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Mark Twain is famously quoted for saying, 'Buy land. They aren't making it anymore.'

But when it comes to cropland acres, it seems that they are. Brazil in 2015 had about 110 million cropland acres, but that number could easily more than triple to 350 million acres if the Cerrado (savanna) were cropped. In comparison, U.S. cropland amounts to roughly 226 million acres.

Arable land comprises 9.1 percent of Brazil's total land mass, up from 6.9 percent in 1996. Argentina, in that same period, has increased its arable land from 9.9 to 14.5 percent of total land.

For total arable land, World Bank data shows that from 1996 to 2013 Argentina increased from 27.2 million hectares (ha) to 39.7 million ha and Brazil grew from 57.9 million ha. to 76 million ha., while the US declined from 179 million ha. to 151.8 million ha.

During the same period, the World Bank reports that Brazil increased its land under cereal production from 17.5 million hectares (ha) to 20.9 million hectares, an increase of 8.4 million acres.

Crop land has appreciated geometrically; for example, it is reported that virgin or pasture land purchased in 1998 in Mato Grasso at $160/acre now goes for $6,900/acre. Argentina decreased its acres under cereal production for the same period from 11.1 million ha to 10.96 million ha. Contrarily, in the U.S. land under cereal production for the same period dropped from 64.9 million ha. to 59.5 million ha., or 13.3 million acres.

Soybean production

Like in the U.S., Japanese immigrants introduced soybeans to Brazil at the turn of the twentieth century. From 1990 to 2013, Brazil increased its soybean acreage nearly threefold to 28.9 million hectares (71.4 million acres) and its soybean production about 5.5 times to 88 million metric tons (3.2 billion bushels). Average yield per acre in 2013/2014 year amounted to 45.3 bushels per acre, which increased markedly from an average of 24.3 bushels per acre in 1990. As of 2014, Brazil was exporting roughly half (about 45 million MT) of its production of soybeans.

Soybean planting in Brazil has expanded from its three southern-most states of Sao Paulo, Parana Santa Catarina, and Rio Grande do Sul northward into the Cerrado. These savannahs are estimated to contain about five million acres, about 20 percent of total continental U.S. land mass. This is where the expansion in soybean production is and will continue to occur. Pasture and lightly rolling plains are first converted to planting upland rice, because of their high acidity, before planting soybeans.

Including Argentine soybean production over a 20-year period from 1994 to 2014, combined annual production has nearly quadrupled to 140 million MT (5.14 billion bu). Argentina during this period increased their production 4.4 times, with the 2015 to 2016 soybean crop projected to be a record 62 MM MT (2.3 BB bu.).

With Marci becoming president of Argentina in December 2015 and eliminating the export tax on corn, wheat, and beef, and reducing export tax on soybeans from 35 percent down to 30 percent, Argentine farmers and grain traders will look to export more soybeans, not just soybean oil and meal. The Argentine tax agency estimates that Argentine farmers are holding $11.4 billion in corn, soybeans, and wheat in their bins for export.

Soybean exports

According to USDA reports, Brazil has exported more soybeans than the United States since 2012. Together, Argentina and Brazil export significantly more soybeans than the U.S. and are expected to rapidly expand their market share in the coming years. U.S. soybean exports have remained virtually flat or declined slightly over the last five years.

Argentina is expected to continue to be the world's largest exporter of soybean oil and meal with its crushing industry located proximate to its ports and farmers. The U.S. pales to only a fifth of Argentine oil and meal exports.

Maize (corn) production

While Brazil is noted for its soybean production, it is not a major corn producer. Between 2001 and 2013, corn planting grew from roughly 12 million hectares (29.7 million ac.) to 15.5 million hectares (38.3 million ac.). Production also doubled to 76 million MT (3 billion bu.), with yields increasing on average 60 percent, but peaking at 78 bu/ac.

Presently, yields in the south now exceed 120 bu/ac. Midwestern corn yields are not seen in Brazil, in part because corn is often planted as a second crop, low fertilizer rates are used, and nighttime temperatures are higher.

Most of Brazil's corn is used for livestock feed, not export, with, at most, 14 percent of its crop being exported. Brazil is gradually increasing its corn acreage, using shorter maturities, especially for double-cropping.

Between 2007 and 2011, the U.S. dominated 54 percent of the global corn export market, but Argentina and Brazil had 16 and 9.4 percent, ranking second and third. Because of the severe drought U.S. farmers faced in 2012, for a single year Brazil, according to the USDA's chief economist, exported more corn than the United States, demonstrating that it has the capacity to capture markets and reallocate its supply of corn.

Over the past 10 years, U.S. export of corn has remained flat, excluding the crop of drought year 2012, while Brazil particularly continues to expand its corn exports.

