LUIS EDUARDO MAGALHAES, Brazil (DTN) -- Young Iowan Tyler Bruch was on a roll last year. This poster child for U.S. farmer success in Brazil was guest speaker at the 2008 Commodity Classic, cover story on several magazines and star of an Emmy-award-winning CNBC series entitled "Field of Dreams."

But a year can be a long time in farming. Especially in a high-risk environment like Brazil, where farmers not only have to contend with weather and market volatility, but also tight credit, wide basis and a strengthening local currency.

"Being a farmer in Bahia is not for everyone, and it's definitely the hardest thing I've ever done," said Dutchman Herman Burema, a farmer and former investment banker with more than 20 years experience in harsh environments like Russia, China and Japan.

Bruch, 29, has a more modest past. He moved down to Brazil in 2002, fresh out of college, to manage a 1,200-acre farm purchased by his family.

The opportunity for expansion, though, soon had young Bruch's imagination running wild. In 2005 he co-founded Global Ag Investment, a company with around 30 U.S. backers, to grow farming operations in Brazil and the Ukraine. Last year the company had over 50,000 acres under management.

At the CommodityClassic event, he told listeners he expected growth of 20,000 acres this year, while in a video interview he said his personal aim was to be farming a "couple hundred thousand acres within five years."

Bruch, however, didn't count on poor crops and a global financial crisis drying up some of the liquidity from his U.S. investors, while making operating capital harder to get. Ambitious plans for a 30-million-gallon biodiesel plant were also put on hold.

"Everyone had setbacks last year, we went from our best crops to our worst crops in a 45-day rain period during harvest," said Bruch, adding that it was the worst rain cycle in 29 years, with rainfall exceeding 112 inches on one of his farms.

URGENT FUNDS

In a letter last month, Bruch told investors that an already difficult credit situation had become critical and they would need to respond quickly "to a constantly evolving business environment."

Investors were invited to contribute to a Brazil Operating Line fund (BOL), which aimed to raise between $1 million and $3 million, to provide enough working capital for the current season planting.

The letter warned that if the fund's target was not met, there was a significant risk the company would not be able to continue farming and could face "a forced sale of assets and return to investors a percentage of what has been invested."

Since then, however, Bruch says the fund's target has been met, and the company will now plant 10,000 to 12,000 acres of cotton this season, forgoing less profitable soybeans.

"Our company was hit like everyone else, coupled with bad credit markets and a poor crop last year," Bruch said in an email. "We have had to adjust plans so we can maintain our objective of making money."

Global Ag is not the only farm group with problems in Bahia. The Walkers, a Brazilian family of British descent and farming in the region for over 25 years, recently had to get court protection to renegotiate debts of over $40 million.

In this case, however, the family has over 100,000 acres, worth more than $200 million, to fall back on. Unfortunately for Global Ag, it has been farming leased land and so has missed out on phenomenal land appreciation of more than 500 percent over the past five years, with developed land currently selling for more than $1,500 an acre.

SMALL BUT STEADY

Big may not always be better in Brazil's rugged frontier region, where there are plenty of small, successful family run operations.

Mike Gretter, from Harper, Iowa, has been farming in western Bahia for the past seven years and has seen steady returns. Together with his two brothers, who farm back in Iowa, they purchased a 600-acre plot of irrigated land in 2002.

After an initial settling-in period, which included coming to terms with the language and lots of red tape, they expanded and now lease an extra 4,000 acres used to grow soybeans and corn.

"Yields have been very good in recent years," said Gretter, who gets an average 45 to 50 bushels per acre (bpa) on his beans and 150 bpa for corn. "Returns have been decent, but it helps to be self-financed down here."

Gretter spends a few months of the year back in Iowa but says he prefers farming in Brazil. "I like the warm weather here."

Phil Corzine, who set up South American Soy back in 2003, has also done well in Brazil by moving slowly and avoiding risk.

Corzine, from Assumption, Ill., has around 15 investors, and in 2004 they purchased 4,000 acres in the south of Tocantins, a frontier farming state right in the heart of Brazil.

"It hasn't been easy. It took a while to get permits, but now everything is going fine," said Corzine, adding that operating profits in Brazil are similar to those for leased land in the U.S.

"It's a good way to expand if you cannot afford land in the U.S.," said Corzine. "We have been getting steady returns of 5 to 7 percent a year, plus land appreciation, without taking on too much risk."

One of South American Soy's backers, farmer Eric Rund, from Pesotum, Ill., says that so far he has been very happy with his investment in Brazil.

Rund first met Corzine at an investor presentation in Chicago a few years ago. "He seemed to know what he was talking about," said Rund, who lived in South America for five years with the Peace Corps during the early 1970s. "There was no sales spiel. He told it like it is."

Rund, who also has an agricultural tour company with regular trips to South America, says it is important to have realistic expectations regarding overseas investments.

"We weren't looking for a get-rich-quick scheme," said Rund. "We were under no illusions. We knew it was a long-term project, and so far, expectations have been met."

NOT FOR EVERYONE

While there's little doubt Brazil has plenty of opportunity, it's also clear that it's not for everyone.

U.S. farmer Ray Gaesser from Corning, Iowa, has been to Brazil many times over the past decade, mostly representing state and national soybean bodies, but also on personal visits to the family of a former Brazilian intern.

"We love to visit Brazil, and the growth there is phenomenal," said Gaesser, "but it's just too risky, and we prefer to focus on expanding our operation here in the U.S."

Gaesser, who will take over as head of the American Soybean Association next year, moved from Evansville, Ind., to his current home in Iowa back in 1977 and now farms close to 6,000 acres.

"We know what we are doing here," said Gaesser. "It's a different culture down there. Here, we do deals on a handshake. It's not that simple there."

Brothers Bill and Joe Horan, near Rockwell City, Iowa, are also frequent visitors to Brazil, but have also resisted investing there.

"When we go down to Brazil, we feel like European farmers do when they come to the U.S.," said Bill Horan, the elder of the two brothers. "The scale down there is incredible. You have to be impressed when you are standing in a 60,000-acre field stretching as far as the eye can see."

He added, though, that you need the right mindset and personality to be able to successfully operate in Brazil.

"If you check all the right boxes, then you can make a fortune," said Joe Horan. "There isn't much room for error, though, as you can just as easily lose a fortune."

Kieran Gartlan can be contacted at kieran.gartlan@dtn.com

(UL/ES/KM)

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