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June 3, 2011

22.8 Sacks of Soy (50 bu.) Buys Inputs for 1.0 ha. Of Production

Brazilian farmers have been very aggressive in forward selling their 2011/12 soybean production in order to finance the purchase of the inputs needed to plant their 2011/12 soybean crop. Many of the bigger farmers in Brazil purchase their inputs from the multinational grain companies in exchange for future delivery of soybeans.

According to the Mato Grosso Institute of Agricultural Economics (Imea), farmers in Mato Grosso are contracting to deliver 22.8 sacks of soybeans (50 bushels) in exchange for the inputs needed to plant one hectare of soybeans including seed and fertilizers. This is an improvement compared to the first half of 2010 when it took 26.9 sacks of soybeans to purchase the same package of inputs.

This exchange of soybeans for inputs is 23% better this year than last year even though the cost of the inputs has increased 8% in one year. Last year, the package of inputs cost R$ 699 per hectare and this year the package of inputs cost R$ 775 per hectare.

Seed costs have risen faster than any other input in Brazil. Thanks in part to the higher cost of GMO soybeans and royalty payments, seed costs have risen 35% in one year and now represent 12% of the cost of production. Fertilizer costs have risen 15% in one year and now account for 45% the cost of production. Chemical costs (herbicide, fungicide, insecticide) have actually fallen 12% and now account for 25% the cost of production.

New environmental regulations are causing a fundamental shift in thinking on the part of Brazilian soybean farmers. Although the new environmental legislation has not yet been finalized, it will certainly become much more difficult in the future for Brazilian farmers to clear new land for additional soybean production. It has already become more difficult to obtain authorization from the Brazilian equivalent of the EPA to clear new land. With such a high level of uncertainty concerning the new environmental legislation, farmers do not want to risk clearing new land and then be subject to penalties and fines once the legislation finally passes.

To avoid this problem, some farmers in Mato Grosso for example are planning to convert some of their pastureland to additional soybean production. The Soybean Producers Association of Mato Grosso (Aprosoja) estimates that it will cost 26 sacks of soybeans to do the conversion and then it will cost an additional 22.8 sacks of soybeans to purchase the needed inputs to produce the crop. The total cost then to convert and plant one hectare of soybeans in former pastureland would be about 49 sacks of soybeans. The average production on this land is approximately 45 sacks per hectare, so during the first year, nearly all the initial costs are covered. By year two and certainly by year three the farmers could once again be making a profit on their soybean production after the conversion has been completed.