Frequently Asked Questions
- How much does land cost in Brazil?
- What is the cost of producing soybeans in South America?
- When are soybeans and corn planted in Brazil and Argentina?
- Can farmers grow a second crop of soybeans in Brazil?
- What is the growing season like in Brazil?
- How much could Brazil and Argentina expand their soybean production?
- How is the soybean rust situation in Brazil?
- Are farmers in South America allowed to grow GMO crops?
- Are there any drawbacks to further expansion in Brazil or will Brazil take over as the principal agricultural producing country in the world?
- Is Brazil still promoting its ethanol program?
- How stable are the economies of Brazil and Argentina?
- How heavy is the tax burden in Brazil and Argentina?
How much does land cost in Brazil?
The cost of land in Brazil varies by region and land use. Some of the most expensive land in Brazil is found in southeastern Brazil in the state of Sao Paulo, where much of Brazil sugarcane production is centered. In that region, good agricultural land could sell for as much as ten thousand dollars per acre, but that is an unusual situation based on the nature of sugarcane production. As far as soybean and corn production is concerned, the most expensive land is found in the state of Parana where highly productive soybean land could sell for as much as two or three thousand dollars an acre.
The cheapest land is found in central Brazil or on the southern edge of the Amazon Forest. In Mato Grosso for example, highly productive land that is located along an asphalted highway and capable of producing 50 bushel soybeans, might sell for as much as two thousand dollars per acre. If the land is located 50 kilometers off of an asphalted road, or it needs additional fertilizers to reach its maximum yield potential, the land is cheaper of course, and it might sell in the range of seven hundred to a thousand dollars an acre. Pastureland in Mato Grosso might sell in the range of five hundred dollars an acre.
If you are really adventurous and are interested in buying completely virgin land in remote locations, that land could sell for as little as seventy five to one hundred and fifty dollars an acre. The land may be completely inaccessible and you would be responsible for building you own road in order to reach the property. The cost of that type of land appears to be very cheap, but there would be additional costs in order to clear the land and to increase the fertility to a point where row crops could be successfully grown. Transportation costs associated with such a property would also be extremely high.
When buying land in Brazil, there are several things you must be very careful about. The first and most important thing is to be sure that you purchase land that has a free and clear title. Due to the confusing nature of land titles in Brazil, many properties have several apparent legitimate titles for the same land. This is caused by not having one central clearinghouse for land titles such as the county or state government. Instead, in Brazil, any given town or county will have multiple private title companies and each one might have issued a legitimate title to a given property. When purchasing land you must research all the title companies in the area in an effort to sort out if there are conflicting claims.
It is very expensive to eventually get a free and clear title to the land. Many buyers never get the title transferred to their name due to the high cost of doing so. It is highly recommended that new buyers take the time and make the effort necessary to resolve any and all conflicting claims to the property. It is going to be very expensive, but the cost of not doing it properly could be much higher. It is not uncommon for landowners to be confronted by other individuals, sometimes years after the sale, who claim that they have title to the property. Property titles in Brazil can be a big problem, but if done properly, the risks can be minimized.
Another potential problem concerning land purchases in Brazil is the fact that the Brazilian government is now making stronger efforts to enforce a myriad of new and existing environmental laws. For decades, there have been laws on the books restricting how much land could be cleared and put into row crop production, but these laws were widely ignored and rarely enforced. As a result of improved monitoring techniques and a reinvigorated enforcement effort, many farmers are now facing large financial penalties for clearing more of their land than what the law allowed. This is a particularly sensitive issue in frontier states such as Mato Grosso.
What is the cost of producing soybeans in South America?
The cost of producing soybeans in South America varies widely by location. Generally the cost is higher the further you move toward the center of South America. In Mato Grosso for example, which is located in the middle of South America, it cost about US$ 7.00 a bushel to grow the soybeans and then about US$ 3.00 a bushel to transport the soybeans to ports in southern Brazil.
