July 12, 2011

 

Brazil's farmland prices increase on high soy

High soy prices have accelerated growth in Brazilian farmland prices despite the uncertainty caused by curbs on foreign ownership.

 

Brazilian cotton-to-corn farming group SLC Agricola said that independent consultants had, in an annual survey, valued its land portfolio at BRL1.76 billion (US$1.11 billion), up BRL282.4 million (US$178.6 million), or 19.2%, on-year.

 

While the rise reflected in part farm purchases, which have taken SLC Agricola's portfolio to 223,000 hectares, the land appreciated at an underlying rate of 15% to BRL7,879 (US$4,984) per hectare, believed to be the impact of a strong soy market.

 

According to a spokesperson for SLC Agricola, higher soy prices have an immediate impact on land values in that they are priced in terms of sacks of soy per hectare.

 

This quirk, a holdover from a period of high inflation in Brazil, means that the price of soy, of which the country is the world's second-ranked producer, has an unusually large impact on the farmland market.

 

SLC Agricola blamed falling soy prices for the 5% drop in the value of its portfolio in the year to April 2010, saying the value of the properties in terms of soy sacks per hectare had increased.

 

Soy prices on the Chicago futures market are one-third higher than a year ago, although in Brazil appreciation has been curtailed somewhat by the strong real, which on Monday (Jul 11) stood near its highest in 12 years.

 

The strengthening in Brazilian land values defies a drive by Brazil to control foreign ownership of farmland, following a spate of purchases, notably by Chinese buyers.

 

The initiative, which has sidelined an estimated US$15-25 billion in investments, has an interim measure imposed a limit of 5,000 hectares on purchases by foreigners, who are also barred from buying more than 24% of a single municipality.

 

Foreigners of one nationality are not allowed to own more than 10% of a municipality.

 

However, the rules are expected to change with the creation of a National Land Council which may have the power to vet any purchase over five hectares, although details are still being determined.