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FEATURE-U.S. soy farmers in Brazil weather hard times

25 Oct 2006 18:03:59 GMT
Source: Reuters

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A farmer holds a handful of soybeans from Sorriso's field in the central Brazilian state of Mato Grosso in this March 19, 2004 file photo. Brazil's soy area has doubled since 1990 to become the world's second largest after the United States and output has nearly tripled in the same period. With high land prices and limited area for expansion in the United States, Brazil appealed to some U.S. farmers with a desire for adventure. To match feature FOOD BRAZIL AMERICANS
REUTERS/PAULO WHITAKER

By Reese Ewing

SAO PAULO, Brazil, Oct 25 (Reuters) - Todd Topp, a U.S. soy farmer from North Dakota, moved to Brazil in 1990, lured by the prospects of getting in early on an agricultural boom in the town of Luis Eduardo Magalhaes in western Bahia state.

He still turns a profit from his coffee, fruit, cotton, corn, sheep and cattle operations, but he has abandoned planting soybeans, once his main crop, which attracted many Americans like Topp to Brazil.

"There've been a lot of Americans that have shown up here and been told a fairy tale and a lot of them haven't done very well here," Topp, 32, told Reuters by telephone from his farm.

Brazil's soy area has doubled since 1990 to become the world's second largest after the United States and output has nearly tripled in the same period. With high land prices and limited area for expansion in the United States, Brazil appealed to some U.S. farmers with a desire for adventure.

Trade groups say there are at least dozens who have made the move to Brazil, although neither the U.S. Embassy nor the local agriculture ministry could provide figures.

But two years ago, Brazil's real <BRBY> began appreciating against the dollar, which hurt the local earning power for soybean exports. Brazil exports much of its crop. Oil prices also skyrocketed, driving production costs through the roof, from diesel fuel to petroleum-based agrochemicals.

"The situation with soybeans has been really tough because of the exchange rate. It's still hard to pencil in much of a profit with them," Topp said.

Brazilian soybean growers have also had to grapple with Asian soy rust, a pernicious fungus that arrived in Brazil a few years ago. Rust has consumed around 4.5 million tonnes of the 50 million tonnes crop over each of the past three years.

Growers must buy costly fungicides and spray plants as much as five times a crop, greatly raising costs. Rust arrived in the United States two seasons ago but has not been as widespread because of the cold winter that keeps it in check.

Brazil's area planted to soybeans is expected to fall again for the second year running from a peak of almost 23 million hectares (57 million acres) two years ago to just over 20 million this season.

Topp is making ends meet by focusing on other productive aspects of his farm, such as coffee and fruit. Brazil is the world's largest exporter of coffee but also the No. 2 consumer of coffee after the United States.

"Coffee operations are doing really well because of solid prices and costs are in check," Topp said of the 250 acres of irrigated coffee trees on his farm. He also produces papaya for the local consumer market.

TURNAROUND IN THE CARDS?

The 25-year expansion on Brazil's soybean frontier has allowed great inefficiencies to go unnoticed until now.

"This will be healthy for the industry, which has never had to deal with this type of tight market," said Phil Corzine, a director at South American Soy LLC, a U.S.-based private equity fund that has invested in Brazilian farm land.

The company raised $1.3 million from investors who wanted a piece of the Brazilian soy boom. The company bought 3,500 acres three years ago in southern Tocantins state near the border with Goias in the center-west grain belt. Local agents were hired to manage its two farms.

Corzine said U.S. farmers are some of the best in the world at low cost production and it was this know-how that he wanted to set loose in Brazil.

"Believe me, we're not having fun down there, we're not making a lot of money," he said from his office in Illinois. "We've been up front with our investors that it was going to be rough for a few years... But things are turning around."

Corzine said the company will only plant 100 hectares of soy this season -- below potential -- on the farm's best fields and reduce input costs to maximize margins. Even so, profits would not cover the cost of clearing and conditioning of new fields on the farm.

Many soy producers have abandoned farm land on Brazil's agricultural frontier because of the high cost of getting supplies to the remote regions, the cost of transporting beans to market and the need to correct soil imbalances.

"When Americans come down here to buy land they are really buying rainfall. The land requires lots of nutrients and lime, but it rains without fail in the center-west and northeast during all the months with Rs in them," said James Thompson, a consultant for U.S. farm interests in Brazil.

But analysts say fertilizer and agrochemical costs have fallen by about 30 percent from last season due to a drop in demand and falling oil prices. A turnaround in shrinking profit margins for soybean production may be in the cards.

"There are less Americans interested in Brazil today but they ought to be more interested now that land prices have fallen back," said Thompson, who lives in Uberaba, Minas Gerais.

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Last updated:Wed Oct 25 18:06:25 2006