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The fields of Brazil

Team FIN farmer Paul Gervais of Tracy, MN, along with other growers from across the United States, traveled to Brazil last year for a firsthand look at how crops, especially soybeans, are grown on the farms there. Here is his report.

In January of 2007, I traveled to Mato Grosso, Brazil’s biggest soybean-producing state, with a group of farmers and businessmen from Minnesota, South Dakota, North Dakota, South Carolina and Indiana. The tour was sponsored by Hefty Seed Company, and Brian and Darren Hefty traveled with us. It wasn’t your typical relaxing trip to a tropical paradise. The day usually began before 7:00 a.m. and didn’t end until after midnight. We toured three farms ranging in size from 10,000 to 65,000 acres, two retail facilities, and an ethanol production plant. We also met with a soybean growers’ association.

The Brazilian government has encouraged agricultural growth in Mato Grosso since the mid 1970s. Soybeans are the region’s biggest crop, but corn, rice, cotton and sugarcane are also major players. Although this region is blessed with almost 100 in. of rainfall annually with the ability to plant two crops a year, one of the challenges the growers face is red clay soil with low fertility and low ph.

Mato Grosso is 10% of Brazil’s land mass but has only 1% of Brazil’s population. State officials expect 10% economic growth rate per year, which is heavily dependent on the agricultural sector. It has a 10-billion-dollar gross domestic product annually; four billion of that total comes from agriculture.

While the United States, Brazil, Argentina and Paraguay produce 95% of the world’s soybeans, Brazil is one of the most influential, producing 22% of the world’s soybeans, and Mato Grosso contributes 30% to Brazil’s total production. The number of soybean acres in Mato Grosso has increased from 7,350,000 acres in 2001 to 14,600,000 acres in 2005. Average soybean yields have gone up 23% in 16 years to approximately 50 bu./acre.

Day 1: Campo Verde
Our Brazilian journey began in Cuiaba, population 700,000, which is the capital of Mato Grosso. After leaving Cuiaba, our group drove northeast towards Campo Verde. During our drive, we witnessed first hand how poor the transportation network in Mato Grosso is. The road conditions ranged from good tar roads, which were rare, to poor dirt roads. There are times these roads are impassable during the rainy season. Even farms of 60,000 to 70,000 acres are only accessible by these dirt roads. We came across a Pioneer field day and decided to stop and tour the plot with about 100 Brazilian farmers. It was interesting to see the Pioneer logo on a tent 6,000 miles from home.

Campo Verde is a farm 25 miles from Cuiaba. The owners of Campo Verde are three brothers who are cousins of Blairo Maggi, Mato Grosso’s governor. When we arrived, we were greeted by the farm manager who gave us an overview of the operation. The farm includes more than 300,000 acres spread across four regions in Mato Grosso. The brothers own 150,000 acres and rent the rest. Their equipment fleet includes 47 combines and 42 planters. Twenty-seven of the combines are Case IH 2388s with 30-ft. bean heads, 20 John Deere 1550s, and a combine made in Brazil, with 18-ft. bean heads. They also have more than 3,000,000 bu. of grain storage facilities.

Although the farm we visited was “only” 65,000 crop acres, it employed more than 600 workers with salaries ranging from $300 to $550 a month. Interestingly, the owners established a town just for the workers; they even have their own church.

There is a government-mandated reserve program, which in this region requires the brothers to set aside 20 to 35% of the land they farm. Although this may seem high, in the Amazon region to the north producers must set aside 80% reserve. For these reasons, expansion is slow in northern Mato Grosso.

When we visited in late January, soybeans and cotton were growing. The farm’s main crops are soybeans, cotton and corn. They sometimes use millet as a cover crop, then plant mostly no-till. The gently rolling fields have red clay soil with low fertility and low ph (1.8 to 2.5). Because the fields are susceptible to erosion, most have small terraces. October through February is the summer growing season, and soybeans are the main summer crop. Sixty percent of the soybeans are Roundup Ready. The farm grows and processes seed for Monsanto. Last year it processed 1,175,000 bu.

