South America Calling
Alastair Stewart South America Correspondent

Tuesday 09/25/12

Brazilian Land Prices Shoot Ever Higher

Record soybean and corn prices continue to drive land prices higher across Brazil's grains belt, where in some cases real estate has risen threefold over the last three years.

In Diamantino, central Mato Grosso, the price of average- to high-yielding land rose 38% in the 12 months to August to R$18,000 per hectare ($3,608 per acre), taking three-year gains to 210%, according to the Informa Economics FNP consultancy.

Further north, in Sinop, the price for the same type of land rose 37% to R$13,000 per ha ($2,605 per acre), while in Alta Floresta, in the transition zone between cerrado savannah and Amazon forest, a hectare now costs 45% more than last year at R$5,800 per ha ($1,162 per acre).

"In these regions, land is often quoted in bags of soybeans and therefore the price has shot up with that of the commodity," explained Jose Vicente Ferraz, technical director at Informa Economics FNP.

It is reasonable to expect price inflation will slow in the coming years, although much depends on commodity prices and exchange rates, Ferraz added.

But for the more isolated areas such as Sinop and Alta Floresta, expected improvements in road links, especially to northern ports, over the next couple of year will likely prompt prices to go higher.

Brazilian prices have risen at roughly the same rate as those in the U.S. and Argentina, in dollar terms, despite local restrictions on the acquisition of land by foreigners.

While the ban on purchases of large tracts by foreigners has certainly curtailed the activity of international investors, they continue to acquire Brazilian land, Ferraz said.

The preferred means of adapting to the rules is to buy land with a Brazilian partner, who typically retains 51% of the operation and often runs the farm on the investors' behalf.

"This scheme works well as the investor doesn't just get a real estate investment, if he chooses the right partner, he also gets the local farming and operating knowhow," explains Ferraz.

The original attraction of Mato Grosso, and surrounding states, was that the cerrado land cost virtually nothing. As you can see from the data, that is no longer the case but there is still cheaper land available for those willing to invest the time and money in converting pasture.

For R$2,000 to R$3,000 per ha ($401 to $601 per acre), you can acquire pasture, in Sinop, which can be converted into soy and corn land in a couple of years through the correction of the soil, the application of fertilizer and the acquisition of the appropriate permits.

"Its much more expensive than it used to be but there is still plenty of pasture available for those with the time, money and energy," Ferraz said.

Posted at 4:35PM CDT 09/25/12 by Alastair Stewart
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