Within the next five years, if Brazil keeps expanding soybean acres, it could surpass the U.S. in production of the oilseed. And it could do it while growing them more cheaply than American producers.

In the 2002-03 season, agricultural consultants estimate that soybean profits exceeded production costs by 30 percent! This “remarkable commercial incentive” has spurred large scale investment in new land and equipment and “fueled a boom” in soybean production, according to a USDA Foreign Agriculture Service report prepared for Sen. Charles Grassley, R-Iowa.

“Land resources are being reallocated to soybeans from less profitable crops and from pasture, while land clearing in virgin savannah regions has also accelerated. The potential for additional agricultural expansion in Brazil is equal to, if not greater than, total cropland in the U.S., and is conservatively estimated at 420 million acres or more.”

Brazil's soybean output has increased 66 percent in the past five years, according to the report. Soybeans are the largest crop in that country, grown on almost 40 million acres, an increase of 13.6 million acres within the past five years.

“The gap between Brazilian and U.S. soybean production is declining fast,” the report notes. “In the 2003-04 growing season, the difference in total cultivated soybean area is less than 24.7 million acres, while the gap in production is slightly more than 21 million tons. Given the current rate of expansion in Brazil, it will take five years or less for them to equal U.S. production levels.”

The “unusually strong expansion” in Brazilian soybean production, the FAS report says, is due mainly to the “massive devaluation” of Brazil's currency relative to the U.S. dollar. Other factors: (1) advances in agricultural technology have led to higher yields through variety improvements and use of moisture-saving no-till practices; (2) extensive research in soybean cultivars by Brazil's leading agency for agricultural research; lower costs for transportation to export markets; increased ability to manage large operations; and a favorable exchange rate parity that has led to stronger soybean prices relative to other crops.

The devaluation of the Brazilian real, starting in 1999, amounted to a 95 percent decline by October 2002, “acted to radically increase relative returns on exported soybeans,” and “provided a big stimulus to the export performance of soybeans and soybean products.”

Brazil “has had a history of having an over-valued exchange rate that has made costs in U.S. dollars very high,” the report said.

Looking ultra-long range, the FAS analysts said that over the next century, should growth in world soybean demand warrant, Brazil's soybean area “could conceivably rise” by 125 million to 250 million acres.

“In the long term, whatever the rate of growth, it is clear that Brazil has the capacity to meet or exceed world demand for soybeans by tapping its ample arable land resources. At the same time, being the world's leading low cost producer of premium quality soybeans, Brazil — unlike other countries — has the capacity to prosper in an environment of markedly lower international commodity prices.”