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Corn+Soybean Digest

We Can Compete

While some believe Brazil is a butt-kicking, soybean-producing powerhouse, Iowan Ron Heck disagrees — completely.

Heck, who farms 3,600 acres of rich Perry, IA, soils says: “They're (Brazil) not going to blow us out of the water.”

Heck has traveled to Brazil and Argentina four times in the past two years. In large part, he's been on soybean association fact-finding missions to help assess the risks of competition from South America.

“Brazil acres are not expansion acres, they're replacement acres,” Heck claims. “They're replacing acres that are coming out of production here in the U.S. and in other countries.

“We still have a competitive advantage because we have better soils and better resources,” he says. “We'll also get first advantage of any new technology because we pay for it; they don't.”

In a sea of soybeans that roll across Brazil's Mato Grosso region, the top average yield is 45 bu/acre. Iowa's top average yield is 52 bu/acre.

“In essence, they're farming CRP ground that hasn't been farmed before, so they get good yields. But yields decline rapidly over a short period of time,” Heck explains. “Their soil is leaching from too much rain, they've lost organic matter and they have fewer nutrients than we have.”

Still, Heck believes Brazil does have opportunities to increase yields. But he holds firm that “they'll never catch us. For example, if they develop 70-bu beans, we'll have 90-bu beans. Our soils are just more productive.”

Not surprisingly, the big plus for U.S. farmers continues to be infrastructure, says economist C. Phillip Baumel from Iowa State University. “The transportation system in the U.S. is more developed and is much more efficient than in Brazil.”

Baumel's numbers tell it all. The cost for shipping soybeans from the Mato Grosso region to northern Europe runs about $1.50/bu, he reports. “To ship from Jefferson, IA, to northern Europe runs about 98¢/bu. That's a 53¢/bu advantage for American farmers to get soybeans out of their heartland.

“Also, long trucking distances and high trucking costs to the Madeira River essentially guarantee that Brazil's transport costs will remain above those from Iowa to New Orleans.”

Another plus for U.S. farmers: Brazil's government lacks funds to build a better transportation system to help its farmers.

However, U.S. investors, like GE Capital and New York banks, have stepped up to the plate with heavy investments in Brazil's railways. So far, though, Baumel claims those investments haven't paid off.

“If and when railroads are extended into the new production areas, rail rates will likely be priced just below truck rates,” he says.

The navigable rivers are located in the periphery of the new soybean production areas, Baumel explains. This means long trucking distances to barge loading elevators.

Heck says that biotech threatens foreign investors, too. “If we can raise our yields enough through biotech to supply enough beans here, then they'll (foreign investors) lose millions from investments in the high-cost Cerrado production area,” he says.

Besides the financial side of competition, Heck claims that Brazilian farmers are also faced with increasing environmental pressures. “Depleting soil nutrients and soil erosion are increasingly serious problems,” Heck says.

Because the U.S. doesn't have acres for expansion, Heck and Baumel agree that the U.S. will continue to lose market share of the world soybean trade. But, they strongly believe that the U.S. has formidable competitive strengths — worldwide.

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