In most developed nations the ability to expand agricultural production is limited by land availability. This is not the case in Brazil.
According to a recent study by the University of Sao Paulo, Brazil has around 150 million acres of degraded pasture land suitable for crop production. So why don’t Brazilian farmers plant more crops?
There are a number of limiting factors, but probably the most significant is a lack of working capital. Credit is still very difficult and expensive in Brazil, in comparison to other developed nations.
To convert degraded pasture land to crops, including tillage and soil correction, costs an average $400 per acre, which in many cases is more than the price of the land. And unlike credit lines for planting, there are no subsidized government loans for developing new land, so farmers have to the private sector for financing, which can be costly.
Even though commercial lending rates in Brazil have fallen dramatically over recent years, short term lending still costs around 20 to 25 percent per annum, when available, while longer term loans are almost impossible to get.
With the arrival of large foreign and local farm groups to Brazil’s frontier region, the problem of expensive credit may be overcome by accessing international capital markets, but the problems don’t end here.
Apart from credit, logistics is a also big problem in Brazil’s farming frontier. Most of Brazil’s available land is a long distance from the port, and profit margins in these regions can be very tight, given high transport costs for inputs and grains.
Brazil still relies on trucks to transport around 60 percent of grain production, and storage space is limited meaning the bulk of production is transported at harvest time.
According to analysts, Brazil is unlikely to increase planted area this upcoming season as profit margins are currently negative for soybeans and corn in many regions, including Mato Grosso, the country’s largest soybean producer.
If this is the case, then this season’s record production of around 68 million metric tons (mmt) of soybeans and 54 mmt of corn is unlikely to be repeated again next season, given that weather conditions were near perfect in most regions of the country this season.
