(Bloomberg) -- Economic indicators are pointing toward a record harvest in Brazil this year, welcome relief for consumers grappling with rising food prices that have been weighing on President Luiz Inacio Lula da Silva’s popularity.

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After severe droughts and floods across Latin America’s largest economy in 2024, rains normalized this year. That probably means cheaper consumer staples, according to Tarciana Medeiros, chief executive officer of Banco do Brasil SA, the nation’s second-largest bank and biggest lender to agricultural businesses.

“When you look at the history of record harvest years, you see a controlled basic food basket,” Medeiros said in an interview in her office in Brasilia on Thursday.

That’s good news not only for Lula. Banco do Brasil, which has a 400 billion-real ($68.4 billion) agriculture credit portfolio, will also benefit. The state-controlled firm is expecting its delinquency rate for loans more than 90 days overdue to drop this year, after rising to 3.32% in 2024 mainly due to agribusiness loans.

“Last year was difficult for many producers, but we expect default rates to ease in 2025,” Medeiros said.

Lula’s popularity has slumped to an all-time low mostly due to a spike in food prices that prompted Brazil’s central bank to boost interest rates. Policymakers led by Gabriel Galípolo lifted the benchmark Selic rate to 13.25% this month and pledged a third-straight full percentage point hike next month.

The president told his economic team to come up with measures to lower prices and help Brazilians get cheaper credit. Several ministries, including Finance, Agriculture and Development and Trade have been discussing alternatives such as cutting import taxes for some items. Still, the government is also counting on the record harvest to bring some relief.

Bankruptcy Protection

Brazilian farmers faced tough times last year due to a plunge in prices for key crops and a surge in borrowing costs. Filings for bankruptcy protection in the second quarter of 2024 tripled compared with the first three months of last year, then fell 51% in the following quarter, according to the latest figures from credit data provider Serasa Experian.

Despite a positive outlook for a record crop this year, growers will probably continue to seek protection against creditors as profit margins are expected to remain tight while funding costs rise along with the Selic, according to André Pessôa, president of Agroconsult, a top agricultural consultancy in Brazil.

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Brazilian agricultural production is expected to jump 9.4% to a record 325.7 million tons in the 2024-25 crop season, boosted by the soybean harvest, followed by corn, rice, wheat and beans.

The government has also announced a plan to boost payroll-backed loans for private-sector employees, which it expects will lower interest rates for workers who need to borrow money or renegotiate existing loans. That offers another lending opportunity for Banco do Brasil, which also has the largest portfolio of payroll-backed loans for public servants, at 137 billion reais.

According to Medeiros, the bank’s expertise in that area can be extended to the private sector. The government estimates that the new program will push such loans to 120 billion reais from the current 40 billion reais.

“We have a blue ocean to sail in that segment,” Medeiros said.

Banco do Brasil reported a 2024 net profit of 37.9 billion reais, up 6.6% from a year earlier. This year, the bank is expecting between 37 billion reais and 41 billion reais as it grapples with a more adverse outlook for interest rates.

Political Pressure

Lula’s push to extend credit shouldn’t be mistaken for political pressure or an attempt at intervention, according to Medeiros.

“President Lula is aware that credit will grow according to market conditions,” she said. “There isn’t and never was any call to do anything outside of good market practices.”

Still, the market places a discount on Banco do Brasil’s shares because of investors’ concern that the government may indeed intervene, something Medeiros considers unfair.

“We are followed closely by public and private shareholders and follow strict governance protocols,” she said.

Markets also look at the bank with “prejudice,” she said, due to its high level of credit in the agricultural sector. “The agribusiness credit portfolio has much greater collateral,” she said, “which gives the bank security and mitigates risks.”

--With assistance from Clarice Couto.

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