Frontier Land Prices

Brazilian Frontier Cerrado Land Prices

Cerrado land prices are not typically quoted in monetary units such as dollars, euros or the Brazilian currency, the real. Instead, per hectare prices are expressed in sacks of soybeans (see Cerrado Land for Sale). For example, a tract of land may be on the market at 50 sacks of soybeans/ha. With soybeans at US$10 per sack, this is the equivalent of US$500/ha. If land is priced at 250 sacks of soybeans, and soybeans are US$20/sack, this is the equivalent of US$5,000/ha. The tradition of pricing land in sacks of soybeans derives from the period of high inflation many years ago and continues today.

Brazil has no notable commodity price support system so land prices do not reflect government policies as in the USA and the EU. Brazil's frontier land prices are largely driven by commodity prices, rising with high prices and falling with low prices. Over the past few years there have been major shifts in world soybean prices and Brazilian frontier land prices have moved accordingly.

It should be noted that land appropriate for pasture, Eucalyptus and oil crops such as jatropha or castor beans is typically priced in reais per hectare and not sacks of soybeans per hectare. For the foreign investor, the primary factor influencing the dollar price per hectare is the exchange rate. With the 40 percent appreciation of the real in the last two years, the US dollar price of land has increased rather dramatically.

Market transaction prices vary with payment arrangements. There is no institutional source of credit for land purchase in Brazil so land is typically sold with seller financing (see Financing and Credit). With seller financing the transaction price will be higher than a cash sale price. Cash sales are rare and when they occur, prices are often significantly discounted.

Wide Price Disparities

There are wide price disparities in land prices. Developed land sells for much more than undeveloped land. Highly productive cerrado land--land cropped for 7 to 10 years or more--with electricity, good access and location close to input and output markets brings the highest prices while remote, undeveloped, dryer land is far less expensive.

The cheapest land in Western Bahia is located in lower rainfall areas. Much of this land is not suitable for dryland crop farming without irrigation. The potential productivity of this land is as great as land in high rainfall areas, but requires investment in irrigation infrastructure to achieve high productivity levels.

In Western Bahia, most of the land in the high rainfall areas has been opened However, there are a few tracts that remain virgin. These tracts often have "problems" such as being tied up in unsettled estates, high debt load or ambiguous ownership.

Time and Investment Payoff

Soil fertility investments typically do not pay off on dryland farming the first year. Soybean yields two to three years after opening will be good, but several years of fertility investment and soybean production are needed before newly opened land can become sufficiently fertile to produce corn and cotton (see opening cerrado land)

Put another way, soil fertility expenses on new land during the first few years are high relative to returns. Land cropped 7 to 10 years has sunk investment in soil fertility. Per hectare production costs may be nearly the same on new and developed land, but returns will be higher on developed land due to higher yields.

In short, higher land prices for developed land reflect the time and investment needed to boost soil fertility.

Newly opened irrigated land becomes productive in a shorter time than does dryland. This is due to soil biological/biochemical interactions. On dryland, these interactions essentially stop during the dry season. On irrigated land producing two to three crops per year, the interactions take place continuously.

A decision buyers face is whether to buy virgin land or developed land (there is relatively little irrigated land on the market). This decision is not always a matter of choice. The amount of developed land for sale in frontier areas is less than the amount of virgin land for sale. Millions of hectares of dryer virgin land are available and can be readily purchased in large tracts of 5,000 ha, 10,000 ha or more.

In Western Bahia, the demand for improved and virgin land is rising and land prices are increasing. As noted above, much of the virgin land has been opened. In these areas farmers can no longer expand simply by opening new land. Consequently, they are bidding up prices on developed land. Brazilian and foreign firms are buying large tracts of virgin land in the dryer areas for irrigated agriculture. Using 100ha-pivot irrigation systems, they are opening the land to produce high value crops such as coffee and cotton.

Cheaper Land in New Areas

In areas of the cerrados to the north of Bahia, land is considerably cheaper. For example, in newly opening areas in the states of Piauí and Pará

huge tracts of flat-as-a-tabletop land with good access are on the market for a fraction of the price of land in Western Bahia