While we were there, a crop sprayer was taking off from a grass runway next to the main complex. Although soybean yields have improved since the 1980s, from 35 bu. to more than 50 bu./acre, soybean rust is a problem. It is controllable through fungicide applications, but rust can add up to $50/acre to the cost of production. Soybeans are sprayed three to five times a season, and they are not planted May to September to help break the soybean rust cycle.

After a Brazilian barbeque lunch, we toured the cotton-processing facilities. The farm exports 40% of its cotton. Cotton is a major second crop, but they also grow some corn depending on economic conditions. Corn yields average around 80 bu./acre. They also raise fish in a series of ponds covering 30 acres.

My visit to Campo Verde was a firsthand experience of the scope of farming in Brazil. The competition is big.

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Day 2: Jose Renato’s Farm
Our next stop was a family farm just outside Tangara da Serra. The owner is Jose Renato, a third-generation farmer. Renato’s grandfather bought it in 1972. Once, it was all forest and ran as a cattle ranch of 21,000 acres. Renato earned a master’s degree in California in calculus, business, and economics, and moved back to the farm in 1990. He started raising soybeans because of poor cattle prices. He has 10,000 acres of pasture, 1,500 acres of sugarcane, 4,000 acres of soybeans, and 5,500 acres of refuge.

Sugarcane is the most profitable crop of Renato’s farm, but it also has high input costs. There is a $700 seeding cost per acre, and the labor cost is high because the crop needs to be planted and harvested by hand. There are 18 months between planting and harvest. Sugarcane can be harvested annually up to nine years before it has to be replanted. The sugarcane processing plants run 24 hours a day for 185 days a year. The producer must supply cane every day.

The farm employs 90 migrant workers. It is very hard and dangerous work because of the poisonous snakes. Hand cutting requires burning the leaves off first. After the cane is burned, it must be cut within 48 hours. Renato is looking at purchasing a $420,000 sugarcane harvester that would replace 80 hand cutters. He is reluctant to buy it, because he is concerned about the workers who would lose their jobs.

We saw several cowboys rounding up a steer that had escaped. Renato’s beef operation produces 8,500 head of feeder-to-finish cattle. Thirty percent are fed organically. He has a 2,800 head feedlot that he uses during the winter, which is the dry season, May through September, because the grass is poor. He feeds two groups of 1,400 head for 75 days.

When the cattle weigh between 850 to 1,200 lbs., they are fed a ration that consists of sugarcane pulp, grain sorghum, cotton seed, and soybean meal. Corn is rarely used for feed, because it is more costly. Renato fertilizes his pastures to increase grass production. It takes 36 months for beef cattle to reach 1,250 lbs. on pasture. Cattle prices during our visit were $0.70/lb. hanging weight.

Although Renato’s farm was “only” 21,000 acres, his operation was much more diversified than Campo Verde. Renato’s farm seemed small with more manual labor and older equipment.

Day 3: Serra Agricola Company
On our third day, we stayed in Tangara da Serra and visited two retail ag stores owned by the Serra Agricola Company. One was a cattle feed and veterinary store. Serra Agricola has eight stores across three states and employs 350 people with gross sales of $86,000,000. It handles many of the same base chemicals that we use in the United States. With the help of Brian and Darren Hefty, we compared prices of the chemicals with U.S. prices. Although some South American prices were higher, we found that Roundup cost about 40% less than in the United States.

Each individual can only borrow $100,000 from the banks, so approximately 90% of the store’s sales are on credit, with the suppliers charging interest rates between 14 and 20%. This compares to the bank’s rate of approximately 8.75%. The store’s average farm customer has approximately $100,000 on loan, and its average rancher customer has $15,000 on loan. Because of the company’s exposure, it must employ a full-time lawyer to handle loan documentation and delinquent accounts.

