Friday, September 15, 2017

Sept 15 blog update

Hot and Dry and more of it.

It looks like another 3 to 4 weeks of hot and dry.
No one is planting.

This year looks to be different than last year.

For Brazil, planting soy in October does not mean reduced
production potential.

Brazil can still crank out 110 mmt even if soybeans are
planted later.

The 2nd crop corn becomes the risk.

Carryover stocks of soy and corn in Brazil as of January 1, 2018 will
be much higher than in recent years.

As per soybean market action, I am now a bull.
I have outlined the reasons why in recent newsletters.

One thing we need to watch is that if this droughty pattern continues,
will be export loadings in January be affected?

Brazil will have carryover stocks to load ships in Janaury if the
market needs them.  But basis and or futures will have to pry
them out of farmers hands.

A possible bullish outcome of this weather pattern would be
something like this:

We plant late which means February harvest of soybeans.
Maybe February is wet?

Chinese increases year end buying more soy out of USA which
pulls down perceived carryover stocks for 2018.

For some reason or another Brazil comes in 5 mmt light
on her potential.

Chronic wetness causes problems for Argentina wheat and
corn planting.

Does that mean Argentina increases planted area of soybeans?

It is hard to bet against Argentina. Last yer we saw pictures of
flooding and there was talk of a 50 mmt soybean crop. In the end
the Argentina crop was 58 mmt and 40 mmt of corn.
What problem?  What flooding?

This year the flooding is much earlier. Will that mean the opposite
result this year?  Wet start and a dry end to the year?

The perfect storm is setting up for higher prices?

Way to early to be killing SA crops. I will wait until
January before I get to concerned on the loss of potentials.

But, I think we have higher prices going into the end of year.

The markets ability to shake off the last USDA report tells me
the lows are likely in.

I don't think the market believes the crop size and yields.

Another 30 days of dry in Brazil, the soy market needs to
add in some risk premium again.

We can't just assume a 115 mmt is in the bag for 2018-
not just yet .....

Kory

keywords: Brazil SA weather, late planting, crop size potential, bullish




Thursday, August 31, 2017

Sept 1 blog post

Hot and dry in Cerrado states.

This is normal for this time of year.
But rains should be starting by mid-month.
The forecast is for below normal rainfall until about Oct.

This may cause a bit later planting to soybeans than last year.
Southern Brazil is also worried about a late planting which then
increases the risk of 2nd crop corn.

The political and economic situation seems stable at the moment.
We would like to see more growth, but the economy is just
dilly dallying along. Business's continue to close and very few
new ones open. The ag economy is the GDP generator in the
economy. Without the massive ag production, Brazil would be in
deep doo doo.

China seems to be in the news every week. They are either buying
something or dealing on something all the time.
Even Korea bought a soy processor in Goias recently.

As per my April price forecast, I was expecting an early September
low in the markets. 9.03 is important for SX 17.

I will update again mid-month.

Brazil is going into the 2018 marketing year with massive amounts of
corn and soybean carryovers.

Br fertilizer delivery's are running slightly behind last year's pace.

Brazil meat exports are returning to pre-crisis levels.
Meat inspection at the packers are at record levels.

It looks like I will be in Mato Grosso again in September. I have
an international group coming in.

The Real:Dollar remains steady at 3.15.

If it were not for the lower dollar in relation to other international
currencies, I think the BRL would be closer to 3.50 today.

Elections for BR are in one year.  Oct 2018.
This will define BR's destiny.

Asphalting of BR 163 will finally get done in 2018. Look for more
harvest delievery problems going north again this rainy season.

Key words:  climate, politics, soy prices, BR 163, China





Friday, July 28, 2017

August 1 blog

Happy August

I cannot believe how fast this year is progressing.

Thank you for all the consults this month and annual renewals.
Always appreciated.

I sent out in my April newsletter on how I expected the year to play
out as per soybean prices. So far, we are tracking well.
Drop me a note if you would like a free copy of the April
newsletter. I will send you a copy.

agturbobrazil@yahoo.com

I am expecting cool air to drop down early in September for Northern plains.
My guess is we will put in a low in early September and then
start to rally again. More on this in future newsletters.

