Monday, December 24, 2018

Dec 24th update

Parana received some rains over the weekend.

This will help later planted soybeans. Early soybeans
have been hurt by three weeks of drought.

I think the new mega crop for Brazil is overstated.
I think we have a crop size similar to last year on deck.

It would take a dry January and Feb in Northeast to subtract
more from current potential.

9.71 on the SX19 contract proves to be resistence for now.
If one looks at historical charts, it makes sense.

Dollar remains at the 3.90 level. This seems more to do
with international events than domestic.

Brazil seems like it will ship out 84 mmt in 2018.
If so, 2018 crop was likely larger than published.
Some of the extra came from Paraguay.

The crushing industry had to submit to the export bids
this year and throttle back.
This adds pressure to chicken and hog sectors in Brazil
as per feed rations.

At the moment Brazil and USA are at par for new crop
export bids.

With the declining hog herd in China, I think if China
buys circa 5 mmt of soybeans from USA, that stabilizes their situation for
now.

Brazil will have exportable supplies in two weeks with early burn down
of the 90-95 day soybeans that were planted. This was a mistake
for many, but they will make it back with early planted 2nd corn.

So long as Brazil has 80 mmt to export in 2019, China really does not
need anymore beans until Oct/Nov/Dec 2019. Remember, Argentina
will rebound 15 mmt+ this season also.

What if??

Yes other countries will pick up some of the slack. But China was a 32 mmt
customer for USA, if that drops to 5 mmt, that leaves 27 mmt that needs a 
new home. Let us say 7 mmt finds a new home.

20 mmt = 740 million bushel needs to be carried forward.......

If we are optimistic and USA and China pull off a mega deal and
China buys 20 mmt this spring, then 20 mmt will be added to
Brazil balance sheet for 2020.

In the end, someone is going to be holding 20 mmt?? Who will it be?

The American soybean payment could also be looked at as a nice storage
payment like in the 80s - paid to store grain for years. But it looks like
this is a one off payment. A farmer could take a loan on the beans
this winter which would get him to Sept 2019 before delivery.

SX19 needs to tell American farmer to tap the brakes.

If USA farmer does not, then March 2020 contract needs to tell
Brazil farmer to tap the brakes?
Brazil farmer at moment has 3.90:1 dollar working in his favor.
If that drops back to 3.30, Brazil farmer no longer has life
insurance policy for 2020.

It's going to get interesting. There are going to be tears somewhere.
Who will it be?

There is a tsunami of soybeans out there. If no deal, American farmer
is the last one standing when the music stops with no chair to sit in.

If there is a deal, then it will be the Brazilian farmer standing with no
chair to sit in this year at Carnival when the Samba stops.
Carnival is late this year. March 1-5th  wink wink

I watched a Netflix series this weekend. It was called Pine Gap.
As in Pine Gap, Australia. The secret USA/Australian base
that monitors communication and movements globally.

In the program there was a Chinese businessman trying to do
a natural gas deal in Alice Springs. He made a comment in the last
episode that made me chuckle.

"In the USA, you teach your children to play Chess. The winner is who
can get the others King as quickly as possible."

"In China, we play a game called GOL. The winner is who can amass
the most territory and keep it the longest."

I thought this was an appropriate analogy for the current trade war.
Of course there are many things more important than soybeans at the
moment.

I sometimes wonder if Brazil and USA even realize the game they are in?

However, I think China has USA and Brazil by the short hairs going forward.
Both countries have become too dependant on China- each in their own way.
China is going to have cheap beans one way or another for the foreseeable
future.

Brazil has a 120 mmt crop. Maybe a bit more.
Even with a late season drought and a drop to 115 mmt, Chicago will
not care.

Ideally, USA and Brazil would each drop 10 mmt each of soy for 2019/2020,
but I fear both are too stubborn to do so.

Happy New Year

Kory

Keywords:  Soy, trade war, USA, China, Pine Gap, drought, soy econ





No comments:

Post a Comment