Changes in the wind

Hot and dry here in the Cerrado.

So many contradicting articles and forecasts these days.

It makes it hard to square the circle.

Soybean area is projected to increase.
Soybean economics argue the opposite.

USA has killed the bull market.
Brazilian farmers are poised to put the final nail in coffin
as per soy prices. They will plant a record area at their own peril.

Sugarcane investment two years ago with renovation of stands
and expanded area to get ready for the future demand pull.

Sugarcane in the Central/South region of Brazil is now said to
be 546 million tons. We started out the year thinking close to
600 mmt ton after the drought nipped the area.

Keep in mind the forecasts two years ago were predicting
upwards of 700 mmt of cane for this year.
Now we are going backwards with new stands and very little
hope of the 2015/16 crop rebounding much.

The two step continues. One step forward and two steps back.

The newest kicker to the Brazilian Samba is that all three Presidential
candidates are equal in their standings. +/-

Marina Silva and President Dilma are neck and neck in a
Presidential runoff. Polls indicate that Marian Silva could
pull this off.

Marina is an environmentalist. She does not like this messing around in the
Amazon. Leave it alone!!!!

I do not think she would be favorable to the Brazilian farmer or the ag sector
in general. President Dilma at the end of the day might be the better choice
for Brazil ag- as crazy as that sounds !!!!!!!!!!!

If Marina would be elected, I bet she would shut down the construction of the
HUGE Belo Monte Dam project. This is a blow to the energy needs of the country.
Brazil is on borrowed voltage now during the dry season.

That issue alone throws such a big monkey wrench into Brazil´s long term
infrastructure development that its hard to even grasp the unintended consequences of
such a decision today.

Save the rain forest in a small area but throw the whole country into recession
because of that action????

Brazil is as "foggy" as I have ever seen it over the last 13 years.
By foggy, I mean the inability to see the future clearly.

There are such polarizing events in the near future.
Elections
Dollar exchange rate
Lower soybean prices
Possible new Cabinet and new Ministers
Review of infrastructure projects?
Forest code review?
How to provide incentive to sugar sector?
Increase in gasoline prices by November
How to calm inflationary pressures?
These items are in conjunction with all the other systemic issues such
as corruption, health care, education and economic development.

So far the Dollar Forex markets like Marina Silva.
I find that odd.

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Rains in forecast for southern Brazil

New 6 to 10 day precip forecasts show rains reaching
up into the southern edges of the Brazilian Cerrado.

Good sign

30 days until planting 50 days until elections

I have been a bit slow this week.

I have been battling a Brazilian winter cold.
It seems hard to believe one can have a cold when its
85 degrees outside. Low humidity is hard on the lungs.

Dry season is intact yet. It does not look like an early
start to planting which can begin in 30 days.

Lots of talk about how much Brazil will expand for 2015.
In the same sentence they talk about cutting costs.

At the end of the day, I do not think Brazil will expand as
much as they think.

I am watching the Northeast drought. The NE tends to
move in seven year cycles. Seven years above normal
rains with good crops and 7 years below average rains
with less than optimal crops.

We are starting year 3 of the drought.

Brazilians are dealing with the loss of one of the Presidential
candidates this week. It opens up the whole Presidential
political landscape again.

Machinery sales are slow with dealers offering more
and more incentives to keep stuff moving.

With the recent trade deals with Russia. The general public
feels that more and more meat will got there and inflation on
food items will continue higher here.

The average family and lower classes are really starting to feel
this increased cost of living.

Crime is on the increase. Seems like everyday a hold up, car is stolen,
or some sort of bandit story locally.

Politics,Cows, Chickens,Pork, Russia, and Ethanol

Exciting week in Brazil.

The government is in the process of increasing the ethanol mandate to a 27.5% mix.
Bio-diesel increases from 6% to 7% in November.

This is a last ditch attempt the pander to sugar industry pre-election.

The government also announced that corn auctions will start on August 20th.
R$ 500 million will be liberated to pay premiums to farmers that sell below
the minimum price of R$ 13.52/sac. US$ 2.50/bushel

It is amazing how fast they can act when Brazil is in the drivers seat.
Russia gives the USA the middle finger and Brazil just loves that.

Upteen slaughter houses were magically approved over night by Russian
inspectors. The flood gates are open for Brazilian Beef, Chicken,Pork and Dairy.

The dollar is at 2.30:1.

Brazil´s economy continues to suck Argentine cold air off the South Pole.

I think we will see 2.35 to 2.40:1 in coming weeks.

My bet is that Central bank will draw a line in the Cerrado at R$2.40.
Sell dollar swaps at any cost to protect 2.40:1 or lower.

Brazilian sugarcane is stuck at 660 million tons for 2014/15.
Exact same size as 2013/2014.

Millions were invested in renewed stands and expanded area.
Net result-  zippo

The drought took 10-15% of the top end off and that was the surge
potential going into this growing season.

We maybe can add 5% back to the total for 2015/2016.
It will be a hard row to hoe.

Less than 58 days to election.

Place your bets.

Productivity starts Monday in Brazil

I think we can sum up 2014 as the lost year for Brazil.

So much energy and resources were wasted gearing up for the
World Cup that everyone forgot to work this year.

The hot item in Brazil for 2014 was big screen TV´s.

I now go to discount stores and there are stacks of 40 and
50 inch TV´s being marked down.

Everyone forgot to buy cars, trucks, clothes washers, and
most everything else the past 7 months.

The industrial productivity in all sectors continue to wane.

School starts again Monday. Everyone is back from their
"winter" vacations and things will start to function again.

I told clients back in June, if you do not have an answer
from a governmental agency by June 5-10th, do not
look for one until August.

Between the World Cup interruptions and the normal
Winter break, many agencies simply do not function when the
boss is out on holiday with his family.

To further complicate things, we have an election on Oct 5th.

There are smoke signals on the horizon saying that the political
winds are about to change.

There two productive months for government to work- a little bit.

But if there is the certainty of a change of leadership, this could
cause more delays.

We have a new minister of Ag in Brazil. If President Dilma is
not re-elected, that means a whole new administration and
cabinet by January 1.

What does that mean for ag support programs, railroad projects,
funding for many projects??

It could mean a review of everything. It can mean a 6 month to
one year delay again on projects that were assumed approved.

I am all for change, but 2015 seems disruptive to me.

Lots of new faces and power plays that we have no idea how they
will manifest today.

It is political season. There will be many announcements for projects
here- there- and everywhere.

There will be last ditch attempts to try and buy this election and
remain in power.

It has been 12 years of power by PT party. If they lose, there will
be some dry heaves as the new power dynamic structures itself.

It makes for great drama, but terrible for getting anything done.

updates available here:
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