In February I had the opportunity to go on a farm tour in northern Brazil with Brazil Iowa Farms from Royal, IA.
I've read for years about the huge production potential Brazil has in producing soybeans, cotton, sugar, orange juice, coffee and broilers, but it's another thing to see the land, the people and the potential.
The farmers and agribusiness people I met are positive about the future of farming in that area. The problems that are present are easy to identify, but difficult to solve in the short term.
The production potential is awesome in the state of Bahia where most of our farm tour occurred. Only about one third of the land is developed into cropland. If soybean and cotton farming stay profitable, a huge amount of new land will be converted from Cerrado to cropland in the next 10-20 years. The area is starved for capital, with most land still being bought in sacks of soybeans over a three- to five-year period.
Input financing, if available, is usually made through grain companies at 16-22% interest. A lot of the fields are 3,000 acres with a few 20,000-acre soybean and cotton fields. The crops are planted and harvested over a three-month time period. Imagine making a round planting or harvesting that's six miles each way!
Brazil is about the same size as the continental U.S.
Brazil is 8,512,000 square miles or about 1.865 million acres. With a population about two thirds of the U.S. at 184 million people, Brazil is our 13th largest trading partner. Brazil exported $3.3 billion dollars of ag exports to the U.S. in 2004 while importing just $287 million in ag imports from the U.S.
Investors in the U.S. like the potential in Brazil as they continue to pump in more than $5 billion a year. Brazil is the largest producer of sugar, coffee, orange juice and tropical fruits and vegetables. Its cattle herd, at 170 million head, is 50% larger than the U.S. cattle herd.
The challenges that Brazil faces are huge. Brazilian agriculture needs capital and major infrastructure improvements. There's a lot of difficulty and expense getting fertilizer, fuel and other inputs delivered to the farms.
Moving grain and soybeans to market is a major problem, too. In the U.S. only 16% of the exported grain and oilseeds move to market by truck, while in Brazil 65% moves to market by truck. Many farms ship by semi to terminals, which are 600-800 miles away. Even though labor is cheap, fuel costs still create a wide basis and a slow turnaround time.
Here are my four key impressions of Brazilian agriculture.
They have huge potential to grow more crops. Of the 1,865 million acres in Brazil only 94 million acres are under cultivation. Another 308 million acres of Cerrado can easily be converted to cropland in the next 10-20 years. That would still leave 308 million acres of pasture and more than 976 million acres of forest.
They have massive potential for livestock production. I already knew they could grow huge amounts of soybeans, cotton, corn and other crops, but the largest competition in the next decade will be in hog, broiler and beef production. They have the crops, inexpensive labor and the technology to be major players in the global meat export markets in the near future.
They have big profit potential with sugarcane. More than 50% of the sugar crop is converted to ethanol. Not only does this keep Brazil from needing to import any expensive overseas crude oil, they've also become a huge international ethanol exporter to Europe and Asia. The efficiencies they have in production and processing sugar to ethanol are mind-boggling.
They have professional people with ag expertise. The agronomic help that Brazilian ag colleges make available to corn, soybean and cotton farmers is incredible. The dedicated, highly educated staff makes the most modern farm technologies available to all farmers in a very diverse agriculture.
Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: aginvestor@agmotion.com.