With the elimination of the Argentine export tax on corn, Argentina can be expected to increase its exports dramatically in 2016 and to be a major competitor to the U.S. export market. It seems these two countries can easily surpass U.S. corn exports in 2016 and thereafter.

Projected drops of 25.3 and 12.6 percent, respectively, for U.S. exports of corn and soybeans in 2015 — due to the strong U.S. dollar — also do not bode well for US competitiveness.

Challenges in expanding grain trade

Although Argentina and Brazil are becoming formidable competitors to U.S. farmers in international markets and have surpassed U.S. exports recently, they face serious obstacles in dominating these markets.

Argentina, under Marci, has eliminated or reduced its export tax on agricultural commodities. The administration has also indicated that it intends to float the peso, now pegged at P9.77 to the US dollar while the black market has it with 52 percent less value (P14.86) than the U.S. dollar. If and when this occurs, it will make their exports even cheaper vis-à-vis the US. Pent-up export pressure will further exacerbate U.S. competitiveness.

Brazil, while possessing nearly unfathomable development potential for agricultural and grain commodities, is meeting greater barriers, some of which they are overcoming. Because development of the Cerrado requires large initial investment for clearing land of brush, initial investment, excluding land acquisition, is comparatively large.

Further, commodities must be hauled more than a 1,000 km to ports in the south. Those ports, however, have the ability to load ocean grain carriers that are 50 percent bigger than U.S. ports can handle in order to take advantage of the expanded facilities of the Panama Canal.

Unfortunately, ships tire of waiting as much as 60 days to load in Santos and Paranagua in the south and frequently give up and contract out of the United States.

Soybeans and other commodities hauled over unpaved roads lose beans on their way to the ocean or to the Amazon terminals. Bunge completed a terminal on the Amazon (at Santarem) in 2013 to match a decade-old one of Cargill and BR-163, though unpaved, is now capable of moving soybeans to Amazon terminals from Mato Grosso, significantly reducing freight cost.

Other grain traders such as ADM are building and expanding more terminals. Bunge now operates a terminal on the Tapajos River, which cuts the trucking distance, and utilizes barges to transport the grain to the Amazon; Cargill is awaiting approval to put a terminal on the same river.

Paved and expanded road systems out of the Cerrado and the expansion of ocean port facilities are the two main hurdles for improving Brazil's competitiveness, but with ADM, Bunge, and Cargill investing billions of dollars, infrastructure obstacles will be overcome.

Global demand for soybeans and corn

Global demand for soybeans has grown more than 25 percent since 2011 to reach 126.8 million MT. Despite the weakening Chinese economy that has been the driver of the world's expansion and soybean exports for more than a decade, we expect this trend to continue, but not at the pace previously seen.

China and, more so, India have tremendous demand for vegetable oil that their domestic production cannot meet. In 2015, for example, China and India imported 10 million MT and 14.5 million MT, respectively. The vast majority of their vegetable oil is exported as palm oil by Indonesia and Malaysia, with even Argentine soybean oil not even coming close to palm oil imports.

With rising demand for vegetable protein in Asian diets and in soybeans for livestock feed, the rising demand for soybeans should continue, particularly when developing countries seek higher nutrition standards and shift to more meat consumption.

For those same reasons, world demand for corn is expected to continue to rise, particularly if a growth in imports continues to occur in the developing countries, the Middle East and North Africa. Unlike soybeans, Chinese corn imports are not as significant because China has been a major corn producer and, until three years ago, exported corn.

Outlook

In the United States, we have essentially used export markets as a release valve to compensate for our over-production of corn and soybeans. With the U.S. dollar treated as a reserve currency and a safe haven, we have continued to lose market share to other countries, particularly Argentina and Brazil.

As our competitiveness in major export markets declines, and while input prices lag the declining demand for our product, U.S. grain farmers face difficult choices. This year domestic stocks for both corn and soybeans are very high. We are encountering a long-term structural market recession, if not depression in grain farming. Over-production is not outstripping demand, hence the need for corn ethanol in the US.

Brazil's economy, as in 2015, is predicted to shrink 2.5 to 3 percent in 2016. Investment in farm and agriculture spending is forecasted to be cut a third (Economist, Jan. 2, 2016). Brazil may be facing a decade of political and economic turmoil. However, the projected drop in its currency vis-à-vis its competitors bodes well for it to export more commodities, inclusive of soybeans, corn, cotton, etc., and capture greater share of world markets.

U.S. grain farmers would be advised to restructure their farming practices, at least for the mid-term, because we will find it difficult to make a living on grain farming with the crops we have become accustomed to grow. Further, for the U.S. corn belt, inclusive of soybean production in our duo-culture production, we can expect farm land values to continue to depreciate for the next several years at least.

Les Danielson and W. Michael Slattery are member of the Wisconsin Farmers Union Grain Committee. Danielson farms in Chippewa County. Slattery, a crop farmer from Manitowoc County, has a background in investment management.

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