| Kory Melby BR Ag Consultant |
|
Brazilian Farm Land
MAP BELOW
An Overview
My interest in Brazil land dates back 20 years. I got started by developing land in Northwest Minnesota- CRP, rocks, grubs, caterpillars and track hoes/excavators- much work and very little return.
I started watching the Brazilian land market back in the late 90’s. The rave was all about Bahia at the time. Many Americans were attracted to western Bahia. Some came and went. A few still remain. Some went broke, some lost interest, others have vested interest in land and are collecting their rents the best they can. A few made money, some lost money, and others wish they had never seen Bahia. Many saw what they wanted to see. Many heard what they wanted to hear. Bahia is a valid place to invest, but one must know what you are doing and who you are dealing with.
My area of expertise through the years has been Mato Grosso. I have co-participated in small deals as well as large deals. Some deals went smoothly and others took years to close on a parcel.
I started watching the Brazilian land market back in the late 90’s. The rave was all about Bahia at the time. Many Americans were attracted to western Bahia. Some came and went. A few still remain. Some went broke, some lost interest, others have vested interest in land and are collecting their rents the best they can. A few made money, some lost money, and others wish they had never seen Bahia. Many saw what they wanted to see. Many heard what they wanted to hear. Bahia is a valid place to invest, but one must know what you are doing and who you are dealing with.
My area of expertise through the years has been Mato Grosso. I have co-participated in small deals as well as large deals. Some deals went smoothly and others took years to close on a parcel.
Two major events have changed the real estate scene in Mato Grosso and elsewhere. In Aug 2010, the former Lula administration put a damper on foreign ownership of Brazil lands. For Mato Grosso, this limited purchase size to about 5000 ha. In the near future, i.e. 2019, it is likely that Brazil will overturn this decision and allow foreign ownership of Brazil lands up to 100,000 ha.
The 2nd event that has caused much confusion was the implementation of the new forest code in 2012. That moved the required reserve requirement down to 13 deg S latitude. However, to date, there has not been much enforcement of that new law. Many areas are 65% to 80% open. Owners have bought more forested area in other areas to compensate for the legal reserve. There are also many exceptions such as when a parcel was cleared? Was it pre or post 2008? Was it cleared pre or post 1996? All of this has can work for or against a given parcel. Mato Grosso SEMA tends to view things one way and Brazilian IBAMA tends to look at things another way.
Here again- one must know who you are dealing with and where. A local lawyer will see things differently than a Sao Paulo lawyer.
The bottom line to the above comments is that new land continues to come online in northern Mato Grosso and Para states.
I have friends that have bought land in Tocantins and have done very well. They were in the right place at the right time. This does not mean they did not have challenges, but from an ROI perspective over 12+ years, they are maybe up 400-500% on their initial investment if they were to sell today. Others that bought land in Mato Grosso are maybe up 10-20% with annual ROI of 3%. This was a timing issue. In 2012 soybeans were very high prices and dollar FX was 1.80:1.
Today, soybeans are cheap and the FX is 3.80:1. Land is priced in sacs of soybeans per hectare.
If one looks at the purchase in dollar terms, one could say it was only a good deal. But, if one looks at it in Reals, it was a fantastic purchase. It depends on your point of perspective.
An American friend of mine pioneered a farm from forest in NE Mato Grosso in the 1996 time frame. He sold the farm in the 2014-2015 time frame to a Brasilian. He then moved to Roraima state which is north of the Amazon. He sold the Mato Grosso farm on a three year contract for deed. He received two payments. While waiting in his 3rd payment, he was informed that a field on his farm was in embargo by the Feds. He had paid the fine years back and assumed that lifted the embargo. It did not. Now, because years have gone by, the Feds want millons of Reais for updated fine and that happens to be what the last payment is also. Check mate - what do you do? You wait and hope the new admin has a solution or a mediation to solve the problem. This has to happen for new owner to have a clear title.
The 2nd event that has caused much confusion was the implementation of the new forest code in 2012. That moved the required reserve requirement down to 13 deg S latitude. However, to date, there has not been much enforcement of that new law. Many areas are 65% to 80% open. Owners have bought more forested area in other areas to compensate for the legal reserve. There are also many exceptions such as when a parcel was cleared? Was it pre or post 2008? Was it cleared pre or post 1996? All of this has can work for or against a given parcel. Mato Grosso SEMA tends to view things one way and Brazilian IBAMA tends to look at things another way.