The political environment in Brazil continues drive a normal
person batty. The leaked tape of JBS owner recording
the current President was something right out of a 007 movie.
But, since no legal action has been taken as of today, it seems more
like an episode of twilight zone.

I then turn my attention to USA and I want to scream at times.
Six months have gone by and what? What is it I am am supposed to
be impressed with?

I tend to return to my own little world of soybeans and corn. Even though
they have seen better times, at least they seem more rational and predictable.

The USA drought has taken the top end off the crop this year. By no means
a disaster, but at least gives us something to base off of going forward.

The Brazilian farmer has zero incentive to produce 1st crop corn this
next season. This means more soybeans. Maybe a lot more beans.

If we use a five year average for BR soybean yields, 2018 crop will
look much like last year. If we use last year's record yield, then we
will have a soybean crop several million ton larger than the current USA
crop. CME, China and BR will have to deal with this new reality.
We are trading beans in Chicago that are being produced south
of equator and headed to China. It will be more and more difficult to
square the circle with logistics always lagging the production surges.

It is looking like an early start to rainy season. It has been unusually
cool for this time of year. Last year we were baking in dry heat and
this year Brazilians are wearing jackets.

Elections are scheduled for Oct 2018 for Brazil. The field is wide open.
The BRL FX remains mysteriously strong given all the upheaval of late.

Outside of the ag economy, the REAL economy of Brazil really sucks.
The amount of small businsses that have closed their doors in city's
like Goiania is surreal. Many of the younger generation have given up.
Just as well leave the country is the motto.

Much talk of railroads in recent weeks. Let us hope so.
With a big 2018 soybean crop followed by a large 2nd crop
corn again, Brazil continues to bury herself in commodities.

Brazil is playing a dangerous game longer term with her corn production.
The 1st crop continues to disappear and is replaced by soybeans.
The 2nd crop area continues to expand fueled by rotation needs and
goverment minimum pricing. An early frost in southern states combined
with an early dry spell in Cerrado states will spell disaster for domestic corn
production in the future. There will be no cushion to work with- only sharp
increases in domestic corn prices to cull demand quickly. Not an optimal
business model.

For the next 12 months, there is no shortage of corn anywhere.

There will be a fair amount of shifting away from GMO soy and corn seeds
in 2018. A nice R$ 10-12 per bag premium to grow non GMO soybeans.
And the technology is breaking down as per bug resistence for the GMO
corn seeds. The price for seed does not compensate for the advertised benefits.
Back to a basic RR corn and apply insecticides as needed.

Cut the seed costs will be the mantra.

I will be in Mato Grosso next week. I will send out updates as I learn more.

I will attend the inauguration of the 1st 100% corn ethanol mill in Mato Grosso.

Much talk of amending production to increase the amount of flex-mill capability
of the existing sugarcane mills in Mato Grosso. The idea is to produce
ethanol from corn during sugarcane off season. There are three mills that do this
on a small scale so far.

Happy harvesting in Northern hemisphere.

Planting will likely begin early this year and on time circa Sept 15th for
Southern hemisphere.

Kory

Keywords: newsletter, politics, Mato Grosso, ethanol, railroads, GMO seeds





Saturday, July 1, 2017

July 1 blog, drought, bull again, acreage battle for 2018

I sent this out to subscribers back in Feb 12th, 2017

* One data point I am watching as per USA weather for 2017. As per seminars I attended 20-25 years
ago on weather and markets.

One major leading indicator for a midwest drought is a 60 degree temp in Des Moines for the month of
February increases the odds of a drought to 80%.

The forcast for 2/19 for Des Moines is 61 deg.

Last year I was watching for this and it did not happen. Even though there
were a few predicting drought for 2016, I felt the June high was solid and we
would head lower. For the most part that was correct. We never had an August
rally as it was hot and wet every day and record yields were the result.

2017 will be different if this data point holds next Sunday

1980 and 88 are analog years among others....  "

Kory

So far so good.

We do not have a drought per sey in the " Corn Belt", but the High Northern plains
are sure getting it full force.

