A glance at a map of the world shows Brazil's strategic location as far as a crossing of the Atlantic is concerned. The northeastern tip of Brazil allows the shortest crossing point to French West Africa and Sierra Leone. In 1939, the US drafted War Plan Rainbow, and one of its tenets was that northeastern Brazil would be secured and available as a staging point for trans-atlantic travel to Africa and onwards into Europe and the Middle East, and yet further into the Far East and China (remember, at this point, the US was deeply concerned with Japanese involvement in China and a second route to that theatre independent of the Pacific was essential). However, as the US entered the war, it was believed in Washington that the security of northeastern Brazil could not be guaranteed; worse still, that the area and possibly the entire country could side with the Nazis.
The reasoning behind this was complex, but boiled down to two essential elements: firstly, Brazil was not a democracy, but was instead a dictatorship ruled by Getúlio Vargas. Having staged a revolution in the early 1930s, Vargas had proclaimed a fascist "New State" which invited obvious parallels with Italy, Spain and to an extent, Nazi Germany. Vargas was also proud of his country's independence, and this spawned the second factor; in late 1941, the US requested the use of Brazilian bases for air operations, and to send in troops to guard these Brazilian bases against sabotage. Vargas saw this as an affront to his nation's sovereignty and refused. In Washington, this may have been interpreted as a resistance to the US rather than national pride, and hence doubt as to Vargas's (and hence Brazil's allegiance) was founded.
There may also have been some truth to the fear that Brazil, or at least its military, would side with the Nazis. The bulk of Brazil's military were based in the southern part of the country, with the northern part being relatively secure and therefore thinly defended. Whilst the navy and air force were generally regarded as pro-Allied (unsurprising, considering the close ties that each had formed with the British Royal Navy and the USAAF respectively), there was a considerable degree of support for the strong military example of Nazi Germany amongst the officer corps of the Brazilian army, based mainly in the South; an OSS report estimated that some 70% of the officer corps were pro-Nazi, and senior government ministers were also believed to be of the same persuasion. Another factor was the large German expatriate population of some 1.5 million, most of whom resided in the southern part of Brazil.
The fall of France and the spectre of a German seizure of Vichy territories in West Africa completed the picture. US planners believed that the German failure to capture Moscow in 1941 could lead to expeditions on the opposite flank, with a drive through Spain and Portugal, coupled with the seizure of Vichy French territory in Africa, bringing Brazil within range of German aircraft. A credible scenario involving German troops (or at least "5th columnists" landed by air from Dakar), combined with the mobilisation of pro-Nazi elements of the Brazilian armed forces was postulated. Thus, in the days after Pearl Harbor, the US drew up plans to forestall any attempt to secure northeast Brazil for the Axis by seizing it themselves. "Rubber Plan" was born.
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