Saturday, December 17, 2016

Optimism in the air

As one walks around the shopping malls and watches how
consumers are acting this holiday season, optimism is not
a word that comes to mind.

I was recently was told that this is the slowest Christmas sales
season in four years. That kinda makes sense since the Brazilian
economy has shrunk 10% in the last three years alone.

There are too many stores closed or for rent these days along the
major avenues in Goiania. It is going to take some time to
swing this ship around away from the headwinds and sail
downwind again.

The optimism I speak of comes from the ag sector in general.

With this massive soybean crop on deck, that will help stop
the bleeding in the economy and probably give us small
positive numbers.

It is about time.

The problem with that is that we are talking about a soybean based
recovery. Not an information technology recovery, a demand based
consumer recovery or a faith in the governmental system type of
recovery.

This recovery will be based on fairly good soybean prices, fantastic
yeilds, and Chinese demand for protein.

This was turbo-charged last month by Trumps election win.
China wants to hedge herself and combined with a weakening
Yuan, that bodes well for South America short term and probably
long term.

The kicker is: is this really the best way to run an economy?

Soybeans, great weather, and an X factor defacto "good luck" from the
election of Trump by pulling a straight soybean flush by drawing the
Queen of Soybeans on the "River Card".

There is Optimism in the Air in Mato Grosso and other soybean states.
We are not going to believe some of the soybean yields this year.

This optimism will start to be felt in machinery sales, parts sales, demand for
labor, fuel, seed and fertilizer.
I am already hearing of pent up demand for Urea for 2nd crop corn.

The ag sector is about to help Brazil stop shrinking. New honest dollars
are being created everyday. Sun, rain, and investment in themselves i.e. land
will help turn the corner.

Politicians need to recognize this and get on their knees and thank the
Brazilian farmer for sticking with the profession even though it has looked
bleak at times. Government needs to get out of the way of the productive sector.
Let the private and/or international financing of projects happen.

Brazil increased fertilizer sales 11% from last year. When one thinks of the
drought hit areas and lack of credit or damn expensive credit, this means
the farmer invested in himself one more time risking it all in some situations
that it would get better. Of course, record high soybean prices in June 2016
in Reals helped make that decision easier.

The cost of a few things are going down. A new crop of fruits and vegetables
are coming to market. The price of some products like rice and edible beans are
now cheaper than a couple months ago. Food inflation is less of an issue today.
Energy and LP gas bills are still high. Apartment prices are coming down.
The real estate market is stalled throughout the country.

Sugar and ethanol look like money makers in 2017. But it seems like most mills
have been shut down in recent years or in bankruptcy. It is time for a new cycle
to begin.

Brazil loves its 7 year cycles of boom and bust. A few years ago when Brazil
was at the top and could do no wrong, she thought she was immune to her
volatile past.

A few years ago, Rio de Janeiro was arguing about how to divide up all
the money from oil royalties. Today Rio cannot pay her public servants on time?
Whatever happened to all that oil money? The government through tax incentives
tried to stimulate oil and quash inflation. By doing so, they brought the sugarcane
industry to her knees. Today they want to stimulate cane and other
bio fuels again. For the next 5-7 years, bio fuels look like the place to be in Brazil.

There are "green shoots" on the horizon for Brazil in 2017. It is better than
nothing. It will be soybean i.e. AG driven recovery. This recovery can be
as fickle or "flush" as the whims of FX and CME will allow.

No blinds, No limits, Brazilian Hold´em 2017 has begun.

all in ?

Merry Christmas

Kory


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