One of the reasons why it is expensive to grow soybeans in Mato Grosso is because the soils have a low native fertility and phosphorus and potassium applications are required on a yearly basis to achieve maximum yields. Agricultural limestone also needs to be applied every three or four years in order to maintain an acceptable pH level. Much of the fertilizer used in Brazil is imported and it must be transported out to Mato Grosso, which also helps to drive up the costs. During the 2008-09 growing season, fertilizers were very expensive and as a result, approximately 50% of the cost of growing soybeans in Mato Grosso was the result of the cost of fertilizers.
In southern Brazil it is cheaper to grow soybeans because less fertilizers are required and the transportation costs are much lower since the production regions are in close proximity to the ports. In Parana for example, it cost about US$ 6.00 to 7.00 to grow soybeans and only about 0.50 per bushel to ship them to the port of Paranagua.
In Argentina it is even cheaper to grow soybeans, in fact Argentina has probably the lowest cost of production in all of South America. It's much cheaper in Argentina for several reasons. First, the Pampas soils are very fertile so yields are very high even without additional fertilizers. Argentine farmers are also able to plant Roundup Ready soybeans without necessarily having to pay royalties to Monsanto, but that may change in the near future. Additionally, the vast majority of the soybeans in Argentina are grown within 200 kilometers of the main port of Rosario thus greatly reducing transportation costs. A typical soybean crop in Argentina might cost as little as US$ 2.50 to 3.50 to grow depending on where its grown in Argentina.
A big concern in Argentina though is the extremely high export taxes imposed by the federal government. Currently, the federal government imposes a 35% export tax on soybeans. The export taxes on corn and wheat are lower, in the mid-20% range. These export taxes are very contentious and various farm organizations in Argentina have been pressuring the government to lower or eliminate these taxes. Thus far, the federal government has been able to maintain the export taxes, but that may change in the future.
When are soybeans and corn planted in Brazil and Argentina?
In Brazil, farmers plant their full-season corn first, before they plant soybeans. In southern Brazil, they will start planting corn in September or as soon as the soil moisture has been recharged after the dry season (winter). The main planting window for full season corn in Brazil is September-October. For soybeans, the first soybeans planted in Brazil are always planted in central Mato Grosso. They will start planting soybeans in Mato Grosso on September 15th if the there is ample soil moisture. They are not allowed to plant soybeans in central Brazil until the 90-day soybean free period ends on September 15th. The main planting window for soybeans in Brazil is October-November.
Brazil has a tropical climate so the growing season is very extended. Farmers in Brazil can plant their soybeans between September and early December. Generally, the top yields are obtained when the soybeans are planted in late October or early November.
In Argentina the growing season gets started a little later. Argentina is further south so they have to wait for the springtime temperatures to warm up. Generally planting progresses from north to south in Argentina and corn planting usually begins in September and peaks in October. Soybean planting usually begins in Argentina in October and peaks during November. A significant part of the Argentine soybean crop is planted as double crop soybeans after the wheat is harvested (approximately 25% of Argentina's soybeans are double cropped). The wheat in Argentina is usually harvested in December, so that is when the double crop soybeans are planted. The latest soybeans would be planted in Argentina is in early January.
Can farmers grow a second crop of soybeans in Brazil?
Farmers in Brazil do have a double crop system, but it's very different than in the U.S. or in Argentina. In Brazil, the second crop planted is corn, which in Portuguese is called the safrinha (little harvest). The two main states for safrinha corn production are Mato Grosso and Parana. In both states if a farmer is planning to plant a second crop of corn, they start out by planting very early maturing soybeans. If these early maturing soybeans are planted in late September or early October, they will be ready to harvest by late January or early February.
As the combine goes through the fields harvesting the early maturing soybeans, it is followed by a no-till planter putting in the safrinha corn crop. Sometimes the corn is planted within minutes of when the soybeans were harvested. There are advantages and disadvantages of this type of double crop system.
On the positive side is the fact that the farmer can harvest two crops a year from the same field. The safrinha corn crop can be a risky proposition. This second crop of corn can be low-yielding if the rains end too soon or cold weather affects the crop. The farmers know that, so they limit the amounts of inputs they put into the crop. Another advantage is that the early harvested soybeans may be able to command a premium in the market. By January, many processors are running very low on supplies and they are willing to pay a hefty premium to keep their plants running. These premiums can sometimes be more than a dollar per bushel.
