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March 30, 2012

Degraded Pastures Source of New Land for Soybean Expansion

As the Brazilian Congress continues to debate the new Forestry Code that is certain to have long range consequences on how land will be utilized in Brazil, one thing is certain, it is going to be much harder in the future to clear new land for row crop production than it has been in the past. The days of purchasing huge tracks of virgin land and clearing it entirely for row crop production are gone forever. In its place will be a process of better utilization of land that has already been cleared, namely the conversion of pastureland into new row crop production.

A prime example of this new reality is in the state of Mato Grosso where most of the increased soybean production over the last several years has come from pasture conversions. This is very evident in eastern Mato Grosso in an area called the Araguaia Valley. It's not really a valley at all, but rather the drainage basin for the Araguaia River which forms the eastern border of the state of Mato Grosso and flows north to the Amazon River.

This region is being promoted as one of the principal expansion areas for row crop production in all of Brazil. The region contains an estimated 3.1 million hectares (7.75 million acres) of soils that are suited for soybean and corn production. Just in northeastern Mato Grosso alone, the soybean acreage has gone from 445,000 hectares in 2007/08 to 953,000 hectares in 2011/12.

Currently, this area is primarily cattle ranching, but a lack of infrastructure for castle production has convinced many cattle ranchers that row crop production may be a better option. The biggest problem in the region is a lack of beef processing facilities. There are only three processing facilities in this huge region and they are all owned by the same company. In a region that producers millions of cattle, ranchers have been complaining for years about low cattle prices due primarily to a lack of competition among processors. To receive higher prices for their cattle, ranchers are forced to transport their cattle long distances to neighboring states.

Convinced that cattle ranching is not the best economic option, many ranchers in the region are integrating their cattle operations with new row crop production. Soybeans are the principal crop produced in the region and many soybean producers are purchasing degraded pastures to expand their operations. Other ranchers have decided to produce both cattle and soybeans on their farms. As they convert some of their pastures to soybean production, they are placing their cattle in feedlots to supplement the reduced amount of pastures.

While relatively cheap land is available for expanded soybean production, continued poor infrastructure in the region makes growing soybeans an expensive endeavor as well. The lack of railroads, barging operations and even a network of asphalted roads makes it expensive to bring in needed inputs and to transport out the grain production. Producers are hoping that the situation will improve with the construction of a railroad and an asphalted highway linking the region to ports in eastern Brazil. Both of these projects are expected to be completed in the next several years.