August 20, 2019

2019/20 Soybean Production Costs Increasing in Brazil

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

Brazilian soybean farmers are looking at increased production costs in 2019/20 due to higher fertilizer and seed costs and a weaker currency when they were purchasing their inputs. The timing of the input purchases is very important in Brazil because 70% of the fertilizers and the majority of the chemicals are imported and if they purchase their imports when the currency is weak, it makes the purchases more expensive.

It is a common practice for Brazilian farmers to calculate the cost of inputs, equipment, pickups, etc., based on how many sacks of soybeans it would take to make the purchase. By doing it that way, it overcomes the problem of a fluctuating currency exchange rate that can distort the price.

According to the Mato Grosso Institute of Agricultural Economics (Imea), the average cost of producing soybeans in the state in 2019/20 will be 48 sacks per hectare (42.6 bu/ac) and that would increase to 59 sacks per hectare (52.3 bu/ac) if the land is rented. The average rent in the state is approximately 11 sacks per hectare (9.7 bu/ac). Imea is estimating that the average soybean yield in the state in 2019/20 will be 56 sacks per hectare (49.7 bu/ac). Therefore, if a farmer in the state is going to rent land to grow soybeans, he needs to control his costs or hope for higher yields and/or higher prices. The only one of those three things that he can control is his costs.

In monetary terms, the superintendent of Imea estimates that the cost of soybean production in Mato Grosso will be approximately R$ 3,900 per hectare in 2019/20 or roughly $1,000 per hectare (approximately $404 per acre), which represents a 7% increase compared to last year. He attributes the increase mainly to higher fertilizer costs and the exchange rate. Mato Grosso is the largest soybean producing state in Brazil responsible for 28.2% of Brazil's total soybean production in 2018/19.

Parana is the second leading soybean producing state in Brazil and the cost of producing soybeans in western Parana is expected to increase by as much as 11% in 2019/20, also driven by fertilizer prices and the exchange rate. In the municipality of Cascavel, which is located in western Parana, the cost of producing soybeans is estimated at 38 sacks per hectare (33.7 bu/ac) and the estimated yields will be 62 to 68 sacks per hectare (55.0 to 60.3 bu/ac).

Producing soybeans in Mato Grosso is more expensive than in Parana because of the distance from the ports in southern Brazil where most of the fertilizers are imported. The number one port for imported fertilizer in Brazil is the Port of Paranagua located in the state of Parana. Transporting fertilizers from the Port of Paranagua to the interior of Parana is relatively cheap. Transporting fertilizer from the Port of Paranagua 2,000 kilometers to the city of Sorriso in Mato Grosso is much more expensive.

Fuel costs are also higher in Mato Grosso because there are no oil refineries in the state and virtually all the fuel must be brought in from southern Brazil by tanker truck. Basically everything used on the farm in Mato Grosso is more expensive than in southern Brazil because of the higher transportation costs. The discrepancy is now even greater with the higher mandatory minimum freight rates.

Farmers in the state of Santa Catarina in southern Brazil are also facing higher soybean and corn production costs due to the implantation of a 17% tax on inputs starting August 1st. The tax will be charged even if the input was purchased before August 1st because the tax must be paid when the farmer picks up the product at his co-op or retail store.

The vice president of the Agricultural Federation of the State of Santa Catarina (FAESC) is worried that the higher cost of seed, fertilizer, and chemicals could delay the start of corn planting in the state.