September 18, 2014

2014/15 Soy Margins in Southern Brazil much better than Corn

As farmers in Brazil enter the field to start planting their 2014/15 crops, the lowest commodity prices in a number of years will put pressure on their profit margins. According to a study recently released by the Federation of Agriculture and Livestock Cooperatives in the State of Rio Grande do Sul (Fecoagro), the profit margins for soybean production will be cut significantly this year and for corn and wheat production, they actually could be negative.

Fecoagro estimates that the profit per hectare for soybeans produced in Rio Grande do Sul in 2014/15 will be R$ 602 per hectare (approximately US$ 106 per acre) compared to R$ 984 per hectare last growing season (approximately US$ 181 per acre). The cost of production in 2014/15 for soybean in the state is estimated at R$ 2,097 per hectare (approximately US$ 370 per acre) compared to R$ 1,766 in 2013/14 (approximately US$ 325 per acre).

In order for farmers to break even on their soybean production in 2014/15, their yields must be at least 40 sacks per hectare or 35 bu/ac. The trend line yields for soybeans in the state is 44 sacks per hectare or 38.3 bu/ac. In other words, if they have good weather during the growing season, they will make money on their soybeans, but if they have a poor growing season, they could lose money.

One of the reasons why margins are so tight is that the statewide average soybean yield in Rio Grande do Sul is one of the lowest in Brazil. On the plus side, the costs of transporting the soybeans to export facilities are some of the lowest in Brazil due to the close proximity to the Port of Rio Grande.

The cost of imported items such as fertilizers and chemicals have increased due to a weakening Brazilian currency. The above costs are calculated based on average use of inputs and seeds. The analysis does not include the use of Intacta RR2 Pro soybeans which will be planted on only 20% of the state’s acreage this growing season.

The news for corn producers in the state is even worse. During the 2013/14 growing season, the cost of producing corn in the state was R$ 2,154 per hectare (US$ 396 per acre) and that has now risen to R$ 2,183 for 2014/15 (US$ 402 per acre). Given the current prices for corn in the state, farmers could lose R$ 83 per hectare on their corn production (US$ 15 per acre). To break even on their corn production, farmers in the state would need to have a corn yield averaging 104 sacks per hectare (96 bu/ac), but the trend line corn yield in the state is just 85 sacks per hectare or 78.5 bu/ac.

The corn yields in the state are very low by U.S. standards because much of the corn is produced by small family farmers to sustain their livestock operations of dairy, hogs, or poultry production. Commercial corn producers have much higher yields, but even with a higher corn yield, it is clear that soybean production is a much better option this year compared to corn. As a result, farmers all across