Here again- one must know who you are dealing with and where. A local lawyer will see things differently than a Sao Paulo lawyer.
The bottom line to the above comments is that new land continues to come online in northern Mato Grosso and Para states.
I have friends that have bought land in Tocantins and have done very well. They were in the right place at the right time. This does not mean they did not have challenges, but from an ROI perspective over 12+ years, they are maybe up 400-500% on their initial investment if they were to sell today. Others that bought land in Mato Grosso are maybe up 10-20% with annual ROI of 3%. This was a timing issue. In 2012 soybeans were very high prices and dollar FX was 1.80:1.
Today, soybeans are cheap and the FX is 3.80:1. Land is priced in sacs of soybeans per hectare.
If one looks at the purchase in dollar terms, one could say it was only a good deal. But, if one looks at it in Reals, it was a fantastic purchase. It depends on your point of perspective.
An American friend of mine pioneered a farm from forest in NE Mato Grosso in the 1996 time frame. He sold the farm in the 2014-2015 time frame to a Brasilian. He then moved to Roraima state which is north of the Amazon. He sold the Mato Grosso farm on a three year contract for deed. He received two payments. While waiting in his 3rd payment, he was informed that a field on his farm was in embargo by the Feds. He had paid the fine years back and assumed that lifted the embargo. It did not. Now, because years have gone by, the Feds want millons of Reais for updated fine and that happens to be what the last payment is also. Check mate - what do you do? You wait and hope the new admin has a solution or a mediation to solve the problem. This has to happen for new owner to have a clear title.
New areas being pioneered are Roraima and Amapa state. Land is cheap. Local government promises clear titles quickly and the soybean price is fantastic along the Amazon.
States like Maranhao and Piaui are also popular among Brazilians to pioneer. The NE quadrant tends to have 7 year boom and bust cycles as per weather and drought patterns. Modern farming can compensate some for these vicissitudes.
Mato Grosso is on the cusp of new infrastructure like railroads and paved roads to the north. The building of several corn ethanol plants will add value locally and help land prices move even higher.
Brazil has gone to corporate agriculture in the last 10+ years. It is a business. I cannot recommend that a farmer or investor come to Brazil and buy a small tract of land and do it alone. Modern day agriculture requires millions of dollars to operate. Precision ag, cost of equipment, cost of infrastructure and local administration can kill a small operation.
Successful operations have access to foreign capital, set up LLC which then owns a Ltda in Brazil. There might be several investors involved. It is set up professionally.
I think there is a new wave starting in Brazil. There will be new opportunities for investment funds to buy large tracts of land and have Brazilians run the operations. New ethanol mills also provide new opportunities for foreign investors to capture the value added wave in Mato Grosso. When railroad and port projects are approved, that will yet be another investment opportunity for those who do their research.
Brazil is neither in Boom phase or Crisis phase. It is waiting to see which way the wind blows in 2019. The next phase is the boom phase again and with the FX at 3.80:1; there are opportunities for those who are awake, dynamic, flexible, and most importantly do their due diligence within Brazil. It takes time.
States like Maranhao and Piaui are also popular among Brazilians to pioneer. The NE quadrant tends to have 7 year boom and bust cycles as per weather and drought patterns. Modern farming can compensate some for these vicissitudes.
Mato Grosso is on the cusp of new infrastructure like railroads and paved roads to the north. The building of several corn ethanol plants will add value locally and help land prices move even higher.
Brazil has gone to corporate agriculture in the last 10+ years. It is a business. I cannot recommend that a farmer or investor come to Brazil and buy a small tract of land and do it alone. Modern day agriculture requires millions of dollars to operate. Precision ag, cost of equipment, cost of infrastructure and local administration can kill a small operation.
Successful operations have access to foreign capital, set up LLC which then owns a Ltda in Brazil. There might be several investors involved. It is set up professionally.
I think there is a new wave starting in Brazil. There will be new opportunities for investment funds to buy large tracts of land and have Brazilians run the operations. New ethanol mills also provide new opportunities for foreign investors to capture the value added wave in Mato Grosso. When railroad and port projects are approved, that will yet be another investment opportunity for those who do their research.
Brazil is neither in Boom phase or Crisis phase. It is waiting to see which way the wind blows in 2019. The next phase is the boom phase again and with the FX at 3.80:1; there are opportunities for those who are awake, dynamic, flexible, and most importantly do their due diligence within Brazil. It takes time.