AgDM newsletter article, December 2001

Brazil and Iowa soybean production-a cost comparison

Kelvin Leiboldby Kelvin Leibold, extension farm management specialist, 641-648-4850, kleibold@iastate.edu; Phil Baumel and Bob Wisner, professors of economics; and Marty McVey, AGRI-Industries

In this article, we will compare the cost of producing soybean in Iowa with two areas in Brazil. The two Brazilian areas are Paraná and Matto Grosso. First we will compute and compare the non-land cost of production. Then we will include a land charge and see how the analysis changes. The cost of production comparisons is shown in Table 1.

The state of Paraná is located in southern Brazil. This area has been in crop production the longest. Most of the tillable land is in production, either as pasture or row crops. Twenty-five percent of the land is left in natural vegetation.

Table 1. Brazil and Iowa soybean production cost comparison

This area was originally a very heavy wheat and coffee producing area. However, several hard freezes have forced the coffee industry farther north. Low wheat yields and low prices have shifted some of the wheat acres into soybean production.

Matto Grosso is in central Brazil. Much of it is part of the cerrados area that is experiencing substantial growth. It includes tall grass areas referred to as light cerrados and areas of small trees and light brush referred to as heavy cerrados.

Seed costs

A key to the success of Brazilian soybean production is the development of new hybrids suited to the soils and latitude. The government has spent large sums of money helping to develop these hybrids. In addition, a group of farmers, through the Matto Grosso Foundation, also has invested heavily in seed research. We estimate seed cost in Brazil to be $8 per acre.

Much of the soybean seed is treated with nitrogen fixing bacteria to help the soybean seed fix its own nitrogen.

Iowa producers are faced with strict patent laws and tech fees. The use of bin run seeds has dropped dramatically as producers have switched to genetically modified soybean seed. The seed industry has invested millions of dollars in research that it is trying to recover.

Apparently no one in Brazil is collecting royalties or tech fees. Many of the larger farms have their own seed cleaning and processing facilities. They can buy new genetics and save seed back from the crop. The seed can be processed in the off-season with labor not otherwise used.

Fertilizer and lime

The Iowa cost estimates include the cost of 40 pounds of phosphorus and 75 pounds of potassium per acre. Phosphorus and potassium rates are based on the amount removed with the crop. We have also included $6 as a typical cost for lime. Depending on the area, this may be a little high.

In Paraná an application of 300 pounds of 2-20-20 at a cost of $250 a metric ton costs about $34 per acre. A lime application, with the cost spread over three years, costs another $4 per acre. The Matto Grosso area has higher fertilizer rates and much higher lime rates.

It appears that transportation costs for fertilizer and lime are very affordable. Almost 80 percent of the trucks hauling soybeans to the ports return empty. So, for a small charge, truckers are willing to haul fertilizer and lime.

The Brazilian government invested in the development of Matto Grosso. They picked locations near large lime deposits.

Labor

Labor in Brazil is very affordable. People working in packing plants make about $100 for a forty-four hour week. These appeared to be some of the better jobs. A skilled worker makes about $500 per month. Day labor in the sugar fields sometimes is as little as three dollars a day. These people receive meals and transportation to and from work. Labor is more expensive in the remote areas.

Although they spend more time due to smaller equipment and more trips across the field, only $10 per acre seems very reasonable. Often full time help lives in tenant houses on the farm and the whole family is involved. The cost of providing housing is minimal. However, the employer is required to contribute to a national health care plan and a social security system.

The soybean labor cost in Iowa is about $20 per acre (2 1/2 hours at $8.00 per hour).

Pesticides

Brazil uses many of the same herbicide, insecticide, and fungicide products that we do. The cost of these products is much lower in Brazil than in Iowa. Products similar to Round Up sell for $12 per gallon. However, they use more pesticides. They sometimes spray twice with a fungicide because of the wet, warm conditions. They spray twice for insects in the south. They also have more weed pressure in the Paraná and spray more frequently.

Most of the spraying is done by the farmers. There is very little custom spraying. Farmers don't need a license. The farms have low cost labor that can be used because the workers live on the farms.

Crop Insurance

In Iowa, due to our weather variability, the cost of crop insurance has been included. Although there has been a dramatic increase in the number of insured acres in Iowa, we realize that not all producers carry crop insurance.

There are some insurance companies considering selling crop insurance in Brazil. However, producers indicate that rainfall is too predictable to justify crop insurance.

Interest

Many of the production inputs in Brazil are provided by vertically coordinated input suppliers. This may be through local co-ops or internationally known companies. The producer pays for the inputs with a pre-determined number of bags of beans at harvest. So cash needs are further reduced.

For Iowa we used a 10 percent interest rate for cash inputs.

Machinery

We have estimated that machinery costs in Iowa are $43 per acre. This reflects the more efficient producers. Many of Iowa's producers have machinery costs (including fuel) of more than $55 per acre.

Machinery costs in Brazil are significantly lower. The purchase price of machinery and equipment are typically less. Also, machinery is used for many more years. It is also used many more hours per year due to double cropping and the wide variation of crops that are grown.

The machinery in Matto Grosso tends to be newer and larger. The farms are bigger also. Diesel fuel is also more expensive but is not that big a factor due to use of no-till crop production.

Land

For Iowa we are using a cash rental rate for high quality. In Paraná we are using 60 percent of the yearly rental rate because soybeans are double-cropped with a less profitable crop. In Matto Grosso we are assuming the land is purchased on a fifteen-year amortization schedule and single cropped.

Conclusions

Both the Paraná and Matto Grosso appear to have a small advantage in non-land production costs. However, we cannot automatically conclude that they are more competitive in international markets. Two other cost components must also be considered.

When you add the cost of transporting soybeans to a port, the transportation cost advantage of Iowa farmers more than makes up for this small difference because the U.S. transportation infrastructure is already in place and paid for.

When you add the cost of renting land in Iowa, the advantage appears to go back to Brazil. However, if land values and rents drop, Iowa is competitive.

These three cost components will change over time. Our transportation infrastructure will remain superior for a long time. Our non-land costs will change also. The input sector is trying to decrease costs to lower prices. The value of Iowa land is being heavily supported by government program payments. Brazilian farmland near a transportation system has increased sharply in price.

The Iowa farmer is efficient at raising and shipping soybeans and will continue to be into the future.

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