While at Serra Agricola, we met with Ricardo Arioli Silva whose responsibilities in the operation include agronomy and marketing. He also farms west of Tangara da Serra and was leading another group of farmers from the United States, and we crossed paths with this group several times.

Silva told us that the Brazilian government has supplied some low-interest loans to farmers. However, no government safety net is provided to Brazilian farmers such as the U.S.’s LDP or other loan programs. Silva thinks that they need 50 bu./acre of soybeans at $8/bu. to stay in business. He stated that fertilizer costs for soybeans can be more than $100/acre, along with chemical costs up to $70/acre. Silva has turned a profit on his farm by planting a second crop of corn, which can yield about 80 bu./acre.

The exchange rate of the Brazilian real to the U.S. dollar has often affected the farm’s profitability, Silva said. Brazil’s soybeans are priced in U.S. dollars and then converted to reals. In the past few years, the exchange rate dropped from 3.8 reals to the dollar to less than 2.5 at the time of our visit, with no way to lock in the exchange rate. Another factor on soybean prices is the 12% Brazilian tax on soybean meal but not raw soybeans.

Silva also said that in the state of Mato Grosso there is room to develop three times the crop acres and still have a 50% refuge.

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Day 4: Juarez Maeda’s Farm
We traveled west to Juarez Maeda’s farm. The first half of the three-hour trip was on a 75-mile road surrounded by mostly woods and pastureland. Next, we proceeded up a 1,000-ft. bluff on a steep dirt road. About halfway to the top of the summit, the road had been washed out and had just been freshly repaired by a bulldozer. Although we were told that there is a 20 to 35% reserve in this area, once we arrived on top of the gently rolling plateau, it appeared to be mainly cropland for as far as the eye could see.

Along the way, somebody from our group asked the local agronomist who was traveling with us about the size of the cornfield we were passing. It was 16,500 acres, more than 25.5 square miles, planted that December. The owner expected a yield of 110 bu./acre at $2/bu.

When we arrived at our next stop, the owner Juarez Maeda was there to greet us. He was very friendly and eager to talk to us and show us his operation. His farm had been homesteaded by his grandfather in the early 1970s. At that time, the Brazilian government gave settlers land if they put a fence around it. His grandfather fenced more than 10,000 acres of mainly grass and brush land. Today the farm is 7,500 acres of soybeans, corn and rice with 300 acres left to clear. On our visit in January of 2007, cash soybeans were $5.69 and corn was $2.75.

Maeda was combining dryland rice and planting no-till corn in the same field the day we were there. The rice was the first crop on this land, which was broken up last year. This farm has a modern 300,000-bu. storage facility with two large grain pits, two legs and a grain dryer. The fuel for the dryer was wood, as with most dryers in Brazil. Because of the climate, many of the soybeans, along with the other crops, are dried.

On the way back to our hotel, we stopped to watch several combines harvest soybeans. We observed that the soybeans were sprayed with a defoliant to speed harvest to enable planting a second crop.

Day 5: Barralcaol Ethanol plant
The next day we toured the Barralcaol Ethanol plant, a privately owned company located 60 miles west of Cuiaba. The plant was started in 1980 with the first harvest in 1983. It processes 3,000,000 tons of sugarcane a year. It contracts with growers on 85,000 acres within a 10-mile radius. The plant produces alcohol and sugar and burns the sugarcane pulp to generate electricity. The plant uses about 35% of the electricity it produces and sells the excess. The plant uses the liquid by-product as a fertilizer to use on about 25% of the plant’s sugarcane acres. It also sells more than $1,000,000 of carbon credits under the Kyoto agreement.

The plant uses some of the electricity and alcohol to process 13,000,000 gal. of raw soybean oil into biodiesel in a new facility located across the road, which operates year round. The plant employs 3,600 workers, plus a seasonal workforce because all of the cane is hand cut. The company provides some of the employees with housing and even has a hospital on site. With the sugarcane processing running from March through November, 24 hours a day, it makes harvesting yields up to 50 tons an acre a huge undertaking.

