Brazilian Farmland Values Double in the Last Three Years

On April 28, 2023, the Department of Agriculture and Consumer Economics of the University of Illinois published in their Farmdoc daily, a study of farmland prices in Brazil.

The study concluded that farmland prices in Brazil more than doubled in the last three years due to a combination of higher net farm income, high commodity prices, robust global demand, a favorable exchange rate for Brazilian exporters, low-interest rates, and strong demand from investors. The most significant appreciation in land values occurred in areas used for grain production, followed by sugarcane, and coffee (see Figure 1).

Domestic prices for soybeans and corn rose to record levels in the last several years leaving farmers well capitalized and anxious to purchase more land (see Figure 2).

Although farmland prices have increased all over Brazil, the southern states recorded the greatest increase with land prices above the national average (see Figure 3).

The reason for the higher prices in southern Brazil is because most of the land suitable for row crop agriculture is already used for that purpose. Transportation costs in southern Brazil are also much lower due to the proximity to Brazilian ports. Recent expansion of row crop production in Brazil has been from the conversion of pastureland to row crops and the clearing of new land in northeastern Brazil.

In recent years, Brazilian farmers have been migrating to northeastern Brazil to the states of Piaui, Maranhao, and Tocantins, where land values are much lower. The terrain in northeastern Brazil is flat, with productive soils, and a generally favorable climate. The biggest challenge in northeastern Brazil is logistics.

Going forward, farmland values in Brazil are expected to increase at a slower pace due to lower commodity prices in the face of record production. The port premiums for Brazilian soybeans recently fell to $2,00 per bushel under the Chicago Board of Trade, which was the lowest in two decades. Higher interest rates will also limit the increase in farmland values. The benchmark SELIC interest rate (the equivalent of the U.S. prime rate) in Brazil is 13.75% with no sign of a sharp decline any time soon.

Tags: farmland, coffee, corn, sugarcane, grain, global demand, Brazil, prices, soybeans, Production, crop, domestic prices, commodity prices