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Are Brazilian land values catching up to North American levels?

Edualdo Junior Simões Equipment in rice field in Brazil
Prime farmland is still about 40% cheaper than Iowa, but the rate of gain is escalating

Five years ago, according to Informa Economics FNP, the Brazilian nationwide average farmland price—without buildings or other improvements—was pegged at $2,530 per acre, and just $627 some 15 years ago. But recent record market prices usually find farmers craving more land to farm, and Brazilians are no different. And that demand is having an impact on land values.

It is becoming increasingly difficult to find land for rent, and when they do, it comes with a hefty price tag. In Mato Grosso you shouldn’t expect to rent productive ground for less than 15 sacks/ha ($160 per acre), with some farms reportedly renting for up to 20 sacks per ha ($213 per acre).  This is on land that should produce 60-plus bu. per acre soybeans. 

Pasture ground that has not been farmed is now going for 10 sacks per/ha ($106 per acre), which is unusual because the soil requires major fertility investment to be converted to crop production and is not as productive in the first few years. 

Land trades in sacks of soybeans (1 sack is 2.2 bushels or 132 lbs).  This works as a hedge against inflation and also keeps land prices essentially ‘dollarized,’ since Brazilian soybean prices are pegged to the dollar. 

Where values fluctuate and why

Like most places, land values fluctuate according to location and quality.  Land in my family’s region is hard to value as it is in pretty tight hands and doesn’t trade very often. But it would likely sell for around 500 sacks/ha cash ($5,400 per acre). Other areas are more expensive as land values have traded in Bahia for 600 sacks/ha ($6,500 per acre), but this is seller financed over several annual payments. 

Equivalent land in Iowa would likely sell for $10,000 per acre or more. 

Select locations in Mato Grosso have been known to trade even higher.  As the total price seems to keep going up, so do the terms of the transaction.  Three to four annual installments used to be the norm, but now it is probably closer to six or seven years.  There are some cases where the farms are being paid out over ten years.

Matthew Kruse is President of Commstock Investments.  He can be reached at 712-227-1110 or by email at matthewdk@commstock.com
Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 
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