On the negative side of this system is the fact that these early maturing soybeans may mature during the peak of the rainy season. Trying to harvest soybeans in Mato Grosso during January can be a challenge at times. During January, there may be nearly constant rainfall for days on end along with very warm temperatures. Under these conditions, mature soybeans may rot or sprout in the pod. Its not uncommon to experience significant yield losses due to the rainy weather while trying to harvest soybeans in January. As a result, Brazilian farmers will limit the amount of early maturing they will plant due to the potential problems during harvest.
What is the growing season like in Brazil?
Brazil has a very distinct rainy season and dry season. The first rains usually start to fall by late September. The first rains are sporadic and highly variable. September is probably the hottest time of the year, especially in central Brazil. Temperatures can easily soar to above 100 degrees for days on end.
During the month of October, the rainfall starts to pick up to maybe one or two showers per week. The temperatures during October still remain very hot, but the occasional shower can cool it off a bit. In November the rainfall frequency picks up to perhaps three or four times a week and the high temperatures start to moderate. By the time the calendar turns to December, it is generally raining every afternoon and the temperatures will be in the mid to upper 90's.
The peak of the rainy season occurs during the month of January when it may rain non-stop for days on end. During these periods, the relative humidity is extremely high and the temperatures are in the mid-90's. During this time of the year, it is like a greenhouse in Brazil.
Starting in February, the rainy season starts to reverse itself. In February it will probably rain about once a week. In March, it will rain three or four times a week. By April, its raining once or twice a week and by early May the rainy season is over. During June, July, and August there will be very little rain and the temperatures will be upper 80's and lower 90's. The temperatures during the dry season are warm enough to grow summer crops if irrigation is available. In fact, farmers had planned on growing three soybean crops per year before soybean rust was discovered in Brazil in 2000. The disease put an end to the idea of growing irrigated soybeans during the dry season. Farmers are still trying to develop a suitable cropping plan for irrigated crops during the dry season, but a suitable cropping system has yet to be fully developed.
How much could Brazil and Argentina expand their soybean production?
In Brazil, the potential for soybean expansion is nearly unlimited. As far as land resources are concerned, Brazil has hundreds of millions of acres that could potentially be converted into soybean production. Most of the recently expanded soybean acres have been in the cerrado areas. The cerrado vegetation consists of low twisted trees interspersed with native grasses, sort of a scrubland or savanna. This vegetation is easily cleared and converted to row crop production. There are an estimated 200 million acres of cerrado that could still be cleared in Brazil.
Another source of potential new arable land in Brazil are degraded pastures. Brazil has a huge cattle heard and there are an estimated 500 million acres of pastures in Brazil as compared to 125 million acres of row crops. These degraded pastures have a low carrying capacity and would actually benefit from several years of intense row crop production.
The Brazilian agricultural research service, known as Embrapa, has been researching this idea and they are convinced that Brazil could double soybean production without ever cutting another tree in the Amazon Forest. They are convinced that the utilization of degraded pastures is the best way to expand row crop production. Additionally, Brazil is under pressure from environmental groups to slow down deforestation in the Amazon Region and by using degraded pastures for additional row crop production, they could placate these environmental groups.
In Argentina, it is a completely different situation. Nearly all the expansion of soybean production in recent years came as a result of switching out of pastures, hay, and other row crops. Some new lands have been brought into production in northern Argentina, but the total amount has been much less than in Brazil. Additional hay and pasture could still be switched to soybean production, but most of the high value land has already been converted to soybean production. Any additional switching would be on less productive land on the fringes of the main production region.
Therefore, the total potential for soybean production in Argentina is limited by land constraints. The soybean acreage in Argentina is expected to continue to expand, but at a slower rate and eventually it will reach its maximum extent.
How is the soybean rust situation in Brazil?
