August 7, 2007

 

Brazil land prices jump as ethanol fever burns

 

 

Land prices across several key Brazilian states jumped an average of 18 to 23 percent in the 12 months to May and June, as ethanol fever burned bright in this period, according to a study conducted by local research group Instituto FNP.

 

"Sugarcane was the main factor in pushing up land prices over the past year, though coffee also helped prices rise in areas of Espirito Santo state," Jacqueline Bierhals, a land and commodities analyst at Instituto FNP, told Dow Jones Newswires.

 

Brazil, the world's leading ethanol producer via sugarcane, has lured hordes of investors to its cane sector in the past 18 months, as interest in biofuels has boomed in the wake of soaring world oil prices and growing climate change concerns, among other factors.

 

In Sao Paulo, which accounts for some 60 percent of Brazil's total sugar and ethanol output, land prices rose an average of 20 percent in the year to May and June, Bierhals said.

 

In addition, prices for land also leaped in new sugarcane frontiers outside of Sao Paulo state, with an average 18 percent hike in Minas Gerais land prices, a 22.5 percent increase in Mato Grosso do Sul, and a 22 percent rise in Goias state, she added.

 

Meanwhile, prices for land vaulted an average of 39 percent in the northeast sugarcane-producing state of Alagoas.

 

Nevertheless, land costs continue to vary widely from municipality to municipality, even within certain regions of different states, according to the FNP study.

 

In the traditional cane-producing region of Riberao Preto in the north of Sao Paulo, for example, prices this year hit 20,000 reals to 21,000 reals (US$10,200 to US$10,700) per hectare, doubling from BRL9,000 to BRL10,000 per hectare in 2002.

 

Despite such highs, prices stayed roughly level to those registered in the same period a year ago.

 

However, the cost of cane-rich land in another key Sao Paulo municipality, Araraquara, barely rose from BRL12,149 in mid-2004 to BRL12,690 in mid-2006. In the past year, prices rocketed over 60% to BRL20,387.

 

Land in western Sao Paulo state - where at least 35 confirmed new sugar mills are set to be built between 2006 and 2013 - generally is cheaper than the north of the state, with prices quoted at a low BRL4,000-BRL7,000 per hectare within the municipality of Presidente Prudente.

 

However, land prices in new, highly-sought-after cane frontiers like Minas Gerais, Goias and Mato Grosso do Sul can vary from BRL3,000 to upwards of BRL10,000 per hectare.

 

"Certain areas in particular, like Chapadao do Ceu in the south of Goias state, or the Minas Triangle area of Minas Gerais, have seen a fair jump in prices in the past year, due to sugarcane," said Bierhals.

 

Despite the price hike across the sector, land prices for the sector are already stabilizing due to lower global sugar and ethanol prices this year, she added.

 

"I expect prices will remain level in coming months, given these lower prices, though they probably won't fall due to heightened investor interest in the sector," said Bierhals.

   

Another trend that Instituto FNP forecasts is higher land prices in the country's centre-west in the coming year, due to the recovery in global soy and grain prices, said Bierhals.

 

In the past two harvests, lower global soy and grain prices led to depressed real estate prices from Mato Grosso, Mato Grosso do Sul, Goias and Parana states.

 

However, as prices began to recover in the second half of 2006, land prices have also begun to climb back up.

 

In a key soy-producing region like the municipality of Sorriso in Mato Grosso, for example, land prices hit a high of BRL11,000 per hectare in the first half of 2004 during the country's soy boom, before halving to BRL5,500 per hectare last year, said Bierhals.

 

"Today prices are at BRL6,100 per hectare - and the trend is for prices to keep recovering," she said.

 

The average national price per hectare of Brazilian land hit BRL3,555 by June, up 11 percent from the year-ago period, discounting inflation, according to Instituto FNP data.

 

Prices for Brazilian land have now risen by about 7.9 percent in the first half of the year, outpacing the average 7.3 percent hike in land prices registered during the country's soy boom of 2004, said the study.

 

Brazil is the world's No. 2 ethanol producer after the US. It's also the world's top sugar producer and exporter.