Tuesday, September 22, 2015
Wow Dollar is 4:1 + now. Soybeans are R$ 85/sac at port and R$ 65/sac in Sorriso, MT. Soybeans are going in the ground in Parana state. Mato Grosso and the Cerrado are literally baking to death. It feels like a nuclear reactor is leaking !!!!!!!! The forecast is for dryness to continue until early October. We now have a late planting issue again. Last year was late and it really did not make much difference in final yields. We maybe lost 1-2% on a national basis. Will this year be different? We have two scenarios unfolding in Brazil politics today. There are those that believe that President Dilma will be gone by Christmas and stability will return to Brazil FX. The other is that this soap opera has just begun and we will see Dollar:Real 5:1 in 2016. At Dollar 5:1, it is hard to wrap one´s mind around what the effect of the "Law of unintended consequences" will be? It seems like it will be a boon for soybean farmers. For some it will be. Then again, they could start to treat soybeans like a currency hedge and refuse to sell them at any price - just like Argentina. There are rumblings that the government wants to tax soybean exports like Argentina. This is insane since Brazil is taxed so many times already with Brazil costs of transport, logistics, and cost of production. But with Dollar 5:1, and a desperate government looking to shake the money tree, we can´t rule anything out. For now it is just smoke. I visited a fertilizer dealer this week. The spreadsheet he gets each day is stable in dollars per ton price quotes. When a client calls, he enters in the spot FX and the fertilizer prices convert to Reals. If you step out to cut your hair and think about the quote, the price is no longer valid when you call back. If the FX moves more than 3% per day, the whole system shuts down and will not accept new fertilizer orders until the FX closes and updates for the following day. These are volatile times in Brazil. One day you can look like a hero and the next you can have your testicles served to you on a silver platter. These feast and famine stories will be common the next 90-120 days- maybe longer. I get the feeling this is just the beginning. Drop me a note if you want to be put on a distribution list. Newsletter is one option. VIP flash updates are another. I was thinking a few months ago, this was going to boring this crop cycle. Nope, Thriller 2.0 is being cast now.
Sunday, September 13, 2015
Soybeans are being planted in Parana state. Mato Grosso remains dry but soybeans are being planted under pivots. Conab will come out with initial crop size forecasts for 2016 Oct 9th. The Dollar is now 3.88:1. 4:1 seems to be around the corner. Last week I sent out a forecast to subscribers that a Dollar/Real FX of 5.80:1 in the next 18 months is possible. I was in shock reading the predictions. It seems other worldly. The FX at 1.60:1 twice, back in 2008 and 2012, seems so rediculous in hindsight. The Brazilian farmer has already sold a good portion of the 2016 crop. 30-40% is common. The rest he will likely use as a currency hedge. It is better to have soybeans or dollars than Reais in a bank. This is the mantra. People with money have taken their money out of the banks and bought livestock, land or apartments as a way to preserve wealth. This makes it harder for banks to make new loans. Fertilizer deliveries are running way behind schedule. Some fertilizer dealers are not giving quotes. They want the farmers to beg. The farmer will pay anything for fertilizer at the last minute in October or November. We know there will be expanded area of soy. We still do not know if a 2nd crop of soybeans will be allowed in some states. We know crop inputs will decrease this year. Could this affect final productivity? When one reverse calculates current soybean prices back to dollar 2.50:1, today soybean prices in Brazil feel like US$ 13.00/bushel in Chicago. Soybeans look better than corn, edible beans, cotton, rice and sugarcane at the moment. Soybeans are equal to 100 dollar bills anytime. All the other commodities require a waiting period to get paid. What do you expect a Brazilian farmer to do? Soybean producers in USA and Argentina need to be alert for a Dollar/Real greater than 4:1. Above 4:1, no one can compete with Brazilian farmer with regards to exports at port. At 5:1, things get even more interesting. One could assume Brazil could compete all the way down to US$ 6 dollars per bushel in Chicago. The caveat will be the imported products such as fertilizer, chemicals and Ag machinery pieces. Key items I will be watching in the next 90 days are saved seed royalties and how they plan to collect them, 2nd crop soy area- if any, soy no-plant dates for 2016, and delayed fertilizer delivers and thier impact on final yields. Thank you all for your interest in the newsletter of late and the phone call consults. I appreciate your confidence. Abracos Kory