The comparisons to 1988 are the key words I have been waiting for.

It is funny how bankers and crop insurance interrupt common sense sometimes.

NW MN and ND have switched to corn and soybean country in recent years. Long growing
seasons with great yields have changed the historic cropping rotations away from wheat and
sunflowers. Corn and beans are king. A few good years and most everyone has good APH's to
work with. This gross revenue protection is better than growing wheat for a loss.

At the end of April, when I saw the Kansas blizzard and the northern plains in the deep freeze,
I told myself, this is a wheat year- not a corn and bean year.

We were hearing from many sources that this was the lowest planted area of wheat in
circa 100 years. Other comments from farmers saying this was the lowest percentage of
wheat we have ever planted on our farm were early leading indicators of "What if" there
are some weather problems? Here we are.

I must say the wheat rally strength is suprising. It is funny to see so many get bulled
up so quickly. A rally of some sort seemed likely, but with bins full of wheat from
last year yet, the fortitude of this rally is down right impressive.

Where I am from in NW MN, the wheat crop is perfect. Everyone is applying fungicide and
adding liquid N to bump the proteins. Many have 70 bu wheat on deck and I think some
100 bu wheat will be likely on a few fields. The problem is: only about 20-25% of any farm
is spring wheat. The balance of the farm is corn, soy, and canola and some sugar beets and
edible beans. I wonder how many 4th of July picnic table conversations there will be this
weekend of " I shudda planted the whole farm to wheat!!!"  I could have retired !!!!
One must feel for the central ND farmers that are baling up their wheat in order to save
their cow herds. Many hay buyers have been up to NW MN looking for any hay possible.
For them, it is a crop insruance year. Some of the same guys that sent hay to Oklahoma
a few months ago now need help themselves. Crazy how fast things change.

We all remember the 2008 rally in spring wheat to 23 dollars. Best drug ever created
for my area in NW MN. Everyone thought they were instant super heros.

The problem with the bull run of 2007/2008 and again in 2011/2012 was that no one
had any wheat to sell at the higher levels and cost of production was nuts.
That was hard to write checks for a tanker of diesel at 4 dollars per gallon and
fertilizer was circa 1000 dollars per ton. Wheat needed to be 8 dollars ++++ !!!

Since then, fertilizer and price of N have dropped significantly and diesel is
circa a 1.50/gallon again.

Also, back during the commodity boom, everyone was hedging production
on the way up. Some was sold at 8 bucks and more at 10 and 12 bucks.
So if wheat was 13 bucks, no one had any left. And new crop was priced
back at 8 bucks, so why sell that when spot is still 11 bucks was the mantra.

Produce and hold was the new biz model. Build more bins.
That worked until the recent 3.5 year bear market.
Six months ago, bankers were telling farmers to dump that wheat.
US 4.50/bu is good enough. Clean up your operating and let us get ready
for 2017 with corn and beans.

So a good chunk of last year's crop got sold at Christmas time.

Then boom:  a 3 dollar  rally and probably more to come.

The good thing about this year's crop being grown is that prices were so
low that no one has any sold. Why hedge 4.50 wheat? a guaranteed loss.
It is a produce and hold crop. It is a rotation crop.

So when I hear farmers harvesting early spring wheat and hauling direct
to elevator and getting 9 bucks off the field, it makes my heart sing with joy.
Congratulations dude, you deserve it after the last 3 years+ of being patient
and getting a corn cob rammed up your bottom side.

The net margin of producing a 70 or 80 bushel crop this year and selling
off the combine will be better than the margin back in 2008 in most cases.
Cost of production and lack of crop sold come together to line up the 7's.

So back to beans, are corn and beans next to rally back to decent levels?

I have outlined to clients since back in January of what I expect for the year.

The May low was on target.

The recent drop to 9.07 basis Nov 17 was a surprise and worrisome.

As long as 9.03 holds, we can be a bull.

Now in just 5 days, we are already back to 9.58.
A close above 9.82, I think we can rest assured that the
9.07 low was a significant low and we have better prices to come.

I will send out a special technical update in a week.