Soybean rust first appeared in Brazil in the year 2000. Initially, there were significant losses attributed to rust until Brazilian scientist and farmers developed effective measures to combat the disease. Soybean rust will be a chronic problem for Brazilian soybean producers, but it's not the devastating disease it was when it first appeared in Brazil. Today, Brazilian farmers have better knowledge about how to combat the disease and they have better tools to do the job.
Brazilian scientist have now developed soybean varieties that are tolerant to the disease and even more effective resistance to the disease is being incorporated into new soybean varieties. Today, the average Brazilian soybean field receives 1.8 to 2 applications of fungicides to control rust. Even with more tolerant varieties, Brazilian farmers will still need to apply fungicide, but at a lower frequency.
When soybean rust first appeared in Brazil, soybean losses totaled several million tons per year. In recent years, those losses have been held down to probably less than a million tons per year. Controlling soybean rust is expensive and Brazilian soybean farmers now spend hundreds of millions of dollars in an effort to control the disease.
Are farmers in South America allowed to grow GMO crops?
For many years, GMO soybeans (Roundup Ready) were grown illegally in far southern Brazil. Farmers in Rio Grande do Sul brought the soybeans in from Argentina as a way to reduce their production costs. Today though, Roundup Ready soybeans can be grown legally in Brazil. Several years ago, the Brazilian Congress authorized the production and sale of GMO soybeans as well as corn. There is now a formal structure in place to evaluate and approve new GMO crop varieties.
Even though many farmers want to grow GMO soybeans in order to reduce their production costs, there is a market in Brazil for traditional soybeans (non-GMO) that are exported primarily to Europe. In addition to traditional soybeans, the Europeans like to purchase non-GMO corn and grass-fed beef from Brazil as well.
Are there any drawbacks to further expansion in Brazil or will Brazil take over as the principal agricultural producing country in the world?
If you look at total agricultural production, China will continue to be the leading producer due to its hugeAre there any drawbacks to further expansion in Brazil or will Brazil take over as the principal agricultural producing country in the world? population, but eventually, it is estimated that Brazil will indeed become the principal exporting country of agricultural products. It is not going to happen over night, but over the next several decades Brazil is expected to surpass the United States in total agricultural exports. Brazil is already the leading producer of coffee, orange juice, sugar, ethanol, tropical fruits, beef, tobacco, and they are one of the leading producers of soybeans, corn, poultry, pork and other agricultural items.
The biggest hurdle that Brazil must overcome is improving its infrastructure, its highways, its rail system, its ports, and its storage capacity. The existing infrastructure is already being over burdened by the current agricultural production and as the production increases, the situation is going to get even worse.
Mato Grosso is a good example, it's as big as the entire Midwest and it's the leading agricultural state in Brazil, yet there is only one two lane highway that connects the state to southern Brazil and the main ports of the country. That highway is in terrible condition and full of axel-breaking potholes. From central Mato Grosso to the port of Paranagua is approximately 1500 kilometers and it costs between US$ 2.75 to 3.23 a bushel to move soybeans from Mato Grosso to the port during the peak of the shipping season. A modern rail system would be a big benefit, but there is one single-track rail line that serves the southeast corner of the state and it is wholly inadequate to service the needs of the state.
Various farm organizations in Mato Grosso have been pleading with the federal government for years to spend the money needed to improve the infrastructure of the state, but progress in this area remains extremely slow. When Blairo Maggi became the governor of the state, everyone expected the infrastructure situation to be addressed because he owns huge tracks of land in Mato Grosso and is the largest soybean producer in the world. He is now ending his second term as governor and his infrastructure improvement program has widely been viewed as a disappointment.
An adequate storage system is also a big concern in Brazil. Although the amount of on-farm storage has increased in recent years, the total amount of grain that is stored on-farm still is probably less than 15%. The bulk of the grain is stored at the local co-op or at private grain companies. This lack of on-farm storage limits farmer's marketing options and they are often forced to sell their production at harvest time when the prices are usually the lowest.
Brazil has the land, the climate, and the technical knowledge to greatly expand its agricultural production, but its sub-par infrastructure could become a limiting factor in how fast the expansion occurs.
Is Brazil still promoting its ethanol program?
