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A Visit to the World's Next Agricultural Superpower

By Tom Dyson, publisher, The Palm Beach Letter
Monday, July 14, 2008

I bent down to examine the seedpod. It had the shape and color of a peanut shell... with the texture of a tennis ball.

"Can I eat one?" I asked the farmer. "Uh... sure," he said.

A couple farmhands saw me pick the pod from the stalk and open it up. They put down their tools and stared. The farmer crossed his arms and leaned against a pickup truck. I popped a couple of beans into my mouth. As soon as I started to chew, my mouth filled with a foul, bitter taste. I spat the beans out in disgust. The farmhands burst into laughter.

"It's the chemicals," said the farmer. "They make the beans taste bitter. We'll wash them after the harvest."
Brazil is the world's largest exporter of soybeans. Three months ago, I went there to tour the soybean fields...

The soybean fields are in the center of Brazil, away from the coast. To get a better view of the terrain, I decided to travel by bus. For six hours, I gazed at the soybean fields from the window of the bus. The fields were so big, they made my vision blur.

I spent a few days in Lucas do Rio Verde... a farming town in the center of the soybean region. I visited several farms, a grain storage operation, and a tractor dealership... And I had dinner with the mayor's brother, also a soybean farmer.

The Brazilian soybean machine is incredible. In America, there's only one soybean harvest per year. In Brazil, some farmers can get three harvests per year.

The world's largest agricultural firms all have operations in Brazil's soybean complex. I saw operations owned by Archer Daniels Midland, Bunge, Monsanto, Syngenta, John Deere, and many others. Parades of soybean trucks clog up the towns and destroy the highways.

It's no exaggeration to say Brazil is becoming the world's agriculture superpower. The soybean is just one of Brazil's crops. Brazil is also the world's largest exporter of sugar cane, coffee, tropical fruits, and frozen concentrated orange juice. And it has the world's largest commercial cattle herd. It's also one of the world's top producers of corn, cotton, cocoa, tobacco, and forest products.

Here's the thing: Brazil's soybean region has terrible soil. If you planted corn in one of the soybean fields around Lucas do Rio Verde, it would rise about six inches and then stop growing.

Brazilians call the land where they grow soybeans "cerrado." Cerrado means "closed" or "inaccessible" in English. It's like savannah... Or the desert.

Rain is the reason. There's so much rain, farmers pray for dry weather at harvest time. Rain turns the roads into mud, and they can't move the combines around. And for thousands of years, the rain has leached all the nutrients from the soil.

How does Brazil grow soybeans in such poor soil? First, farmers use a special strain of soybeans. Second, they dump piles of fertilizer on their fields.

So nothing grows without huge applications of fertilizer and chemicals. This is why the soybeans I ate tasted so bitter.

(As an aside, this is a major benefit of the genetically modified crops we grow in the U.S. Farmers use much less pesticide and chemicals to grow them.)

One opportunity to consider is Bunge (BG). This American company is the largest fertilizer manufacturer in Brazil. Brazilian oil giant Petrobras (PBR) also has a fertilizer division. And Fosfertil (FFTL4 on the Sao Paulo stock exchange) is the largest Brazilian fertilizer producer.There's a major investment opportunity here. Brazil has more unused arable land than all the cropland in the U.S. As the farmers clear the cerrado and plant more soybeans, fertilizer companies will make huge profits.

Good investing,


Market Notes

Goldcorp (GG)... blue-chip gold miner
Exelon (EXC)... nuclear power
America's Car-Mart (CRMT)... used cars
EZ Corp (EZPW)... pawn shops
Techne (TECH)... biotech is "acting well"
Acorda Therapeutics (ACOR)... biotech is "acting well"
Crude oil, Aluminum, Aussie dollar


Merrill Lynch (MER)... investment bank
Morgan Stanley (MS)... investment bank
Las Vegas Sands (LVS)... gambling
MGM Mirage (MGM)... gambling
Nasdaq (NDAQ)... gambling
Toyota (TM)... automaker
Lundin Mining (LMC)... base metals
Sotheby's (BID)... auctioneers
Legg Mason (LM)... asset manager
Chipotle (CMG)... delicious food
Ruth's Chris (RUTH)... delicious food
Weight Watchers (WTW)... not-so-delicious food
Tejon Ranch (TRC)... California real estate
iShares France (EWQ)... French stocks
iShares Sweden (EWD)... Swedish stocks
iShares South Korea (EWY)... South Korean stocks
Martin Marietta (MLM)... construction aggregates
Vulcan Materials (VUL)... construction aggregates
Valero Energy (VLO)... America's largest oil refiner
Dean Foods (DF)... America's largest dairy refiner
Starbucks (SBUX)... America's largest coffee refiner
General Motors (GM)... America's largest automaker
Harley-Davidson (HOG)... America's largest motorcycle maker
Home Depot (HD)... America's largest home-improvement chain
Fannie Mae (FNM)... America's largest disaster
Nickel, Zinc

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