With a combination of less than optimal spring conditions,
mid season drought stress now in July, and a likely early end to
the 2017 growing season, I doubt we will produce the 4.2 to 4.3 billion
bushels of soybeans being projected.

SA will have plenty of carryover stocks and that will be a weight over
the market.

But, any hiccups in SA weather and the new acreage war about to start for
2018 between Spring wheat and Soybeans, we now have a story. We now have
something to talk about.

We have reason to be optimistic and bulls with small testicles again.

Happy 4th and enjoy your holiday.

Kory

keywords: spring wheat, drought, soybeans, acreage war






Saturday, June 10, 2017

June 10 Brazil: Slap in the face and a few snipets from old newsletters

I was preparing for my trip to northern Brazil last night
and getting ready to go to bed when twitter came to life
with the last vote from the Brazil Supreme Court.

I was thinking it was going to be a calm weekend without
much going on. And then Boom !!!!

For anyone with an education and who keeps an eye
on the political scene in Brazil, last nights 4 to 3 vote
to not proceed to anul the 2014 election because of campaign
funding irregularities was a left hook to common sense.

Even with audio proof two weeks ago that President Temer
was in the know of shady money transfers was not enough
to persuade FOUR Supreme Court justices to not move the
case forward to anul the Dilma/Temer ticket.

I am not totally surprised that this is the end result, but I am
surpised at how "in your face" this decision demoralizes all the
other Federal Judges works to date on Lava Jato or Operation
Car Wash.

Two weeks ago, the Court was handed audio proof and this was
on top of stacks on testimony from Odebrecht and their kickback
business model that had been going on for 50 years in Brazil.
It damn near involved everyone. Excel spreadsheets with nicknames
of kickback recipients, dates and amounts.

I can only surmise that at the end of the day, the four Justices
decided the lesser of two evils was to kill this now instead
of let the country go through another 15 months of political hell.

Appeal process, impeachment trial, votes, protests, and then a new election
just to have another election.

If one does not assume this, then the only other scenario one can
conclude is that some sort of politcal pressure was applied to the Court.
This takes us down the conspiracy rabbit hole and will drive
you nuts. Many in Brazil believe this to be the case.

I would have liked to see Temer serve out his term not because
of any leadership on his part, but moreso because of stability.
Blario Maggi is Secretary of AG and I would like to see him
remain in that position until January 2019.

Ports, railroads, Chinese investment, pro-ag and pro-developement

However, I was hoping they would have come up with a way for
Temer to remain, or step down, but discipline the party somehow
as to not encourage this behavior. Without some sort of discipline
at this point, all they are doing is encouraging this modus operandi
to continue and very few will go to jail for very long. Many will serve
a bit of time and then be under house arrest for a while.  whoppie ding...

The public is really pissed off. It was a slap in the face.
I expect protests to erupt Sunday and again on Thursday
June 15th, which is a national holiday.

What will happen to Dollar:Real?

I can make a case for higher and lower dollar on Monday.

If higher, Central Bank will step in and sell more dollar swaps.
If lower, market will assume pension reforms will pass and some
sort of economic discipline will occur over next year with slight
GDP growth. As I said above, the lesser of two evils.....

The focus will now turn to the Oct 2018 elections.
There are many candidates.
However, lately, former President Lula has risen to popularity
again. Assuming he stays out of jail, he will be a contender.

This goes against all common sense, as per the party that helped incentivize
all the kickbacks could actually come back to power because of the suffering
of the common man. They can point to the corrupt system and say " see, the rich
always get their way, let us help you." "It will be the only way for you poor folk
to survive."  Vote for me.

So- the end justifies the means? Brazil got her Olympics and World Cup
venues. Those in the club got their payoffs. A few politicos got a feather
in their hat, but the working man now pays for all of this all the while
the education and medical system in the country deteriorates?

Strange, strange times we live in.

Kory

key words:  Brazil politics, soybean market, weather

www.brazilintl.com

I will include a two screen shots from earlier newsletters in 2017.
I believe they speak for themselves.

 Screen shots from April and May technical updates below:














Tuesday, May 9, 2017

Mato Grosso corn 2017- a very big deal

IMEA updated their Mato Grosso 2nd crop corn estimate to
28 million tons. This is 1.12 Billion bushels of corn.

