Sunday, July 14, 2019

July 15 Looking ahead to 2020

Corn harvest is zipping along. Mato Grosso planted
a record area and also a record yield this year - 31 mmt is
the forecast.

One corn ethanol mill is running at full throttle and
pumping out 1.5 million liters per day from corn.

Two more will fire up in coming months. Sinop
in August and Sorriso by Feb 1, 2020.

The Nova Mutum mill project is on hold at moment.
Mato Grosso is pondering the elimination of ethanol
tax incentives within the sate. This is a silly move on their
part, but we will know the status by July 31. The incentives
need to be extended by then. I think they will find an alternative
to this, if they do not, that will choke off the corn ethanol expansion
within the state.

With the late planting and potential crop losses in USA, corn
prices have been quit firm the past month. Many farmers are
selling  2020 crop too.

Conab finished out the soybean crop at 115 mmt. Private
forecasts and USDA are at 117-118 for this past year.
I said back in late Janaury, I expect to drop to 115 and
then stand pat. Given the dry weather at the time, I dropped
to 114. Many others were thinking  101 to 108 to 110.
Given a crop size potential in the 123 to 125 mmt at the time,
we need to becareful with these lowball numbers. Rule of
thumb is that when a region of Brazil is going through
a crop loss, it is difficult to lose more than 10 mmt in any
given year. Another region tends to compensate and that
is what happened this year. RGDS came in at  19 mmt.
Who wudda thunk?  Impressive gains from previous
drought where they only produced  6.8 mmt.

If corn prices start to rock and roll in the coming weeks,
it is the southern states that can reverse trend and switch
from soy to 1st crop corn. The July newsletter outlined
that potential.

Land clearing and expansion is occuring in northern
Mato Grosso. It is legal. 20% of a given area is being
opened. 1st crop tends to be rice.

Pension reform is moving right along. Brazil stock market
is at record highs and FX is back to 3.75 after trading
4.10:1 not too long ago.

BR 163 is looking good. The tough spot where trucks
have been spinning out upon a long incline has been
paved. Soybeans will move smoothly to the north
this wet season in February 2020. I doubt we will
see videos of stuck trucks again.(at least not along
BR 163)

Lots of talk about  railroads and extensions.
All of this has been talked about in newsletters.

The 1st half of 2019 has been a flop for Brazil
economy; (.8% growth in GDP). If not for ag,
Brazil would be going backwards.
The 2nd half of 2019 should show some growth.
Good machine sales and closed financing contracts
combined with factory orders.

I keep hearing reports that the limit on land that
can be owned by foreigners will be overturned
yet this year.

Some land sales have been confirmed in Mato Grosso.
Turn key farms and also forest and land clearing

Pork sales have been brisk to Russia and China
in June.

I have received a 420 page report that outlines the
future production potentials of crops and volumes
to be moved by road, rail and water.
It is in Portuguese. I will use snipets of this
document in future newsletters.

Upward and onward.

good luck with harvest

soy crop size, corn harvest, corn ethanol, Brazil econ,
new land clearing and future production and shipping volumes.

Tuesday, May 21, 2019

The Soybean Wars

May 21 Blog update:

In my July 2018 newsletter, I asked the question: Is it possible
that soybeans are the wheat of the 80s?

With the USDA announcement today of US$ 2 dollar
per bushel soybean payments, I think I have my answer.
For the government to announce something like this
during planting season is mind blowing. Many areas plant
soybeans until July- especially the double crop areas.

We have a situation where the market is telling the world
to back off 10 million acres or 15 million tons.
With a US$ 2.00 payment to USA farmer, that tells
them to put the pedal to the floor. It does not matter
if payments are decoupled and they use past history.
If payments are coming, the farmer will plant.

I think back to the 80s. I am a product of deficiency payments,
CRP, and grain storage programs.
I remember needing every penny we could get from USDA and
then along comes Gramm/Rudman and knocks 15% off our
checks in 1985. We need to balance the budget was the matra.

In the 90s we got paid on 85% of our base acres.

We put 36 million acres into CRP and in the 2000's
Brazil, Argentina and others add 36 million acres and
more to the world stage with the help of double crop acres too.

The national debt at the time was 5 Trillion. Today, it is damn near
22 Trillion dollars. Today, we receive notice that 20 billion more can
come in assistance. God, how we could have used that back in the
80s and 90s instead of fight for crumbs.

The irony of all of this is that if the USDA had the will power back in
the 80s to send out money like this and a reduced CRP program,
the USA could have bankrupted the Brazilian/Mato Grosso soybean
farmer before he had a chance to start.

By the time 18 dollar beans came along, the environmental oversight
would have nipped expansion in the bud -20% to 30% open instead of
80% in areas.

Today, I fear it is too late. If Washington thinks they are going to
break the Brazilian farmer- think again.
Today, Brazil enters the Real Trade war. This is now a fight
to the death. This is now a blood sport.

The trade war creates a strong dollar scenario and that only
entices them more down here. Soybeans are sold in dollars.

Brazil's infrastructure gets a little bit better each year. China is ready
to invest more into Brazil. The FX at 4:1 protects the Brazilian farmer
for the time being.

The Brazil farmer has said for over 10 years, "pay us something for
our reserve area and we will leave it alone." The 50%-80% that
new areas need left alone.

I sometimes wonder if it might have been cheaper for USA and the World
to have paid the Brazilian farmer an Amazon CRP payment of sorts to do
nothing with the frontier area, than to pay the USA farmer not to plant
highly erodible soils and wetlands.

