February 1, 2012

South American Producers Set Goals for Future Grain Production

The governments of Mato Grosso, Brazil and Argentina have set goals of greatly expanding grain production by the year 2020. Mato Grosso currently produces 28 million tons of grain and the goal is to increase that to 43 million tons by the year 2020 (30 million tons of soybeans and 13 million tons of corn). The goal in Argentina is to increase the country's production of soybeans, corn, and wheat from the current 82 million tons to 150 million by 2020 (+82%).

Both of these are lofty goals, but it will probably be more difficult for the farmers in Mato Grosso to reach their goal due to the inherit nature of soybean production in the state. The cost of producing soybeans in Mato Grosso is much higher than in Argentina for a number of reasons. Mato Grosso farmers spend much more on inputs such as agricultural lime and fertilizers to compensate for the lower native fertility of the cerrado soils. Argentine farmers spend much less on fertilizers due to the high native fertility of the Pampas soils.

Another big disadvantage for Mato Grosso producers is the cost of transporting the soybeans the enormous distances to the nearest port facilities. The typical farm in Mato Grosso is on average 2,500 kilometers from the ports in southeastern Brazil. Those 2,500 kilometers consist of mostly poorly maintained two lane roads full of axil-breaking potholes. In contrast, the vast majority of Argentina's grain production is produced within 300 kilometers of the ports and many of the highways in Argentina are four lane roads that are free of potholes.

In order for Mato Grosso to have any chance of competing with Argentine producers, most of the new investments need to be outside the farm gate in the form of improved highways, new highways, additional rail and barge systems and expanded port operations. Unfortunately, infrastructure development in Brazil has been on the slow track for decades. Large scale soybean production in Mato Grosso began over 30 years ago and yet there is only one rail line that extends less than 150 miles into the state and there are no barging operations of any significance. Over 60% of the soybeans exported from the state must be taken to the ports by truck, which is the most expensive means of transportation.

While Argentine farmers may have a lower cost of production, everything is not to their advantage. When the soybeans are exported, they must pay a 35% export tax. Additionally, most of the highly fertile Pampas soils are already under cultivation and further expansion of row crop production would be into less fertile areas, mostly in northern Argentina.

Mato Grosso is famous for its huge soybean plantations and a typical farm in the state might be 700 to 1,000 hectares. In Argentina, a farm of 300-400 hectares would be considered a larger farming operation.