Brazil's Land Boom Continues

May 11, 2010 05:48 PM

Investments in South American farmland already exceed those in the U.S.: 37% of the $15 billion or so in the asset class versus 26%. And billions more will continue to flow into Brazil, in particular. Driving this is the growing demand for soybeans in China and globally and Brazil's enormous land availability.

One after another, investment managers from all parts of the world attending the Global Ag Investing conference in New York last week extolled the virtues of Brazil, where land values rose 11% to 20% between 2001 and 2008. On their list:
  • At 30% of GDP, agriculture is still a critical driver of economic growth, provides a positive trade balance, and therefore carries political clout.
  • It is the No. 2 ag exporter in the world after the U.S.
  • Crops need sunlight and water—and Brazil offers an abundance of both.
  • Ample land available: More than the state of Iowa has been brought into production in just the past four years and that will continue. "Within the next 10 years, 60% of world increased grain production should come from newly opened areas,” says Julio Piza of BrasilAgro. "Brazil has a 108-million-hectare (267-million-acre) advantage.”
  • Some 220 hectares of pasture land could be raised to cropland status.
  • Profits from converting raw land to cropland are higher than purchasing active cropland.
  • Prices, though rising, are still reasonable compared with developed countries.
Even Brazil's most notable drawback—lack of infrastructure—is an opportunity for investors, and many of the investment firms are buying into those fields as well.
Brazil includes some 850 million hectares. Of that, 90 million are unexploited arable land; 300 million is pasture, which could be converted to crops; 67 already is cultivated. The remainder is protected or rainforest (405 million) or in cities/not suitable for agriculture (74 million).
One investor listed the following prices and expansion opportunities:
State  Real/ha  7-Year Expansion
Toncatins  $ 5,500.00 110%
Maranhao  $ 4,000.00 31%
Piaui  $ 4,250.00 31%
Goias  $10,200.00 34%
Minas Gerais  $15,000.00 23%
Sao Paulo  $23,000.00 36%
Parana  $22,500.00 19%
Mato Grosso Du Sol  $ 9,500.00 60%
Mato Grosso  $10,500.00 77%

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