We have recently received inquiries from landowners concerned about soybean prices, leading to uncertainty regarding the choice between leasing and direct management. The price of soybeans impacts both management models, as rental income is often calculated in kilograms of soybeans. It’s true that current prices are quite low, resulting in reduced profit margins, prompting some to consider switching from soybeans to alternative crops.

Potential alternatives include maize, sorghum, and sunflower. Sunflower is relatively uncommon in Uruguay and previous experiences have been less than favorable. Additionally, harvesting sunflowers requires a special disk, which can be a limitation. Sorghum is well-established and beneficial for soil health, but it lacks economic appeal. In regards to maize, there are concerns about the increasing presence of the corn leafhopper (chicharrita), which has caused significant issues for farmers in Argentina and Brazil. Managing this pest could require 6 to 7 applications of pesticide during the growth cycle.

After discussions with agronomists, we decided to shift from late maize to early maize, as cooler nights may reduce the risk posed by the corn leafhopper. We will maintain our soybean planting schedule, as it continues to offer the best profit margins compared to alternatives. An advantage of soybeans is the flexibility in selling; farmers typically sell 30% shortly after seeding, another 30% just before harvest, and the remainder post-harvest. However, landowners can choose their selling times based on market prices, which can even be outlined in rental agreements. Price fluctuations during the growing season can be quite significant.

For winter crops, we will explore carinata and camelina due to their favorable prices and shorter growth cycles compared to wheat. These two crops are similar to rapeseed.

For international investors considering investing in agricultural land in Uruguay or landowners who wish to change their current farm management arrangement, it might be good to have more insight in the possibilities of farm rental agreements.

In cropping and cattle rent the usual term is 3 to 4 years as this gives a certain stability to the farmer. The most common price is in kg of soybean per arable hectare for crop fields and kg of steer for cattle land. These prices are published online which makes it entirely transparent. We mostly negotiate upfront payments per semester. Prices are paid in US dollar to a bank account in Uruguay or abroad.

In forestry, the rental price is also paid in US dollars and the price level depends on productivity (annual growth rate in m3 per hectare) and especially distance to either pulp mill or sawmill.

Other issues may be equally important such as the end date and conservation of soil. Soil samples are possible allthough it is good to realize that these need interpretation and certain reference/benckmark. We often negotiate a fine as a clause in the rental agreement to get more certainty about the farmer leaving after ending the rental contract and/or harvest of the crops. The mandatory soil management plan is another common clause we add to the rental contract. As well as the inspection of farms without prior notice.

Our services include negotiation to get the best possible rental agreement, to supervise the maintenance and compliance with the rental contract, coordinate the rent and advise about future management options. Legal and financial compliance is key.

In recent months we have been busy with lots of activities at the farms. October and November are crucial months for the harvesting of winter crops and seeding of summer crops. Fortunately, we can tell that barley and wheat have had good yields this season with record highs in most regions. Yields for barley between 5500 and 6500 kg per hectare and wheat 5000 to 6000 kg per hectare.

In the meantime, we also seeded maize and soybeans. Rainfall was good during this period. It allowed seedling and only interrupted a few times which was good for the newly planted grains as well. So far, there seems to be no need for reseeding.

Rainfall this spring also helped to fully recover the grassland for cattle. That means no big problems expected for the summer season. The only disadvantage here are the prices that are still relatively low.

The effects of El Niño have been very moderate if any. The forecast was higher temperatures and more rainfall than usual, but so far it has all been very common in terms of weather conditions. Only the north of Uruguay, close to the border with Brazil had more rainfall than normal.

Responsible agricultural investments are not yet widely accepted or promoted in South America, but agricultural investors targeting assets in the region should understand the consumer-driven demand for sustainable production, and there are some successful projects in South America where landowners and farm operators have joined forces to set up these kinds operations on the ground.

We worked on an agricultural project in central Uruguay where a landholding agricultural company achieved triple certification for its entire 2,500 hectare farm business, acquired in 2015, and converted from a cattle operation to a mixed operation in which the main element is cropping.

The company hired their own staff and invested in machinery to produce grains including soy, wheat, barley and corn. The remaining cattle breeding operation and forestry plantation are rented out to large multinational operators.

