I hope you enjoyed my first "Brazil Diary" article. Since then, I have been trying to learn about many different aspects of the agricultural industry here. Even though the corn and soybean harvests are finished on the Brazil Iowa farms, I am still interested in where the grain goes, what the marketing options are, and the reaction of input costs to higher commodity prices.
I didn't get to experience the harvest of corn and soybeans first hand, and I don't know the input costs that well, so I continue to ask a lot of questions. I was able to get some answers however, from Matthew Kruse, Brazil Iowa Farms' Chief Operational Officer.
Grain elevators, marketing options
Brazil Iowa Farms and other farmers in this area can market their grain in several places. The increasing presence of American companies has made marketing easier and distances to delivery shorter. When in Brazil, one often hears the American names of Bunge, Cargill, and ADM. Also, Multigrain, Agrenco and AWL are three large Brazilian companies in the area. It seems that these grain companies have responded to the demand for more/better delivery locations for grain. As the area has grown, so have the number of grain buyers. There are numerous smaller buyers as well.
Brazil Iowa does not have any of its own grain storage. They do however have 14,000 tons of cotton seed storage. Just like having grain storage, this allows them to market there cotton seed throughout the year. I have visited other farms and none of them have much grain storage either. Brazil is far behind America when it comes to on farm grain storage mainly due to a lack of capital. It is much more difficult for Brazilians to get financing on building grain storage than a U.S. farmer. Also, when the Brazilians first opened the area, their main focus was buying as much cheap land as possible. Storage was not a priority however, as time goes on and the region develops their will likely be more grain storage built.
There are more grain buyers in Brazil
Brazil Iowa's grain goes to one of these 6 companies' locations. They usually hire out the transportation of its grain to local truckers. The company does not own any grain semi-trucks, as it is cheaper to hire truckers. The closest receiving station where Brazil Iowa can deliver its grain is Bunge, which is five kilometers from one of the farms. Cargill and Bunge have a receiving station in Roda Velha, which is 20-30 minutes from the Iowa farms.
Corn is usually sold and delivered to smaller buyers northeast of the farms, where poultry production is prevalent. Mauricea, a large poultry production company recently started growing chickens in the area. The company is only 1-1.5 hours from the Brazil Iowa farms, and this has opened up another option for corn delivery. The soybeans are delivered to the elevators, and all marketing is done through the elevator.
So far, Brazil Iowa has not had any major problems with getting the grain off the farm at harvest. The roads do get bad during the rainy season and may become impassable. However, since harvest takes place during the dry period, farmers can usually get the grain and cotton off the farm.
Bean prices in Brazil closely follow U.S.
One thing that you should know is that while you are sipping on your cup of coffee or driving back and forth through the field thinking about the farmers in South America, they are doing the exact same thing about you. The Brazilian farmers follow and are very interested in agriculture in the United States. A lot of the workers on the farm have been asking me about how we do things in the U.S. and what kind of equipment we have. They want to know what the weather is like and if we are having a good crop year. The Brazilians watch America's agriculture as close as, or closer than, we watch Brazilian agriculture.
I recently traveled to town for parts, and over 10 people asked me about all the rain Iowa had received this past year. Many knew more about our crop and weather conditions then I did! They know that if America is having a short crop then prices for them may be better.
The Brazilian prices for soybeans and cotton follow America's prices, as these crops compete on the world market. Corn prices, on the other hand, are usually determined by local demand, as less corn is exported from Brazil. Cotton prices follow closely with the futures on the New York Board of Trade; however, they also can be responsive to strong national demand. Soybeans usually have at least a US$1 basis from the Chicago Board of Trade futures, but today it can be as high as US$ 3 per bushel.
In 2007, Brazil exported about 37% of the 2,241 million bushels of soybeans produced. The United States in 2007 also exported 37%, and just barely out produced Brazil with 2,585 million bushels of soybeans. America's and Brazil's exports compete with each other in the China, Hong Kong, and Japan markets. The cash prices for the area are approximately, US$7 per bushel for corn, US$12.80 for soybeans and US$81 center per pound for cotton.
Input costs are also climbing in Brazil
Just like in Iowa, the Brazilian farmers have not caught a break on the input cost hike. They have seen a huge increase in input costs, increases that may even exceed Iowans' increases. Matthew Kruse, Brazil Iowa Farms COO, gave me some estimates on the increase in input costs. For the farm, phosphorus costs are up 42% from last year. The company's potash costs are up 30%, and the urea is up 20%.
So far, diesel fuel costs, which have always been higher than the U.S., have increased about 11%. Matthew says he has not yet finished ordering chemicals but that they are expected to increase between 5% and 10%. Seed costs for cotton remain the same, but soybeans seed costs are up 33%. Paralleling the U.S., while strong prices are easing some of the pains, the profit margins have been hurt because of these increased input prices.
Currently on the farm, we are harvesting the cotton. This is a huge task and will take anywhere from 60-80 days. The cotton in the area is pretty good this year even though they experienced below normal rainfall. Harvesting the cotton is fairly labor intensive, with employees running the harvester, cotton hauler, cotton press, water wagon (to prevent fires), and also the cotton gin. I hope you enjoyed my second "Brazil Diary." My internship with Brazil Iowa Farms is going great, and it is surprising how fast the internship has gone. I have been here for over half my internship. It looks like I will still have time to write another article within the next 2-3 weeks. Check back to read my next "Brazil Diary" soon.