They used a record area of 4.7 million hectares and a near
record yield of 100 sacs/ha.

We have a good chance of rain the 3rd week of May for
Mato Grosso. This is what tops off the yields.
It helps the later planted corn fill and in the end all the
corn has a uniform yield throughout the state.

I think back to 7 to 8 years ago and we were dealing
with a Mato Grosso corn crop of 6 to 8 million tons per year
depending on rainfall. We have come a long way.

Corn prices in Sorriso for new crop are trading at R$ 14.00/sac.
This is about US$ 1.90/bushel.

If Parana, MGDS, and Goias can finish off their corn crops
without a June frost to nip yields, I think we will hear of corn
trading R$ 12/sac by August in Mato Grosso. There will
simply be too much in the country.
R$ 12= US$ 1.60/bushel.

Conab is stepping in with weekly auctions and minimum
pricing offers. The problem is that there is not enough funding
to cover all the tons that are potentially out there and below the
minimum price.

Two years ago, the FX at 4:1 saved the day and the export
market sucked up the excess quickly. This year, with FX at
3.20:1 and plentiful global stocks of corn, the situation
is more complicated.

The Ribeirao Preto ag show was a huge success.
Everyone is very happy with the results there this year.

Silage is being made in Mato Grosso for those with cattle feedlots.
I expect some wet corn to be harvested in near future.
Spot corn prices will warrant taking it wet and drying it.
But that will quickly come to an end as market saturates.

Silo bags will be a common site in MT this season.

There will be mountains of corn piled everywhere in the
coming months. Please take it will be the mantra.

Kory

keywords: Mato Grosso corn, Mato Grosso corn prices





Saturday, April 15, 2017

Big crops, econ, politics, and looking ahead

2017: a year it did not pay to be conservative with crop size estimates for South America

It looks like the Brazil soy crop will shake out at 110 mmt+.
Given some of the weather concerns back in November for southern
and NE Brazil, I would have thought it was not possible for Brazil to jump from
95 mmt to 110 mmt in one year. The fertilizer sales data for 2016 was
telling us to be optimistic, but weather patterns were telling us to be cautious.
In the end, top notch seeds, fungicides, and nearly ideal rainfall for most of
the country gave us record yields. 2017 soy crop was all about productivity.
The acreage expansion for soybeans was only 1.4% this past season.
The rate of expansion has been declining lately. We need to look back to
the 2005/2006 timeframe to see an acreage reduction year over year.

Rio Grande do Sul stands out for me this year. They are at 17.5 mmt and some
think it could be as high as 19 mmt - larger than Parana. Who wudda ever thunk that?
Remember the drought year of 2011/2012? RGDS was at 6.5 mmt. Therefore, it is hard
for me to grasp that an established ag state could triple soybean production in a few
years from a low period to a peak period. These new soy genetics are down right
phenomenal.

I am still hearing of a few guys converting pasture to soybean area for 2018.
With big crops, even if prices are low, they still have the equity to bring
more land into production. The economics are not there for expansion, but
if one has the land just sitting there, the idea is to make the best use of it.
Hope for the best...

2nd crop corn is zipping right along, and I think we will see similar results
with it. Crop estimates of 91 mmt for Brazil and 26 mmt for Mato Grosso could very
well end up being close to 100 mmt for Brazil and 30 mmt for MT.
(Mountains of corn) Brazil needs about 55-58 mmt for her own needs.
The rest is EXTRA.

