May 05, 2015

Soybean Farmers in Uruguay facing tight or nonexistent Margins

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The farmers in Uruguay have been rapidly expanding their soybean production in recent years, but low soybean prices and high costs will test their resolve to continue expanding their soybean production. Over the past ten years, the soybean acreage in Uruguay has expanded fivefold and production has increased sevenfold. Uruguay will not evolve into a large soybean producing country like its giant neighbors of Brazil and Argentina, but soybeans are becoming more important and in fact, in 2013 soybeans surpassed meat as the principal export of the country. Wheat used to be the principal grain produced in the country, but now soybeans have assumed the top ranking.

The recent downturn in soybean prices resulting from record large production in both North America and South America, is now forcing producers in Uruguay to reevaluate their farming strategies. Farmers must now concentrate on increasing their productivity and reducing their costs if they hope to continue making a profit growing soybeans.

The two main production regions in Uruguay are in the western part of the country along the Uruguay River and in the eastern regions that border Brazil. Soybean yields vary widely depending on the region and the soil fertility. In western Uruguay where rainfall is less plentiful, soybean yields are generally in the range of 2,200 kg/ha or 32 bu/ac. Yields are better in eastern Uruguay where the rainfall is more plentiful and are generally in the range of 2,800 to 3,000 kg/ha or 40.6 to 43.5 bu/ac. The soybean yields in areas of degraded pastures that have recently been converted to soybean production can vary from 2,000 to 3,000 kg/h (29 to 43.5 bu/ac) depending on the level of fertility in the soil.

Farmers in Uruguay realize that improving productivity is one way to insure profitable soybean production. The use of improved soybean varieties and higher levels of fertility are essential for improved yields. Therefore, the farmers in Uruguay are expected to invest in greater technology for their 2015/16 soybean crop.

Another way to improve profitability is to reduce costs and lowering rent payments is the quickest way to reduce costs. In the western part of the country, land rents are approximately 800 kilograms of soybeans per hectare or approximately 5 bushels per acre. At the current low prices, if the soybean crop yields less than about 43 bu/ac, then these rent payments could insure unprofitable production.

Expanding soybean production through the purchase of new land is also questionable. Over the past ten years, land prices in the soybean producing regions of the country have increased from $1,000 per hectare (approximately $400 per acre) to $5,000 per hectare (approximately $2,000 per acre).

In 2014/15, the soybean acreage in Uruguay increased 7% to 1.4 million hectares and the production increased 2% to 3.64 million tons. It is expected that in 2015/16 farmers in the country will invest more in improved technology instead of increasing the soybean acreage.

The soybeans produced in western Uruguay are exported out of river ports along the Parana River while the soybeans produced in eastern Uruguay are trucked to the Brazilian port of Rio Grande for export.