We then returned to Cuiaba and were invited to an investor meeting for a new alcohol plant 120 miles northeast of the city. It was proposed to be a 2,000,000-ton, 55,000-acre project.

Day 6: Famato and Aprosoja
On our last day in Cuiaba, our group stopped at a modern office complex that housed Famato and Aprosoja. Famato is comparable to the U.S. Extension service, focusing on agricultural production, the environment, workers’ rights and other social issues.

Aprosoja shares office space with Famato and was the reason for our stop there. Although Aprosoja is similar to the Minnesota Soybean Growers Association, in addition to representing 5,000 Matto Grosso soybean growers, it also represents 500 corn growers and 10,000 cattle ranchers. It was started in 2005 and is the only such group in Brazil. There is no national representation for the soybean growers, so the Brazilian government often calls on this group for insight on policy issues in this area. Some of the group’s goals are lobbying for favorable legislation, improving the roads and other infrastructures, and accessing world markets.

This group, as well as almost every producer we talked to, is concerned about environmental issues. They claimed that the world media unfairly portrays the soybean producer as the major factor in the deforestation in the Amazon region. In the Amazon region, only 20% of the land can be cleared and the remaining 80% must remain untouched. Even in the Cerrado or brush/grassland area of Mato Grosso, farmers can only clear 65%, leaving a 35% refuge.

Only 2% of the “legal Amazon” has agricultural activity. Representatives of Famato stated that they could increase soybean acres by more than two-and-a-half times without cutting down one tree in the Amazon.

Across our tours, it became clear that transportation is a major challenge to farmers in Brazil. The lack of roads and other infrastructure is severely limiting agricultural expansion. Paved roads are banned in the Indigenous Reserves, which account for more than 17% of Mato Grosso’s total area. Almost 100% of its crops and inputs are transported by truck over a very poor road system using expensive diesel fuels.

Because the deep-water ports are 800 to 1,200 miles away, transportation costs to export grain ranged between $1 to $2/bu. (at the time of our visit).

The closest barge port in Matto Grosso is 600 miles to the northeast, and only one railroad comes to the south edge of the state. Furthermore, although Rondonopolis has the biggest soybean-crushing plant in the world, the existing railroad is still 100 miles away. This explains why almost all goods are transported by trucks. Brazil runs its fleet of vehicles with about 55% diesel fuel, 30% gasoline, 13% alcohol, and 2% natural gas. In comparison, the United States has 31 times as many paved roads and 7.5 times more railroads.

After being exhausted by a week touring central Brazil, I needed another week in Rio to recuperate. But that’s another story.

Midwest Tours and Travel
Our trip was organized through Midwest Tours and Travel of Morris, MN (320/589-3964), a company that is one of the most recognized names in agricultural tours, especially tours to Brazil.

Its founder Dan Mahoney (who farms in the Morris area) said that after having a Brazilian exchange student work on his farm for two years, the government of Brazil invited him to address a conference on Agricultural Irrigation in May 1996. Believing that American businesses needed more information about South America, especially the ag sector, he formed his company in 1997. Since that time, his company has organized 29 tours from the United States and seven from Brazil.

Midwest Tours and Travel has hosted tours with such groups as Hefty Seed, Ag Day TV, Linder Farm Network, Global Ag, Land O’Lakes Executives, Northland Commodities, Top John Deere Dealers of Kansas, and Bower Trading. Jim Bower, a noted commodity and television analyst, traveled with our group to research the size of the Brazilian soybean crop. This was his sixth trip to Brazil.

Mahoney, who is fluent in Portuguese, has numerous contacts throughout Brazil and has been instrumental in setting up projects, including Amerazil LLC, a joint U.S. and Brazilian investment group. He currently is working on several projects in Brazil.

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