One of the reasons Tennessee soybean producers are getting such low prices for their beans is the worldwide glut, in part caused by massive soybean production in Brazil.

And despite efforts to force the Brazilians to curb their production, don't expect relief for Tennessee soybean producers anytime soon, says Daryll E. Ray, who holds the Blasingame Chair of Excellence in agricultural policy at the University of Tennessee's Institute of Agriculture. Ray is also the director of UT's Agricultural Policy Analysis Center.

"The conventional wisdom has been that if the United States used more acreage to produce soybeans, and did so at less than premium prices, Brazil would cease and desist, so to speak, from its expansionist tendencies," Ray said.

Wrong context "Maybe the reason Brazil has not reacted as we expected is because we are not viewing Brazil in the right context," he said. "Suppose, for a moment, that we think of the Brazilian situation today as similar to that of the United States 150 to 200 years ago when the frontier and economic development were being pushed ever westward."

Brazil has vast amounts of undeveloped cerrados (savannah) land in the interior of the country that it can transform into cropland.

The cerrados covers 511 million acres, or about the same area occupied by the Dakotas, Nebraska, Kansas, Oklahoma, Minnesota, Iowa, Missouri, Arkansas, Wisconsin, Illinois and Indiana, Ray said.

Of the 511 million acres, after leaving at least 20 percent of the land as a natural preserve, about 336 million acres are suitable to large-scale, mechanized agriculture. At present Brazilians have dedicated about 30 million acres to crop production and 86 million acres to pasture.

One soybean field in the cerrados may span 60,000 acres (100 square miles).

Ray said that Brazil faces challenges in transforming this land. The soil of cerrados is infertile, and North American soybean varieties don't yield as well because summer days in the temperate climates are longer than days in the tropics.

"In some ways, Brazil's land reclamation efforts are similar to those in Iowa and Minnesota in the mid-to late-19th century," the economist said.

Since 1996, soybean prices have dropped 37 percent and American producers have put an additional 10 million acres into soybean production. But Brazilian acreage continues to grow.

"It appears that the area devoted to soybean production in Brazil has very little to do with the level of soybean prices and acreage in the United States," Ray said.

American producers have advantages over their South American counterparts. They don't spend as much on fertilizer as the Brazilians who are tilling the infertile cerrados. Transportation also isn't as expensive because of poor roads and railways in Brazil.

But they beat American producers on price. American soybeans arriving in northern Europe cots $6.74 a bushel, compared to $4.49 a bushel for Brazilian soybeans. This is a difference of $2.25 per bushel.

How low? "So how low would we have to go?" asks Ray. "Well, just to match Brazil's cost of production, the U.S. soybean price would have to be in the neighborhood of $3.64 a bushel," he said. November prices in Tennessee at the time were about $4.70 per bushel.

"The question then becomes, would driving soybean prices down to Brazil's cost of production be sufficient to derail Brazil's soybean-based economic development strategy?"