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 If you step out to cut your hair and think about the quote, the price is no longer valid when you call back.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.