If you ask a Brazilian farmer how much he paid for a combine, he will likely tell you the value of it in bushels. All right, they don't use bushels as the measurement; Brazilians refer to 132-lb. sacks as the standard. But you get the idea.
The reason for this is that world soybean prices are set in Chicago, in dollars. Over the last 20 years, Brazil has printed at least five distinct currencies that have often changed value. In spite of the fact that the Brazilian real has lasted for nine years now, and inflation is down from more than 2,000% 10 years ago to an estimated 9% this year, old habits die hard. It has traditionally made more sense to quote machinery prices in bags of soybeans.
Take a look at 2003. The U.S. dollar was worth 3.54 Brazilian reals at the beginning of the year. By the end of the year, that exchange rate had fallen to 2.89. While that meant Brazilian farmers got less local money for their beans at a given price, it also meant they paid less for inputs, like phosphate, petroleum and other commodities that, like soybeans, have their prices set in the world market.
The new exchange rate may have reached a near-perfect equilibrium in that calculation, as soybean plantings increased in 2003. This year soybean plantings in Brazil are expected to increase another 13%.
At the same time, Brazilian soybean production will continue to move North and East. The Mato Grosso expansion is yesterday's news. Soybean planting in even newer areas, like Tocantins, Piauí, Roraíma and Bahia, is trending up. Land prices in these new expansion states shot up in 2003. The government of Tocantins state says land prices there have nearly doubled.
The bottleneck to soybean expansion in 2003 was, as always, transportation costs. Inputs coming in and soybeans going out are more expensive because these areas are so remote, served chiefly by hulking 18-wheelers working their way around axle-eating potholes on two-lane highways.
Once the beans get to port, there are often long lines of trucks waiting to unload. In 2003, for example, the line of trucks at the southern port of Paranaguà reached 42 miles. Now, a new state rule about testing for biotech contributed greatly to the delays last year. But there is no question Brazil's ports are not well-equipped to handle its growing soybean export volume.
The Brazilian Agribusiness Association says Brazilian soybean transportation costs are 80% higher than those of the U.S.
While the transportation disadvantage is still a long way from being solved, 2003 saw an effort to begin resolving the problem. Cargill, for example, opened up a new port on the Amazon to export soybeans from these remote areas. The only way to get from the soybean fields to that port is still a dirt road, but the Brazilian government announced plans in 2003 to pave it.
The other way around high costs for shipping beans out is to keep the beans there, shipping out pork and poultry instead. Investors announced plans for a major pork production facility in Mato Grosso in 2003. Others are interested.
A former American Soybean Association staffer and farm kid from West Tennessee, James Thompson lives in Brazil and provides his perspective on agriculture in that country.