Past expansions in acreage in Brazil are just the tip of the iceberg

Implications: The expansion in planted area in Brazil over the past ten years is impressive, but the potential exists to add 300-400 million more "new" acres in that country.  The expansion has been held back by low domestic prices for soy, but that may be coming to an end.  Prices for soy in Tocantins are only five Reals per sac below what we sold for in 2003, and there is now, the opportunity to turn a profit again in this sector.  If conditions, ie: the exchange rate and soy prices on the CBOT, hold, we should expect a significant expansion in soy area in Brazil for the crop to be planted in the third quarter of 2008.

Analysis: An expansion of over 83% is alone, quite impressive.  However, this doesn't even take into account the fact that planted area actually fell during the 2006-2007 crop.  During the boom years of the early 2000's, expansions in acreage of 12-15% per year were not uncommon.

A climbing Brazilian Real vs. a weakening US Dollar, in combination with a fall in the world price for soybeans, the dominant crop in Brazil, for the most part, shut down the land development operations over most of Brazil. 

By August of 2006, prices for soybeans in Brazil had fallen to less than one-half of what they were selling for in 2003, and profits were hard to find, especially on "new farms", where costs are higher and production is lower during the first five years.  In fact, for farms across all of Brazil, production costs, especially for fertilizer and for fuel, all climbed higher.

Operating losses caused debt to mount on many farms, and that problem continues to affect the sector today, as it remains difficult for some producers to get financing, which has also held back increases in production.

Times are changing, however, as the skyrocketing prices for soy on the CBOT have pushed prices for soy in Brazil back up to respectable levels, even with a continuing strong Real relative to the Dollar.  Current prices in our region of Tocantins are approaching 40 Reals per sac, only five Reals below what we were able to sell soy for in 2003. 

If these prices, and the exchange rate holds near present levels, we will see more growth in Brazilian planted area next crop.

USDA and Brazil's Embrapa believe there may be an additional 300-400 million acres of farmland that could be "created" from cerrado (basically range or brush-lands) and pasture in Brazil alone, and if the financial incentive is there, you will get farm development operations turned back on in Brazil. 

We have only seen the beginning of the expansion in agricultural lands for row-crop production in Brazil.