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The previously soaring Brazil farmland market is slowing

The previously soaring Brazil farmland market is slowing

Posted by Laura Zúñiga on September 08, 2014

Farmland buyers in parts of Brazil's frontier north eastern agriculture frontier have doubled their money in less than four years, data from BrasilAgro show, although the pace of increase may be slowing.

A valuation by Deloitte Touche Tohmatsu of the BrasilAgro land portfolio pegged it at R$1.29bn as of the end of June, up some 60% from its previous valuation, undertaken at the close of 2010.

Stripping out data from farms which BrasilAgro has sold all or part of since then, and the 79,000 hectares of Paraguayan land remaining from December's Cresca deal, the increase is 69%, with the increase especially strong in farms in the north east state of Bahia.

The value of all of the three farms concerned soared more than 90%, compared with a 32% rise in the value of land in the neighbouring state of Piaui.

Both are part of the Mapitoba region – an acronym from the first two letters of Maranhão, Piauí, Tocantins and Bahia - which has been somewhat late to enjoy the Brazilian agriculture revolution longer established in states further south such as Sao Paulo and Minas Gerais.

Market slowdown?

However, valuations from BrasilAgro itself of its portfolio indicate that land price gains may be decelerating, with the group seeing the rate of appreciation slowing at all but one of its farms over the  year to the end of June, albeit still relatively strong at the Bahia properties.

The decline comes amid a retreat in grain prices which has reduced market prices below cost of production for many Brazilian growers, leaving them hoping for support from guaranteed minimum values which the country, in theory, enforces.

However, crop production in Mapitoba, and in particular Bahia and Piaui, has proven far stronger in 2013-14 than last season, when yields were dented by dry weather.

Bahia produced an overall grains harvest of 7.61m tonnes, up 42% year on year, according to the Conab crop bureau, with Piaui's output up 73% at 2.78m tonnes.

Brazil's overall grains crop, at 193.5m tonnes, has risen 2.6% year on year, on Conab estimates.

Timberland sale ahead?

BrasilAgro's worst performing property is its Nova Buriti forestry site in Minas Gerais, in south eastern Brazil, which appreciated by only 1.4% in the year to the end of June, according to the group's internal valuation.

Deloitte valued the property at R$22.3m, up 0.5% since the end of 2010.

Indeed, BrasilAgro signalled it may be willing to sell Nova Buriti, after failing to gain consents to exploit the timber assets.

"Due to the difficulties we have been facing in regard to obtaining licenses for the Nova Buriti Farm, we are studying the best options for the future of the property," the group said.

Profits fall

The comments came as BrasilAgro unveiled a loss of R$6.55m for the April-to-June period, the fourth quarter of the group's financial year, compared with earnings of R$19.2m the year before.

The decline reflected a 35% drop to R$94.0m in net sales, reflecting lower volumes of crop sales, and lower takings from farm sales.

Investors had expected earnings of R$18.00.

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