South America Calling

The prospect of significant improvements in grain logistics through the Amazon region over the next few years is already causing a surge in land prices in the northern reaches of Brazil's grain belt.

The price of grain land in northern Mato Grosso rose 30% between 2013 and 2014, almost double the national average of 16%, according to a survey by Informa Economics FNP research, commissioned by local business daily Valor Economico.

Gains were even more impressive in Para, the home to a number of new grain ports, with jumps of 100% seen in some districts close to terminals.

The Achilles heel of Brazil's northern producing regions, especially those in and around the Amazon, is logistics. It costs nearly three times as much to send beans to port from Sorriso, Mato Grosso, as from central Iowa.

But Brazilian industry has been investing heavily in export corridors through the north, utilizing Amazon rivers, and, as I explain in greater detail in an upcoming series, these projects are starting to ramp up. Grain exports through northern ports such as Vila do Conde, Santarem and Itaqui are expected to reach 16 mmt in 2015 and could double over the next five years.

The principle corridor utilizes the BR-163 highway to take beans and corn by truck to barge terminals in Miritituba, Para state. The grain is then transferred to sea-going ships at new terminals already constructed or under construction around Belem, Para, at the mouth of the Amazon.

The route substitutes nearly 700 miles of trucking with barges and provides a bespoke corridor.

The Mato Grosso Soybean and Corn Growers Association (APROSOJA) estimates the route could cut transport costs by up to 30%. Other analysts are more conservative, pegging the number at 10% to 20%.

Still, the new routes make soybean and corn production more attractive in northern reaches. Inevitably, the prospect of cost savings has been quickly reflected in land prices.

There are still strict environmental restrictions on grain production in most parts of the Amazon. The soybean industry currently doesn't buy grain in the region and, according to the 2012 forestry code, farmers can plant only 20% of properties.

However, the moratorium on industry purchases is due to end next year and farmers sense that environmental authorities are more willing to issue licenses to plant now. The forestry code is restrictive but many areas were cleared for pasture previous to the new laws and are grandfathered, allowing for a more sustainable percentage of properties to be cultivated.

According to Marcio Perin, an FNP analyst, land prices rose during the course of the year as announcements of the progress in infrastructure were made.

Away from the BR-163, prices are also rising in Rondonia, the state to the northwest of Mato Grosso, through which beans are shipped through the Amazon via the Rio Madeira complex. Pasture prices around Vilhena in the east of the state have more than tripled over the last four years, according to FNP.

(CZ)

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