Brazilian farms cheaper despite price increases

 

 

Brazilian farmland is significantly undervalued despite rises of up to 7.5% over the last year, analysts at asset manager Brookfield said, saying the hangover of the credit crunch has provided opportunities for cut price deals.

 

Brazilian farmers' reliance on borrowing for 25-50% of production costs left them particularly exposed to tighter credit conditions, Brookfield said, highlighting the cancellation of many sugar projects.

 

"The decline in credit came at a particularly inopportune time, when producers were pursuing greenfield and brownfield expansion projects," a report from Brookfield's agriculture division said.

 

The sector's woes had provided the opportunity for buyers to acquire assets at attractive entry values. Well-capitalised producers are benefiting from the tight credit conditions given their ability to acquire assets at a discount, the department said.

 

The report comes days after analysts said the average price of Brazilian land was, at BRL4,500 per hectare, 3.9% higher in the first two months of the year than in the same period in 2009.

 

The price of the most expensive land, in the south of the country, including Parana and Santa Catarina states, rose by 7.5% to BRL9,486 per hectare.

 

Nonetheless, Brookfield said that farm prices are "currently very attractive" compared with those in other South American countries and in the US, where values are twice as high.

 

The group's analysis adjusted for factors such as productivity, on which Brazil rates highly, and transport, where it scores less well, and can make a significant difference to farm profitability. It is estimated in Brazil that paving a road can cut transport costs by 30-40%, and a replacement rail service can halve costs.

 

Brookfield also said that Brazil had more soy land available to investors than the US, where many states restrict ownership by corporations and institutional investors. However, the report comes as Brazil is considering measures to curb foreign ownership of farmland, which has attracted interest, in particular, from China.

 

Brazil's Congress is considering legislation which would limit to 3,800 hectares the area they could own in the Amazonia Legal region, which encompasses the important Mato Grosso state.