Brazil cane land values rise, despite mills' woes

Cane land in Brazil's main growing region has appreciated by some 20% a year despite the weak sugar market for much of this period, Sao Martinho revealed, as it fulfilled long-held acquisition plans.

The Sao Paulo-based sugar and ethanol producer said that consultants Deloitte had valued its 58,000-hectare land portfolio was, at R$3.08bn ($1.39bn) as of February 28 – 65% higher than the sum at the last appraisal, in December 2011.

The increase reflected largely a six-fold rise to nearly R$350,000 ($157,000) a hectare in the value of 1,500 hectares now viewed as potential development land.

However, even stripping out this plot, the remaining sites have appreciated by 41-52%, equivalent to about 20% a year, according to the valuation, which included land only, "excluding any buildings and improvements, or machinery and equipment".

Bad times for sugar

The increase comes despite a sharp fall over the period in sugar prices, which traded at 22.62-24.25 cents a pound in New York during December 2011, well above the 16.47 cents a pound at which the spot contract closed on February 28.

Indeed, there are 30 mills in the Centre South region, which includes Sao Paulo, in bankruptcy protection, with a further 10 not expected to open for the newly-started 2014-15 crushing season because of heavy debts, according to industry group Unica.

However, the Brazilian farmland market has remained broadly buoyant, and with land in Sao Paulo especially versatile, with the state also Brazil's top orange producer and a major coffee grower, besides output of the main field crops.

The state also has decent transport links, boasting the major crop export port of Santos.

Mill purchase

Sao Martinho unveiled the data with the announcement of its purchase of control of the Santa Cruz mill, which has capacity for crushing 4.5m tonnes of cane a year, and for production of 345,000 tonnes of sugar and 140,000 cubic metres of ethanol.

The group, which already owned 36.1% of Santa Cruz, will pay R$315.8m ($295m) for an additional 56% of the business, including 2,002 hectares of land and a power generation operation.

The acquisition, from Luiz Ometto Participações, will enable cost savings of R$40m a year as Sao Martinho cuts out duplicated costs between Santa Cruz and its existing mill, only 30 miles away.

The deal also involves the sale by Sao Martinho to Luiz Ometto Participações of a 34.3% stake in a 20,000-hectare cane operation, Agro Pecuaria Boa Vista.

This sale, priced at R$195.9m, will hand Luiz Ometto Participações 100% control of the land, which will be leased back to Sao Martinho in a 20-year deal.

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