Large scale operations in Uruguay are almost always a mix of these three activities, but ensuring and certifying the conversion as sustainable on all three was challenging.

Farmland certification

The owners began by getting in contact with Aapresid, an Argentine organisation that promotes agricultural good practices including no-tillage farming.

After obtaining the Argentine Aapresid certification in 2014 for crop farming land, they went on to be granted the internationally applicable Round Table Responsible Soy (RTRS) certification. The landowners consider it the best certification system for South American farm businesses for enhancing sustainability and responsibility, as it tackles regional issues with rainforest preservation and responsible labour practice requirements.

To achieve the certification, measures included constructing canals and terraces to avoid soil erosion. A special depositary was built to store agricultural chemicals. Most important though, was staff organisation and training on issues like labour security and waste disposal. Social security benefits for permanent and contracted workers were also paid. Signboards were required on all sites to give nearby inhabitants prior notice of any chemical spraying. Deed titles and soil management methods were also documented.

Forestry certification

For timberland the Forestry Stewardship Council was considered the most logical certification, and the farm is on the road to obtaining it later this year. The landowner planted the trees and owns the wood, so could apply for certification although the forestry management is leased out.

Cattle certification

Cattle businesses in Uruguay are generally near-organic, and would comply with the USDA Never Ever III programme. That means the animal is not fed antibiotics, growth promotants or animal by-products from birth to slaughter.

However, because Uruguay is officially free of foot-and-mouth and mad-cow disease, and all livestock is traceable, the landowners did not see added value in a specific certification of their cattle management.

In practice the nearly-organic cattle breeding combines very well with conventional operations in responsible soy bean cultivation and certified timberland operations.

The road was tough, but worth it

Achieving the triple-certification from the FSC, Aapresid and RTRS has been difficult at times, but in the end the investors felt it was worth it.

Nevertheless, more internationally recognized tools and benchmarks measuring the economic benefits of sustainability are needed as an incentive for investors and landowners to adopt good farming practices.

The landowners in this case decided on their own that they wanted to meet the consumer-driven demand for responsible soy production in the fastest and best possible way, to the extent that the landowners have now decided to move on to a new conversion and certification project.

Converting from conventional to sustainable farming practices adds value, better exposure to external investors and operational marketing opportunities. And above all, it leaves soils in the best condition and therefore provides optimal conditions for decades-long farming on the ground.

This article was originally published on AgriInvestor

April and May are the months to negotiate rental agreements. This year with the pleasant situation that prices for grains are on the highest level since several years. Most rental contracts are set in kg of soybeans per hectare. For example, crop fields where the rental price is 900 kg of soybean per hectare. A year ago, the price was 320 USD per ton and today the price is 557 USD per ton. That means a year ago 900 kg x 0,32 = 288 USD per hectare and this year 900 kg x 0.557 =  501 USD per hectare. A more than significant increase in rental income for landowners.

We can advise landowners on different ways to set up rental agreements in order to improve the return on investment.

End of April we visited this crop farm in San José. Glad to see the soy beans were almost ready for harvesting. This crop farm was bought 7 years ago by a Dutch client. In 2013 we helped him find a tenant for row cropping for a period of 4 years. The last three years the land was rented out to a dairy farmer for cattle grazing. This gave soils the chance to recover and avoid erosion. This year was the first year the land owner could go back to row cropping. Land stewardship is about the integration of good agricultural practices. The dairy farmer, however, closed his operations after the rental agreement ended, but that´s a different story.

Each year from February 15 to March 15 all cattle in Uruguay needs to be vaccinated against Foot and Mouth Disease. This vaccination is mandatory since the last outbreak in Uruguay in 2002. Last Friday we finished vaccinating at one of the farms where we manage cattle herds.

Early June we received a request to help a US investor change his farm administration. He owns two crop farms in Colonia, Uruguay. For five years, he had hired staff to operate the farms on his behalf. The outcome was disappointing for him and he ended up wiring additional money on a yearly basis. We suggested several changes to guarantee revenues from lease contract and reduce expenses. We worked on getting him the leases with upfront payment for his farms and replace the service providers involved.