Minding Ag's Business

What's New On Brazil's Old Frontier

Fifteen years ago, crop scouts for USDA's Foreign Agricultural Service liked to say you could see the end of the soybean frontier and the beginning of the Amazon Rain Forest from the northern outskirts of Sinop, Mato Grosso. In the years since, the district of Sorriso (an hour's drive south of Sinop on the famous Soybean Highway BR-163) matured into Brazil's top soybean production region.

In a three-part DTN series launched today, "Soy Frontier at Middle Age," DTN South American Correspondent Alastair Stewart and I recap how this frontier region has transformed itself from a logging wilderness to a soybean powerhouse just since the turn of the century. Mato Grosso's biggest handicap is that it is landlocked in the geographical center of South America. So Alastair also looks ahead at how this remote region might fare as value-added agriculture and world-class export terminals eventually boost cash prices for local producers.

Fifteen years ago residents could still smell the smoke during land clearing season. Today you have to access satellites to help imagine the scale of the region's transformation. Back in 1989/90, Landsat images show both towns largely surrounded by Mato Grosso's forests and land converted to pastures (online readers see photos). Farmers in nine counties near Sorriso produced soybeans on only 588,000 acres, according to USDA's Foreign Agricultural Service. By 2012/13, however, booming global demand for oilseeds lured an amazing 4.4 million acres into soybean production in that same nine country region.

Today Mato Grosso's ag community has renewed respect for preserving habitats and its role as an environmental steward. Here are some of the most significant shifts I noticed after four trips to Mato Grosso over 15 years:

-- Forest protection got serious. A forestry code passed in 2012 clarifies land usage and encourages conversion of pastures rather than forest. In the Amazon biome, 80% of the land must be placed in a legal reserve and a maximum of 20% can go into ag production. Cerrado landowners must conserve 35% of their holdings and other regions 20%.

EMBRAPA, the agricultural research service of Brazil, estimates Mato Grosso alone may need to reforest as much as 2.5 million acres of land to come into compliance with the new guidelines.

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Adding teeth to enforcement is that Brazil's central bank -- equivalent to the Federal Reserve -- forbids banks to extend credit to anyone who violates the nation's forest reserve requirements. Starting in 2006, Brazilian and international grain traders also promised not to buy crops from illegally cleared land.

-- Double-cropping corn or cotton after soybeans now generates more revenue per acre and relieves pressure to clear more land. About 38% of Mato Grosso's soy acreage is double-cropped with corn, behind Mato Grosso do Sul's 66%. Corn production has doubled within 10 years as a result.

-- Bigger farms and agribusiness dominate. Of the 188,560 farms in Mato Grosso, 25% now run in the 15,000- to 50,000-acre category. "A million dollar investment meant something in 2000," former Minnesota farmer Kory Melby told me. Now $30 million deals aren't out of the question. Some of the country's largest farms sell shares on the stock exchange and operate more than a million acres scattered across multiple states.

-- Land values ballooned. Prices vary widely depending on access to paved roads, but Rabobank estimates prices in north central Mato Grosso have quadrupled in the last 10 years. Crop land that commands $6,900/acre today could have been purchased as raw pasture for $160/acre in 1998.

-- Transportation logistics dog the country's competitiveness. Sorriso is as remote from a seaport as Minot, N.D., yet there is no railroad service and most of the current 1,200-mi. trip to export terminals in the south must be by truck. The World Economic Forum rates Brazil's quality of rail at 100 out of 150 countries, roads 123 and ports 135. Major investments by multinational grain merchants along rivers on the northern rim of Brazil could specifically benefit northern Cerrado states like Mato Grosso in the next four or five years, however.

Even with all these problems, "Brazil is finally starting to turn the corner," Hinsdale, Ill., soybean analyst Michael Cordonnier told the USDA Outlook Conference earlier this year. A decade from now, he expects half of all the country's soybeans to be heading to new northern export terminals along Brazil's northern rim, shaving transport costs to Asia and rewarding Mato Grosso's farm landowners with higher asset values all over again.

EDITOR'S NOTE: Marcia Zarley Taylor returned to Brazil for her sixth trip to the soy frontier since 1998 in February, accompanying a Rabo AgriFinance customer tour. For more background on the soybean frontier at middle age, see DTN's coverage on our In-Depth site, including:

-- Brazil's Port Problem at http://bit.ly/…

-- Brazil Invests in Ag at http://bit.ly/…

-- Backwater to Breadbasket at http://bit.ly/…

-- Amazon Deforestation at http://bit.ly/…

Also, you can follow Alastair Stewart's Blog, "South America Calling" for on-the-spot coverage from http://bit.ly/…

To see the Reporter's Notebook video discussing changes in Brazil, see http://bit.ly/…

Follow me on Twitter@MarciaZTaylor

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