Brazil ‘the new soybean frontier’, as many enthusiasts are proclaiming, has a seemingly unlimited supply of untamed land that is readily available for soybean production. The USDA has estimated that the ‘Legal Amazon’ has an astounding one hundred million acres that is looking for investment opportunities to bring this land into production agriculture. Brazil is rapidly expanding its soybean production capabilities and gaining market share in supplying the world’s growing soybean needs. Many experts are predicting that Brazil will surpass the U.S. in soybean production by the end of the decade. Not only does Brazil have a seemingly unlimited supply of land to bring into production, but also the opportunity, in many areas, of planting year around. It is very common to see farmers’ double cropping soybeans with corn with Brazil ‘s tropical climate.
Brazil ‘s land values have appreciated significantly, as land values in the state of Mato Grosso have reportedly increased from an average of US$ 50 per acre to nearly $1,000 an acre over the past decade. Land values are relatively high in the established high production land in the south costing over $2,500 per acre. This land has infrastructure near what many farmers are accustomed to in the U.S. In the northern territory , land is significantly cheaper due to the high transportation costs from production areas to markets in these more remote areas. Similar to the U.S. , Brazil has a large variance of soil types with the majority of the soils devoted to agriculture being generally very deep and well-drained with excellent yield potential.
The rapid expansion of soybean production has intensified the need for large capital investment. High Brazilian interest rates make it very hard to borrow money domestically, which further signifies the need for foreign investment to spur the continued growth of this new land. Due to the high domestic interest rates, soybeans growers have started to barter where farmers will routinely trade bags of soybeans for fertilizer and land payments.
Sugarcane production is a very viable industry in Brazil where fifty-two percent of the sugarcane produced is used for ethanol production. The common sugarcane producing areas are primarily in the southern growing regions. A majority of gasoline stations has the selection of both an ethanol and a gasoline pump, as most Brazilian vehicles are capable of running a forty percent ethanol blend. Brazil normally prices ethanol at a thirty-five to forty percent discount to gasoline.
Brazil possesses almost all of the technological capabilities of the U.S. including the availability of new machinery with common lines such as Case New Holland and John Deere. The readily cheap labor force, with an average weekly wage of a meager $75 a week for unskilled factory workers, allows for low cost production.
The major grain trading companies such as ADM, Bunge, and Cargill have established facilities in Brazil capitalizing on the rapid soybean production growth. Interior soybean producing areas face extremely high basis volatility levels due to the large distance from major shipping ports. The town of Quencia, Matto Grosso that is 1000 miles from Port Parana (in the south of Brazil), had basis levels as weak as $3.30 per bushel under the May CBOT futures price during peak harvest last season (late March-early April of 2004). The large distance between elevator facilities, long harvest truck lines, and poor road conditions make it almost essential for a successful farming operation to own storage space. Logistical issues are a primary concern as truck lines of over sixty miles have been reported in the past at Port Parana’s shipping facility, which is Brazil ‘s leading exporting location. The lack of port storage space, under scaled shipping capacity, and Brazil ‘s rapid soybean expansion is adding to the growing logistical concerns.
Brazil has many positive aspects in soybean production but much of this does not come without challenges of overcoming Mother Nature’s natural barriers. Many of Brazilian soils have high acidity levels, in many areas ph levels on new virgin soil could be as low as 4.0 to 4.5, requiring up to four tons of lime per acre to put this land into production. The Brazilian climate is near ideal for Asian soybean rust as northern territories have had reports of spraying as many as six times for rust this season, but three and four applications are more common in this area. Another obstacle that Brazil faces is the cost of insecticides because there is no winter, making bugs a major concern in many areas with the need for spraying up to three times per year (about $12-15 per acre per spray).
The devaluation of the Brazilian Real has added considerably to the costs of production due to the higher costs of imported fertilizer, fuel and other variable cost inputs. Interior production areas have felt the greatest negative effects of the devaluation as the higher fuel costs have added significant transportation costs to interior land locked areas.
Brazilian agriculture has many positive attributes that encourage the interest of many entrepreneurial American farmers, but one must be able to sacrifice many of the modern conveniences that we have become accustomed to. Many recently cleared farming operations may be a three-hour drive to the nearest grocery store or to the nearest machinery parts dealer.