Brazil's alternative fuel program is a true success story. Brazil started its alternative fuel program in the early 1970s and they have been aggressively pressuring it ever since. The results of this program have been outstanding. Brazil now consumes more ethanol in its automobile fleet than gasoline. More than 90% of the new cars produced in Brazil have flex-fuel engines allowing the vehicle owner to use whichever fuel is more economical and in Brazil, the most economic fuel is ethanol. The cost of ethanol in Brazil is approximately 55-60% the cost of gasoline, so there is a big economic incentive to purchase ethanol.
Ethanol in Brazil is produced from sugarcane, which is a much better source of fuel than the corn that is used in the U.S. The amount of energy you get back from sugarcane-based ethanol is about nine times more than what you get back from corn-based ethanol. Not only is the high sugar content a better feedstock to produce ethanol than the starch found in corn kernels, the actual manufacturing process using sugarcane is much more efficient. In fact, the energy needed to operate a sugar mill is derived from burning the stalks once the juice has been extracted. This usually producers more electricity than what is needed to operate the plant, so the excess energy is sold back to the utility company. Approximately 3% of Brazil's electricity is generated in this manner.
Biodiesel is also an important part of Brazil's alternative fuel program. Currently, Brazil mandates that 3% of the diesel fuel be made from an alternative feedstock other than petroleum. That percentage is expected to increase to 5% by 2010. Any vegetable oil or animal fat could be used as the alternative feedstock, but soybean oil offers many advantages over other oils. The infrastructure in Brazil is in place to use soybean oil and the country has a ready supply of soybean oil. Currently, approximately 80% of the alternative feedstock used in biodiesel is soybean oil, followed by tallow and cottonseed oil making up the remainder.
One of the keys to success for Brazil's alternative fuel program has been the attitude of the Brazilian consumer. The success of this program is a point of national pride in Brazil and it enjoys universal support. In fact, there are more types of alternative fuels available in Brazil than in the U.S. This program will continue to expand in Brazil and there is virtually no limit to the amount of alternative fuels that can be produced in Brazil. Brazil is already exporting ethanol to many countries and that trend is expected to accelerate.
How stable are the economies of Brazil and Argentina?
The Brazilian economy is very stable. The recent worldwide slowdown has affected the Brazilian economy, but Brazil has weathered the storm much better than many other countries. Recent economic policies in Brazil have held down inflation and allowed for slow but steady growth. Brazil is a favored destination for investors because interest rates are some of the highest in world. That makes Brazil attractive for investors, but it makes borrowing money very expensive.
Recent governmental policies have also resulted in a strengthening of the Brazilian currency in comparison to the dollar. A strong currency tends to hold down agricultural exports, so that is a concern in the agricultural community. A strong Brazilian currency also causes additional problems for Brazilian farmers because soybean prices are set in dollars at the Chicago Board of Trade, but the farmers are paid in the local currency. Whenever the local currency gets stronger, Brazilian farmers put less money in their pocket for each sack of soybeans they sell. For about the last five years, the Brazilian currency has been getting stronger compared to the U. S. dollar, so domestic soybean prices have actually been falling in real terms over this period.
The situation in Argentina is much different. The country of Argentina defaulted on its international obligations in the early 2000's, which has had a profound impact on the economy. The default helped plunge millions of Argentines into poverty because overnight their money became nearly worthless. Many Argentines have yet to recover from this action and today, approximately 40% of the population lives below the poverty line.
For several years after the default, Argentine farmers actually weathered the storm quite well. Instead of relying on wages paid in deflated pesos, the farmers were selling hard assets such as soybeans and corn. When these products were sold on the international market, farmers could put a lot of deflated pesos into their pockets. So, the farmers lucked out in a sense that they had physical commodities to sell instead of relying on wages.
Their luck ran out in recent years with the election of the Kirchners to the presidency. Mr. Kirchner served one term as president and now his wife is currently serving her first term. Their philosophy was to take away some of what they considered "windfall profits" that the farmers were receiving. They put in place a series of export taxes levied on the major commodities in order to increase the revenue for the federal government. On soybeans for example, there is an export tax of 35% for each bushel of soybeans that are exported. For corn and wheat, the tax is in the mid-20% range. Export taxes were also levied on beef and milk as well as the grains.
