Declining soybean prices amid rising costs will cause the pace of Brazilian soybean area expansion to slow in 2014-15, according to Agroconsult, a local farm analytics group.
Much depends on the behavior of soybean prices over the next quarter, but Agroconsult expects 2014-15 soybean area to grow 1 million hectares (2.5 million acres), or 3%. That would still take area to a record 76 million acres but would represent a halving of the rate of growth on the year before.
"Signals of reduced margins abound and farmers will slow the pace of investment next year," said Andre Pessoa, director of Agroconsult.
The chief reason farmers will rein in expansion plans is the prospect of soybeans falling below $12 per bushel next year, as futures on the Chicago Board of Trade indicate.
But also of concern are rising costs.
The cost of producing soybeans on an acre of land in Mato Grosso rose on average 12% this year, reaching $267, according to Agroconsult.
This jump was primarily driven by chemical costs as farmers fight to control rising caterpillar populations and ever-more-aggressive fungus attacks. The average number of insecticide applications on a Brazilian soybean field has risen from four in 2011-12 to six in 2013-14.
And this cost pressure is likely to continue.
Area will still grow next season in large part because of investment momentum. The process of converting pasture to soybean production takes three years and a lot of farmers are halfway through.
"Growth in area next year will mainly be about farmers following through with investments," said Pessoa.
But new investments in expansion will vastly decrease, he added.
Indeed, investment in production will generally fall next season.
According to an Agroconsult survey of 583 farmers, the percentage investing in new machinery and equipment will fall from 84% in 2013-14 to 59% in 2014-15.
The percentage investing in tractors will fall from 63% to 31%, and those investing in combine harvesters will drop from 54% to 35%.
With margins tighter, farmers are going to have to pay more attention to best practices, noted Pessoa.
"Over the past four to five years, wide margins have allowed farmers to cut some corners. The new reality will mean they have to once again pay attention to agronomic issues like precise application of chemicals and good rotations," he said.
Alastair Stewart can be reached at email@example.com
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