A late-2020 bounce in Brazilian farmland prices represents the start of a period of “strong” gains in values, BTG Pactual said, even as the country is debating whether to ease curbs on purchases of its farms by foreigners.
Farmland prices, having in inflation-adjusted terms fallen for nearly three years, rose by 6% year on year in the November-to-December period, data from IHS Markit-FNP show.
The improvement, which took the average price close to $13,000 per hectare, was also marked by an increase in market liquidity, which BTG said appears an “important indicator” that returns prospects for Brazilian agricultural land “are starting to look more attractive for potential investors.
“When it comes to farmland, we believe price and liquidity walk hand in hand,” the bank said.
“In the last few years, as commodity prices and farm yields declined, not only farmland prices have lagged behind overall inflation but liquidity also dried up considerably.”
‘Plenty of potential’
Further growth in land prices is justified - even for arable land, which has appreciated by 10% year on year – by the extent of increases in agricultural commodity values which, besides being lifted by the global rally, have been boosted by weakness in Brazil’s currency too.
According to research institute Cepea, prices of sugar as of Wednesday were 40% higher than a year before in Brazilian currency terms, with corn prices up 62%, cotton values up 64% and soybean prices up 97%.
This “recent reflation in soft commodities is yet to reflected in ag real estate assets,” BTG said, highlighting the improved prospects for farm profitability.
“After years with estimated gross margins ranging from R$1,000-2,000 per hectare, estimated gross margin is now at nearly R$6,000 per hectare for double crop areas in the state of Mato Grosso.”
Such prospects, coupled with low interest rates, offer “plenty of potential for rising farmland value in the years to come”.
Brazil’s “strong farmland value appreciation potential” might be further underpinned by proposals to open up ownership to foreign investors, which are currently restricted by measures including limits to minority stakes.
“Another important aspect that could substantially increase farmland value is a clearer framework with relation to farmland ownership by foreigners, which is now being debated in the Brazilian congress,” BTG said.
However, “we expect severe scrutiny” of such reforms, which supporters believe the bill could attract some R$50bn, equivalent to nearly $10bn, per year in new investment.
Although Brazil’s Senate last month approved, unexpectedly, a bill late on Tuesday to ease restrictions on foreign ownership of Brazilian land, Jair Bolsonaro, Brazil’s president last week voiced opposition.
Land ownership is in Brazil, as in many other countries, a sensitive topic, particularly concerning the Amazon region.
It was revealed last month that Incra, a Brazilian agency that demarcates farming land, had concluded in a preliminary report that the indirect involvement of US retirement fund TIAA (Teachers Insurance and Annuity Association of America) in land acquisitions represented an infringement of foreign ownership restrictions.