap Brazilian soybeans arrives in the United States this spring. Last week’s currency collapse has made it cheaper to buy soybeans from Brazil than from him.

That’s bad news for U.S. farmers, the world’s leading soybean producers, who were already sitting on a record crop and rock-bottom prices before their chief competitors saw a 32% plunge in their currency, the real, in the last week.

Stock markets may be celebrating Brazil’s decision to let its beleaguered currency float last week, but U.S. and foreign producers are anticipating two problems: a collapse of demand in Brazil itself, and a flood of cheap goods from Brazil that will put further downward pressure on commodity prices and increased strain on a troubled global trading system.

U.S. sales to Brazil, the world’s ninth-largest economy, eclipse those to China. The biggest economy in Latin America is a major buyer of U.S. light machinery, aircraft, and aircraft and auto parts, and is a beachhead for U.S. and European auto makers.

Brazilian auto sales were already in decline, and the weaker real will make it more expensive to buy the imported components that go into the vehicles assembled here. That will put cars even further out of reach for consumers.

Recently, Ford Motor Co. shut down one assembly line at its plant in Brazil and has laid off 4,600 workers in South America. “We have taken action in response to what’s been a dislocation in the market that began some months ago,” said James Cain, a Ford spokesman.

Boeing Co., already reeling from the slowdown in Asia, formerly its fastest-growing market, needs a quick Brazilian recovery to preserve a $1.86-billion airplane order placed in the fall by Varig, Brazil’s largest carrier. So far, that order remains intact, although the first of those planes is not scheduled for delivery until late this year.

U.S. farmers already hurting from depressed demand in Asia are also worried. Tom Mathison, president of Wenatchee, Wash.-based Stemilt Growers, fears Brazil’s problems will further depress sales and prices of apples and pears. Brazil has been a growing market for Washington’s Red Delicious apples, whose prices are already 25% below last year, and D’Anjou pears.

“We’ll be substantially adversely affected, no doubt about it,” Mathison said.

Meanwhile, Brazil’s newly cheaper products will hit U.S. producers of, among other things, steel, leather goods and soybeans. Also at risk are Japan and South Korea, major steel-producing countries whose governments are counting on exports to speed their recoveries.

Brazil’s currency devaluation couldn’t have come at a worse time for U.S. steelmakers, already battered by a sharp increase in low-cost imports from Asia’s recession-plagued countries. Next month, the Commerce Department is scheduled to rule on dumping charges against steelmakers in Japan, Russia and Brazil. Dumping is selling foreign products at below cost.

Brazil, one of the world’s top steel producers, was already boosting exports to make up for lost domestic sales. Between October 1997 and 1998, its steel exports to the U.S. jumped 54%. The devaluation makes its steel all the more competitive.

“This is just a one-two-three punch for U.S. industry,” said Roger Schagrin, a Washington attorney representing U.S. steelmakers.

Then there are soybeans, a focus of growing two-way trade between the two nations that now threatens to become more of a one-way affair.

Soybean prices are hovering at a low of about $5.30 a bushel, down about 10 cents since November, largely because of concerns over Brazil, according to farmer Magnus.

A weaker currency will lower production costs and make Brazil’s products even cheaper overseas. But in addition to the stepped-up competition, Latin America had become a healthy export market for U.S. soybean farmers, who export half their crop.

Last year, Brazil and Argentina purchased 47 million bushels of U.S. beans to feed their giant soybean-crushing facilities, which make oil and meal.

U.S. farmers fear that flow will shift the other way given last week’s sharp devaluation of the real and pressures on Argentina’s currency, the peso.

Last year, Brazil shipped its first large load of soybeans to the United States--7 million bushels--prompting angry responses from U.S. farmers frustrated at being undersold in their own backyard.

“We had some farmers up here ready to do some drastic things,” said Magnus, the international chairman of the United Soybean Board.