Brazil faces Super El Niño with crop insurance at historic low

Why it matters: Brazil is the world’s largest soybean exporter and a top grain producer, yet total crop insurance (subsidized and unsubsidized) covers only 6% to 7% of insurable area. A Super El Niño during the critical September-to-December soy planting window raises the prospect of widespread losses in the Center-West and Matopiba regions, with almost no financial safety net in place for most producers.

What the new law changes, and what it does not

President Lula signed the reform of the Rural Insurance Legal Framework on September 30, turning the PSR subsidy into a mandatory budget line shielded from spending freezes and contingency cuts. The law also ties insurance to rural credit guarantees (producers with active policies get better interest rates and repayment terms) and opens the path for the Catastrophe Fund created in 2010 but never implemented. In principle, this addresses the core complaint from insurers: the subsidy budget has been unpredictable year after year, making it impossible to plan sales campaigns or expand into new regions.

The protection, however, applies only to future budgets. For 2027, the proposed budget of R$ 1.2 billion depends 73.5% on conditional revenue sources that require a compensatory fiscal measure the government has not yet sent to Congress. Only R$ 318.5 million of that total is guaranteed for execution. According to a simulation by FGV Agro’s Rural Credit and Insurance Observatory, restoring the 2021 coverage level would require R$ 2.37 billion, meaning the guaranteed funds cover just 13.4% of the need.

Who absorbs the risk when insurance does not

The Agriculture Ministry warns that without new disbursements, the 2026/27 harvest could end with only 1.1 million insured hectares (1.22% of planted area), the lowest coverage ever recorded. If the government releases R$ 473 million by year-end (as it committed to do), coverage could reach 3.4%. Either scenario leaves the vast majority of producers exposed. A ministry draft memo, obtained by Reset, requests that surplus funds from Proagro (the post-loss emergency program) be redirected to PSR. The ministry noted that in December 2025, R$ 758.3 million in Proagro surpluses were reallocated via supplementary credit to unrelated areas such as health, FGTS, and international organizations.

The fiscal logic is circular: when PSR is underfunded, uninsured losses flow back to the public budget through Proagro claims, debt renegotiation, and emergency relief. As Pedro Loyola, coordinator of FGV Agro’s observatory, put it, the risk does not disappear when the subsidy is cut; it returns as delinquency, renegotiation, and pressure on public spending. The 2022 cycle illustrates the pattern. After the record coverage year of 2021 (14.2 million hectares backed by R$ 1.1 billion in subsidies), market loss ratios spiked to 77%, with R$ 10.4 billion paid in claims, the worst technical result in the sector’s history. Pandemic effects, the war in Ukraine, and climate events in the United States cut off foreign reinsurance capital, compounding the damage. Loss ratios have since dropped to 28.9% in the first half of 2026, the lowest on record according to Susep, but the appetite to expand coverage has not recovered.

What remains undecided

Three elements will determine whether the new law produces real change. First, the compensatory measure for the 2027 budget: without it, nearly three-quarters of the proposed PSR funding cannot be executed. Second, implementation of the Catastrophe Fund, which could provide a backstop for extreme loss years like 2022 and attract reinsurance capital back to Brazil. Third, expansion into underserved regions. The insurance market remains concentrated in soy and corn in the South, Southeast, and Mato Grosso do Sul. Matopiba, the agricultural frontier spanning parts of Maranhão, Tocantins, Piauí, and Bahia, lacks the actuarial data history and purchasing culture needed for insurers to price and sell policies at scale. Daniel Nascimento, head of the rural insurance commission at Fenseg, acknowledged that Brazil will not reach the United States’ level of roughly 80% insured area even in the medium term, but argued that remaining permanently at 3% coverage with chronic budget uncertainty is equally untenable. The gap between the law on paper and its fiscal execution will be the real test.

via Reset