In addition to taxing the exports, the federal government initiated programs that manipulated agricultural exports as well. Whenever the government felt that too much of a certain product was moving into the export channels instead of the domestic market, they just simply closed off export registrations. They did this to oversupply the domestic market, which would drive down domestic prices and help keep a lid on inflation. It worked!
Take beef exports for example. When the government closed off beef exports, all the beef went into the domestic market and prices collapsed. Farmers had to liquidate their herds to keep from going bankrupt. Many ranchers sold off their cattle, plowed up their hay fields and pastures and converted the land to soybean production. As a result, the cattle herd in Argentina is now smaller that what is needed to supply the domestic market so beef prices either need to increase or the Argentine population needs to consume less beef.
Needless to say, the agricultural community became very upset by these policies. In 2008, the federal government even proposed increasing the export taxes and putting them on a sliding scale. In other words, it the price of a commodity increased, so to do the taxes. In a worst-case scenario where soybean prices went to US$ 20 a bushel, the tax could go as high as 85%. These proposals infuriated the farmers and they took their protests to the streets. They blocked highways and many of the protests turned violent. The government tried to get the tax increase passed through congress, but they fell one vote short when the vice president cast the deciding vote against the proposal.
Farm organizations continue to protest against these export taxes and market manipulation by the federal government. The opposition parties won control of both houses of congress in mid-term elections held in June of 2009, but they do not actually take control until December of 2009.
As a result of these actions by the federal government, the stability of the agricultural community is in doubt. Their cost of production has increased, their tax burden has increased and the government continues to manipulate the market in a way that is detrimental to their well-being. It is an unsustainable system and how it is going to be resolved is yet to be determined.
How heavy is the tax burden in Brazil and Argentina?
The tax burden in Brazil is very high and maybe even higher than the tax burden in the U.S. The taxes in Brazil though are levied in a different manner than they are in the U.S. The largest tax in Brazil is a 17% value added tax that is added to everything that is purchased in Brazil. This tax must be paid before products can be transported around the country so they are added to the price of the item when they leave the factory. If any agricultural inputs are imported, such as chemicals or fertilizers, an additional import duty is charged as well. In addition to the value added tax, farmers and landowners must also pay real estate taxes and income taxes as well.
Many of the taxes in Brazil are included in what is charged for utilities such as phone service, electricity, water, and gas. Take gasoline for example. The price of gasoline (and diesel) in Brazil is controlled by the federal government and the government has kept the price of gasoline and diesel very high over the decades and used that revenue from the tax as a major source of funds to run the government. While the price of gasoline has fluctuated in the U.S., it has consistently remained very high in Brazil for many years, running between US$ 4.50 and 6.00 a gallon. These price controls were also maintained to help bolster the government's ethanol program. The price of ethanol has consistently been put at 55-60% the price of gasoline in order to give an economic incentive to purchase ethanol. Therefore, if gasoline prices are high, then ethanol prices can be high enough to insure a profit for ethanol producers.
There are also very high fees charged in Brazil for such things as land title transfers, real estate fees, banking fees, license fees, etc., etc. The list of fees charged in Brazil is almost endless. Interest rates, which are also controlled by the government, are some of the highest in the world, so the cost of burrowing money can be very high as well.
Even though the income taxes and real estate taxes in Brazil may seem lower than in the U.S., when all the taxes and fees in Brazil are combined, they add up to a higher burden than in the U.S. and are a huge concern for the agricultural community.
In Argentine, the situation is not any better and in many aspects, it might even be worse. The most obvious tax in Argentina is the export taxes levied on grain exports. They have always had a small tax on exports, but in recent years, that tax has exploded. In fact, several years ago, the federal government in Argentina justified increasing the export taxes because they said they could not trust the farmers to be honest and pay their fair share of the income tax. A complicating situation in Argentina is the fact that no one has any faith in the economic numbers released by the government so needless to say; the tax situation in Argentina is confusing just like the rest of the economy.