Inflation is under control and central bank dropped interest rates again last week.
The country seems to functioning in a Zombie state. The poor are doing whatever they
can to survive. The middle class is disappearing. The rich, well they are rich. Some rich
seem depressed because they have less money than before. But these same people drive
new Land Rover´s and think nothing of spending R$ 100 for a nice breakfast in the
morning. Apartment prices are coming down albeit slowly. However, new buildings
keep popping up and I have even seen one new one here in Goiania where the cheapest
apartment in it is R$ 3.5 million. The high end apartment was R$ 5 million.
This is obviously not the norm, but I bring it up because there are those buying these
units yet. The have and have nots gap is defintely widening in Brazil during this
downturn. One cannot compare Brazil to USA in 2009-2010 time frame. In USA,
properties are foreclosed on and flushed thru the system at 40-50% on the dollar.
Not here, one maybe will see 10% drop in price for cash and finance in house for
a bit and not at a bank. They will work with you and in the end get close to their
price. Shopping malls and retail stores are different. There are deals to be had on cars
and appliances etc. If you have cash, 40-50% discount can be negotiated these days.
Brazil does not function as per the normal rules of economic cycles and supply and
demand. She has a rule book all to herself. It is up to the resident to figure it out
depending on where you are at in any given economic environment you may find
yourself in. Econ 101, take the book, set it on fire, and throw it out the window in Brazil.

The operation car wash investigation has now encircled everyone. The current President
has received kickbacks and this past week even Blario Maggi is said to have received
campaign funds from Odebrecht construction. No one´s hands are clean.

Elections are due again in Oct of 2018. President Temer will do everything he
can to run out the clock in the coming months. If this situation would accelerate
at the Supreme Court and or Congress that the whole Rouseff/Temer ticket should
have been nullified, this gets complicated quickly. This means that the impeachment
of Dilma was started by those with the most dirty hands to begin with. "The pot calling
the kettle black" quite literally.

Someone like Marina Silva has name recognition and is still considered honest and
not entangled in kickbacks. She lives a very humble lifestyle. She might be good
for Brazil, the poor and environment, but she would not be pro-development in the
Amazon and forget about railroads if she becomes President. So one could ask the
question? Is she good for Brazil or not at the end of the day?

I am trying to look ahead and remain optimistic. With the Dollar:Real at 3.15:1,
Brazil seems very expensive yet. With the economic and political risk in the coming months,
it seems to me the FX should be more like 3.50:1.

The next Presidential cycle will include a new group of faces. Lula has said he will
run again. I doubt it will go anywhere, but he could throw his support behind a new
guy and start to form a coalition again. This would be dangerous for the country and
if something like that would manifest, we can start to see Brazil looking like Venezuela
quickly. I doubt this will happen, but the risk must be monitored.

Temer is trying to cut out waste by reforming retirement programs i.e. social security.
He has cut back funding for international education programs. He is getting much
kickback from the public.

This will go on as long as the poor and working man will allow it. At some point,
the poor man will say to the rich man- enough !!!!

The middle class became to indebted the past 10 years in Brazil. The poor were able
to milk the food stamp system for his family and work on the side for cash. Life
seemed better for him. He had access to a car and flat screen TV. Lula was a good
guy in his eyes. The middle class started to act like the wealthy classes and bought
way too much and now he is in decline as per his quality of living. The rich have
their stress too as per the social contract they make with the public. I will take
care of you, but you need to do this for me. With some businessmen feeling the
contraction of the economic cycle in their business´s, they feel the loss of status
and for them this can be crippling. The king was wearing no clothes at the end of
the day.

The Mitsubishi car plant at Catalao, Goias announced last week that they will
cut production yet again. They were at 350 cars per day two years ago.
They cut back to 150 cars per day. Now they will only produce 80 cars
per day- Yes 80 !!!!!

For now, we will keep an eye on the Ribeirao Preto ag show the 1st week of
May. It should be good, but farmers are pissy at the moment as per soybean
and corn prices. They did not sell enough in advance.

Ag equipment manufactures are gearing up for a rebound this year.
Expect a 20% increase in sales and manufacturing from last year´s
very low numbers.

Early corn harvest will begin in Mato Grosso in mid-May. Silage first and
then into wet corn. We will have an idea of yields then.

Sugarcane crop looks to be a copy of last year. +/- 1%.

The industry is hoping to restart the import tariff on ethanol again
in the coming months. Brazil imported large amounts from USA in
recent months. It has depressed prices. They are looking for a way
to prop the ethanol industry up again after kicking it in the balls
for the past 7+ years.

Drop me a note if you have any questions:

agturbobrazil@yahoo.com

Keywords: Big soy and corn crops, BR politics, BR econ, anecdotal BR comments