SAO PAULO (Dow Jones)--Prices for Brazilian sugarcane land are starting to fall, hurt by drops in ethanol and sugar prices, according to crop land specialists and analysts.
Many sugar and ethanol mills face severe financial difficulties after they invested heavily in times of low sugar and ethanol prices. Further, the credit crisis has forced at least four mills, including Grupo Joao Lyra, into judicial recovery proceedings, similar to chapter 11 bankruptcy proceedings in the U.S.
Others such as Brazilian sugar and ethanol group NovAmerica are hunting for possible suitors to establish partnerships to help cover short-term debts and expansion plans.
"We are seeing a fall of up to 45% to 50% in the price of crop land in some sugarcane-growing areas, where the owners face financial difficulties," said Carlos Aguiar Neto, director of investor relations at BrasilAgro (AGRO3.BR), a major Brazilian company specializing in buying and selling of agricultural land.
Jacqueline Bierhals, an analyst at Sao Paulo-based consultancy AgraFNP, agreed that land in sugarcane-producing regions is increasingly falling in price, although it varies case by case, she said.
Bierhals said sugarcane land has started to see large falls where mills have serious debt and can't survive. Yet land in traditional growing areas such as Ribeirao Preto in Sao Paulo, Brazil's main sugarcane-producing state, can still fetch around 20,000 Brazilian reals ($8,580) per hectare, she said.
The global credit crunch has slowed the building of mills, too, said Plinio Nastari, director of consultancy Datagro. Nastari expects around 25 mills to come online in 2009 out of an initial pipeline of 43 mills. Brazil has more than 400 sugar and ethanol mills on around 8.5 million hectares devoted to sugarcane, according to Brazil's National Commodities Supply Corp., or Conab.
Where some feel pain, others see opportunity. BrasilAgro has 300 million Brazilian reals ready in cash to buy property, it said. Other multinationals are assessing opportunities to buy land and snap up mills. Louis Dreyfus Commodities ethanol unit LDC Bioenergia plans to increase its ethanol production in Brazil. "The [sugar and ethanol] sector is offering a large number of opportunities and we are looking," newspaper Valor Economico reported Bruno Melcher, president of LDC Bioenergia as saying last week.
Local company ETH Bioenergia, the energy unit of Brazilian conglomerate Odebrecht, is talking with various companies about acquisitions or alliances, the company's president recently told Dow Jones Newswires.
BrasilAgro said it believes these Brazilian and U.S. powerhouses are likely to make acquisitions of brownfield projects. They will probably opt to acquire the cheaper existing land and property in sugarcane areas, rather than starting their own greenfield projects, the company said.
Indeed, BrasilAgro intends to partner with such buyers that want to acquire the mills, while BrasilAgro will get the land, said Aguiar.
Datagro's Nastari said he expects a growing amount of acquisitions and consolidation in the coming years. But, Nastari doesn't expect mills to close. "Mills are like the handles on coffins, they last for ever and only change hands," he said.
Some struggling mill owners may benefit from lower land prices. Julio Borges, an economist at JOB Economia in Brazil, said mills that rent land may be able to readjust payments or rent new areas at reduced rates.
Borges said that the area used for sugarcane planting should remain steady in 2009, although it won't grow 7% or 8% as in recent years.
Other Ag Land
Aguiar said that in other areas such as soybean growing regions, prices remains stable and few deals are being done.
As farmers saw good crop prices for soybeans in the first half of 2009, they still have resources to survive, he said. "If they really face problems, then they may sell, but this has only happened in a few cases so far," he said.
For example, Mato Grosso's soy farmers are facing some of the highest levels of debt owing to previous bad harvests such as those in 2004 and 2005, crop disease, high costs for fertilizers and a stronger local currency that slowed exports.
Although farmers associations such as Mato Grosso Soy Growers Association, or Aprosoja, complain of repossessions of farm machinery and a possible 10% drop in soy production from the new 2008-09 crop, Aguiar said crop land prices are holding steady in the huge soy-growing state.
Reid Weiland of consultancy Brazil Agrilogic said he agreed. He buys and sells land in the northern state of Tocantins for mainly soy farming and cattle ranching. "There have been no fireside sales yet," he said.
While Chinese, U.S., and Portuguese buyers were seen in the market a few months ago, now buyers are quiet and any interest tends to be from locals, he said.
This is ironic given that the exchange rate is now advantageous for foreigners who can pay for the land in dollars. The dollar is now trading at about BRL2.33 compared with lows of BRL1.55 in August.
But, "most have stepped out of the market because of the crisis," Weiland said.
Brazil is the world's No.1 producer of sugar, coffee, oranges and beef, as well as the No.2 producer of soybeans after the U.S.
By Tony Danby, Dow Jones Newswires; 55-11-2847-4523; brazil@dowjones.com