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August 16, 2017

Full Harvest but Empty Pockets for Farmers in Rio Grande do Sul

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The Federation of Agriculture in Rio Grande do Sul (Farsul) conducted a study looking at the returns for the 2016/17 crop and cattle production in Rio Grande do Sul in southern Brazil and they concluded that "the harvest have been full, but farmer's pockets are empty".

Returns on crop production such as soybeans, rice, and corn and cattle ranching have been falling for the last several years. The returns have been anemic for a number of reasons including: low commodity prices, high cost of production, inadequate storage, high freight rates, and an elevated currency.

The chief economist for Farsul, Antonio da Luz, explained that in some regions of the state, returns have fallen by 50% from several years ago. The last soybean crop for example was planted with high costs and an elevated currency and now the farmers are selling it at very low prices. Some soybean farmers doubled their soybean production in 2016/17 compared to the drought plagued crop of 2015/16, yet the farmers lost money on this year's crop.

The results for farmers who rented land for crop production saw even lower returns. In the municipality of Uruguaiana in western Rio Grande do Sul, soybean producers lost R$ 181 per hectare in 2015/16 due to heavy rains. Receipts were better in 2016/17 but not enough to make up for the previous loses. Receipts from their soybean production averaged R$ 631 per hectare (approximately $82 per acre), but rent was R$ 591 per hectare (approximately 77 per acre).

Corn producers briefly had higher prices in early 2016 due to a significant drought reducing Brazil's corn production which forced Brazil to import corn into southern Brazil to support the livestock industry. The corn shortage was short lived and Brazil's corn production increased 46% in 2016/17 to a record production of 98.5 million tons, resulting in an oversupply of corn and low prices.

Rio Grande do Sul is a major cattle producing state, but cattle ranchers are faring even worse than soybean producers. Cattle prices have been hit hard in recent months due to the tainted meat scandal earlier this year and the more recent scandal involving JBS.

Cattle ranchers in Bage, which is located in the southern part of the state, averaged a profit of R$ 11.87 per hectare in 2014 (approximately $1.50 per acre), but that declined to -R$ 151.76 in 2017 (-$19.80 per acre).

For Luz, he does not think the government should be emphasizing ever increasing grain production at a time when there are large carryover stocks worldwide. He feel the emphasis should be on correcting shortfalls in Brazil such as a lack of affordable grain storage as well as rail and barging operations. He feels that increasing production is not the correct vision when infrastructure is inadequate to permit major grain expansion.