Nov 27, 2009
Land Values In Brazil Resume Upward Trend
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The average price of land in Brazil resumed its upward trend during the September-October period. According to the consulting firm AgraFNP, the average price of land during the period sold for R$ 4,548 per hectare, which equates to US$ 1,070 per acre using an exchange rate of 1.7 Brazilian Reias per US Dollar. This represents an increase of 1.25% compared to the same period in 2008. The volume of sales also increased this year especially in the areas where the land was selling for the lower prices.
In the center-west states of Mato Grosso and Goias, the average price of land during September-October period was R$ 3,424 per hectare (US$ 805 per acre), with a range of R$ 170 per hectare on the low side (US$ 40 per acre) to R$ 10,800 per hectare on the high side (US$ 2,540 per acre). The most expensive land in Brazil is in the southern region where the average price was approximately R$ 10,000 per hectare (US$ 2,350 per acre) with a range of R$ 500 per hectare on the low end (US$ 117 per acre) and R$ 32,000 per hectare on the high end (US$ 7,530 per acre).
Foreign investors in Brazil who purchased land fell into two groups. The first group of investors bought land for the purpose of producing crops, such as soybeans or sugarcane, or they bought land for cattle production. Much of land bought for these purposes was purchased in the states of Mato Grosso and Goias. The second group of investors bought land as purely an investment. They purchased land that was generally cheaper and undeveloped, but with the potential of gaining in value once the land was developed. Those purchases were made primarily in northern or northeastern Brazil.
Many in Brazil are concerned that foreign investors may be creating a bubble economy in Brazil. Foreign investments have been pouring into Brazil to take advantage of some of the highest interest rates in the world, they have been buying Brazilian securities, and they have been buying hard assets such as land. As a result, the Brazilian Real has appreciated nearly 35% this year and is one of the top performing emerging currencies in the world.
This has led the Brazilian government to take a series of steps to stop the appreciation of the currency. A strong currency is particularly worrisome for the agriculture sector that relies heavily on exports. As the currency appreciates, agricultural exports out of Brazil become more expensive and imports become cheaper. Soybean farmers are especially vulnerable to a strong currency because their product is priced in US dollars, but paid in the local currency. The stronger the Brazilian Real becomes, the less money they put in their pockets when they sell the production.