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DAVID KRUSE

By Staff | Nov 7, 2014

I’m back from another trip to Brazil. Our group traveled more than 3,500 miles internally in the country looking over undeveloped farms in three states – Piaui, Tocantins and Mato Grosso.

While they talk about having millions of undeveloped acres that can be converted to soy and grain production in Brazil, much of this land is not as good as what has already been developed.

The amount of land that can be cleared for crops is limited by federal legal reserve requirements that vary between regions. This land has to be kept in its natural state, but land unsuitable for cropping along rivers, for example, qualifies for legal reserve.

The requirements for legal reserve are 20 percent in Bahia, 30 percent in Piaui, and 35 percent in Central Mato Grosso. Reserve requirements progressively increase to 80 percent in northern Mato Grosso and Para where the land is considered forest and rain forest.

According to satellite surveillance of the region, next to no soybean expansion has occurred in the rainforest biome where a commercial moratorium of soybean purchases has been in effect.

Years ago they could pay for the farms by selling the lumber while clearing them. The economy has stepped up since.

In the states of Piaui and Bahia there is very little timber, as it is cerrado, and the timber gleaned from clearing can only legally be used for personal consumption, like firing grain dryers.

The reason farmers have not resisted the legal reserve requirements is that there was still so much land yet to be developed and they are allowed to buy legal reserve that is unsuitable for crop production, far separated from their property.

The next wave of land conversion will be from pasture to row crop production. Years ago there was incentive for absentee owners to buy large tracts of undeveloped land and knock down the growth, clearing it to be pastured.

Many of them really don’t like being absentee ranchers. The size of their herds often shrinks inexplicably while the cowboys and neighbors look well fed.

Many already hold the environmental permits allowing them to finish clearing up to legal reserve limits.

The clearing process would need to be finished and a lime and fertility investment made along with basic operational infrastructure such as internal roads and farmsteads built.

There are millions of acres of this partially opened, but undeveloped pasture land to be converted. They are not going to run out of new land to convert for a long time yet with the economics controlling how quickly it is converted.

I also think that when new land becomes scarce, they will reconsider the size of existing reserve requirements.

Reserve requirements were arbitrarily set. The amount of new wealth that would be created by reducing them by 10 percent would far overwhelm any perceived environmental loss.

When I look at Iowa and imagine if we had had a 35 percent reserve requirement how long that would have lasted.

Bunge, a major agribusiness and food company, was responsible for much of the farmland development in Bahia and Piaui. They had an “if we build it they will come” type business plan. They built what, at the time in the 1980s, was the largest soybean crush plant in the world in the town of Luis Eduardo Magalhaes, Bahia. Farmers came, they cleared the land, they bought fertilizer from Bunge and then grew soybeans to sell to Bunge.

We flew up to investigate an undeveloped cerrado farm in Piaui. Most large farms have airstrips for light planes.

After visiting the farm, taking off in our six-seat twin engine Piper, the rear passenger noted that there was some oil flowing from the rear of one engine.

He took a cell phone photo of it and I handed it up to show our non-English speaking pilot. He immediately looked for and found another airstrip on a farm to land on.

It was over 102 degrees in the sun with no shade except under the wing. Our pilot cleaned the oil, checked fittings, added oil and we took off again toward Tocantins looking carefully for more oil on the engine, continuing with our plan to fly to other farms.

The pilot wanted to make it back to LEM before dark, but our engine oil delay had set our schedule back. It was a private airfield and they have no runway lights.

The sun set during our return flight. The pilot called his partner who drove his truck out to the end of the runway with his lights on to show where the runway started.

We landed safely and our pilot, smiling, told us in Portuguese, “This is how we land at night here in Brazil.” We had flown 870 miles that day. It was worth it.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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