Saturday, July 2, 2016

July 1, 2016 blog

Dollar has traded 3.20:1
Soybeans have traded R$ 85.00/sac in Sorriso, MT
Corn has traded at record highs but market has now calmed
Edible beans are at record highs
Credit is tight, but multi-nationals are filling the void
Beans and corn are moving north to Amazon
Panama canal can now handle 100,000 ton ships of soy to China
Northern Hemisphere has record low interest rates while Brazil maintains 14.25% and
still can´t nip inflation in the bud.

If you would have asked me in February or early March where to Dollar:Real would be today,
I would have said 4.25:1. With the cost of living and utilities on the rise, dollar at 3.20:1
just does not seem possible. The only positive for this scenario is that a stronger Real tends to
hint at higher than average soy prices going forward.

In mid June, spot soybeans made a high at R$ 85.00/sac in Sorriso, MT. Recently they have
dropped to R$ 77.00 sac. New crop bids are in the mid-60´s per sac for March 2017.

Spot corn prices have dropped back to R$ 26.00/sac in Mato Grosso. New crop 2017 contracts
are being written for about R$ 21.00/sac.

Much talk lately of a few big farms in bankruptcy protection. This is more of a cashflow
problem than and overall debt problem. With the stronger Real and decent cashflows for 2017,
the situation is workable. With soybeans at or near US$ 12.00/bu, this is a lifeline
for many. If soy was 9 bucks today and sinking, I might be a little more negative.
For now, I remain optimistic.

The underlying problem for Mato Grosso and MaPiToBa regions are sandy areas that have
been brought into production in recent years. Anyone with sandy land last year,
that missed a rain, felt the lose in yield potential in soy and corn.

We can compare breaking up new lands and pasture to that of CRP in USA. The land has been lying
idle for 10-15 years. It needs heavy dose of fertilizers and lime.
It takes time for the nutrient saturation to build up in the soil profile.
Acidic soils cause aluminum toxicity. The more the
roots go searching for water; the plants literally grow themselves to death.
This is what happened last year in the drought areas. Satellite images
were showing green vegetation, but the plants were dying not only from lack of water,
but of toxicity. Soybean plants were experiencing their
own form of a sub-prime housing meltdown.
The plants formed pods but there was no one living inside them.
The insects came, ripped out the plumbling, and left. A negative feedback loop started.
The farmer saw his crop deteriorating by the day, so why spend more money on a dying crop?
The probability for disaster became a reality with or without rains.
The stage was set for lower and lower yield potentials very early on in my opinion.
A non- plant scientist missed that factor.
They assumed when rains came, all was peachy, and in many cases, it did not matter.
The plumbing was already at the junk yard and insects were at the beach having a Corona
talking about what a good year it was. "I have never had so much insect sex in all my life."
"I have laid more eggs than my grandparents could ever imagine." They would be proud of me.
Whenever I came to an Intacta soybean plant, I jammed my eggs in there but good.
I have faith in my children. My kids are going to be BT resistant is no time.
The first few might be a little bit retarded, but I know they will grow out of it.
Bring me another Corona.
Cheers Mate !!!!

When breaking up new land from degraded pasture, the operator will invest heavily the 1st year.
Likely little or no rent will be paid. Year two, he will pay 3 or 4 sacs of soybeans.
By year 3 or 4, the land owner wants his 8 or 10 sacs of soybeans for rent.

This is the time frame we are coming into for many of the new surge areas that have brought
us to the 100 million ton soy crop potential threshold. Can we break through it in 2017 is the question?
In a perfect world, yes. But

Many operators are threatening to give back the land they have recently brought into production.
They cannot afford a 8 or 10 sac rental payment for 2017. They are trying to keep thier costs
under control after accumulating lots of bills the last two seasons.

I think the land will be planted by someone. It will not be abandoned. There is too much potential
for 2017 to make money. Or in some cases make it all back. "All in on Black 17"

Fertilizer is cheaper and sales are zipping right along. We have the new issue of no planting of
a 2nd crop or anycrop crop of soybeans beyond Dec 31, 2016 in several major soy states.
With cash corn prices firm, a few may try to invert their planting and plant either edible beans
or corn 1st and then get that 2nd crop of soy planted by New Years. Basically that 1st corn and
soybeans will be counted as a first crop by Conab. If this would gain momentum, it makes for
wide swings in planted area estimates from beginning of season to end of season in 2017. I am
on top of it.

IMEA recently published that up to 34% of the January-May soybean shipments are now going
North to Amazon. This is an impressive paradigm shift. Add in the opening of the Panama canal
to 100,000 ton boats of 3.7 million bushel of soybeans per load, damn, the world is changing!!!!!
Good thing the Amazon is deep and wide !!!

The biggest risk factor in coming months is the FX. The Dollar:Real at 3.20:1 does not seem right.
Brazil needs a 3.50:1 or weaker currency to export her way out of this recession. At sub 3:1,
Brazil loses all her perceived competitive advantage on exports of many different commodities and
products.

The Olympics are on deck. It seems to me it will be a flop.

Zika concerns have gone quiet. I would not let this be a sole reason for not coming down.

Impeachment process seems to be moving forward, but expect some legal positioning and appeals
to Supreme Court in August to try and gain pole position by one side or the other.

Dilma says she is open to new elections to avoid this lack of leadership vacuum. If only there
was less EGO one year ago, the public would have accepted this offer. Today, the middle finger
goes up.

When she donated 650 tons of edible beans to Cuba at the end of 2015, and today, we have
pinto beans trading at a record high price. Even the poor folk shake their heads.
She is an economist?
It has not rained in months, and she giving away our staples. Public is pissed off and distraught.

Foreign ownership of land issue is stalled in Congress. The new President, Admin, and Minister
of Ag are all in favor of defining the rules for foreign funded Brazil company to function and
new increased limits. Some say as high as 100,000 ha per entity. I think we will get it.
But it takes time.

I know there is much interest in Brazil ag info in various sectors. I see the number of readers
of my blog and posts in the thousands. There are other sites out there doing the daily ag news in
English. As we start a new crop year in Brazil, I will be doing less blog posts and focus on my
subscribers and VIP clients and my own portfolio. I am happy to offer guidance where I can to
those really interested in understanding Brazil.

I have clients who have just renewed for thier 12th year with me. I am truly appreciative.

I will post the bubblegum of a soybean planter or combine working in a big field as I receive
them from time to time on Brazilintl Facebook page. If that is all you need. enjoy.

But for analysis on what this all means and where we are going, do not look for that
on the blog. That will be for the subscribers.

You know where to find me,

Have a great weekend and summer.

* Early 1st crop corn will attempt to be planted in certain locals as
early as August in Brazil. hint hint

Kory









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