With today's announcement, we will now find out who the low
cost producer is? How many 250,000 dollar planters do we need
to plant US$ 4 dollar soybeans in North Dakota?

Someone needs to blink, but 2019 is not the year. Unless we can freeze
these beans in Sept and knock 500 million bushel off, we have a paradigm
shift ahead with regards to soybeans as signifcant as Round UP ready
technology was to corn and beans- only in reverse.

How many years will soybeans be stored if the government payments
keep coming?

As my Brazilian friends have always said, you guys will be OK,
you guys have the Federal Reserve. You will just print more money.
It is no wonder Brasilians and others think dollars grow on trees.
Just go get some more. It is easy for you guys.

This is going to create more and more hard feelings between
hemispheres now. In 2018 Brazil and ARG could enjoy the
trade war and profit from it.

With MEGA government payments in phase II, now the bleeding
begins?  Who is first?


Keywords: Soybean history, government payments, trade war,
low cost producer, FX

Saturday, April 20, 2019

April 20th blog update

It seems like most private crop forecasters have the
BR soybean crop at 115-118 mmt.

This is a marked increase since February.
Most everyone was in the 111-114 mmt club.

Aprosoja was the outliar saying the crop could
be as small as 101 mmt. 

I think it is worth noting how significant RGDS is in
soybean production. With the losses in Parana, RGDS is
the 2nd largest soy producer behind Mato Grosso at 18.7 mmt.

If we look back to the previous major drought for the southern
states, that was 2011-2012 crop year. RGDS came in at 6.5 mmt.
It was bad. Since then, acreage shift away from corn, rice and
productivity gains have allowed RGDS to rebound to near 19 mmt.
This is + 300% from their low point. This has nothing to do
with deforestation or expansion in the northern areas. This is simply
good farmers doing their best. 

We can look at 2018-19 crop year two ways. If this crop is at 
115 mmt+, then last year's crop was greatly understated. If we assume
8-10 mmt were lost from peak potential, that means last year was
a 123 mmt+ crop size and this year we had 125 mmt at one time. 

The flip side is: If last year's crop was 120 mmt, then this year's crop
size is too high and we need to look at Conab's numbers at 113.8 mmt
as being more accurate. 

Ths USDA at 117 mmt and the Brazil FAS office at 113.6 mmt is very
confusing. Does the left hand know what the right hand is doing?

Going into 2020, it sure looks like we can pencil in 125 mmt for a 
starting point for next year's crop. This is not what the USA farmer
wants to hear and the Brazilian farmer needs to grasp that there
are too many beans in the world. The trade war now has everyone
on equal terms. The 2018 BR windfall is over. That was a once in a 
lifetime illusion. March 2020 soybean premiums are only 8 cents
over CME. 

China now has North and South America by the short hairs. 

At the moment, FX is helping the Brazilian soy and corn farmer.
FX is helping them maintain profitability. 

The 2nd crop corn in Brazil will be beyond fantastic. 75 mmt + 25 mmt
for 1st crop should allow for a total corn crop output of 100 mmt+.

FS bioenergy has announced the site for their 3rd corn ethanol mill.
The plan is for two more- right place at right time.
The first mill is pumping out 1.5 million liters per day of ethanol +

There is talk of a truckers strike starting April 29th. Contacts tell me
it is just a few on social media stirring the pot. Nothing will happen. We will see.
Brazil cannot handle another shutdown like last year. 
The new admin is between a rock and a hard place. They encouraged
the truckers last year as it was a political windfall for them to have this happen.
Now, the shoe is on other foot. Crude oil keeps rising and FX is near 4:1.
This was not in the plan back in January. This puts pressure on Petrobras
to keep increasing fuel prices every two weeks and this is squeezing the
truckers again. Soy sales have been slow, so there have been trucks hauling
freight for below the minimum price table. This table is still being reviewed
for its constitutionality. 

The new admin wants to privatize Petrobras, but just last week the govt
intervened and asked Petrobras to delay a fuel price increase as per fear of
a truckers strike. They cannot have it both ways.

The FX market looks at these shenanigans with fear that the govt will also
fold their hand with regards to pension reform. Thus, we are hugging
4:1 again, which was not forecasted by anyone in January. We should
be trading at 3.30- 3.50:1 given the optimism at the beginning of the
year. Therefore, Brazil GDP forecast has now been lowered to 1.8% for
the year. 

I have heard that Representative Collin Peterson from MN, who is also the
Ag committee chairman, will be coming to Brazil and Argentina soon
on a fact finding mission to see how the trade war has affected and/or
stimulated other countries at the expense of the American farmer. 
How is China helping AR and BR with infrastructure?
I am happy to hear they are coming. I feel they are 20 years too late.
Given some of the projections I have seen for Brazil's production
by 2025 and 2050, we need not be producing soybeans north of I-94
in the USA. 

Climate change, resurgence in Chinese soy demand post ASF, FX
distorting and incentivizing production, and railroad expansion will
all play into Brazil's hand in the coming years. 

I mentioned this to clients several years ago as China evolves
in her food needs. I said, what if China can't get soybeans fast enough
because of factor X?  Maybe they decide to buy Brazil Foods, turbo-charge
chicken and pork production within Brazil, keep the beans here, crush and
make into feed here, and then just ship the end product to China?

If ASF would last a number of years?  Is the above such a crazy idea?
Of course this would be a boon for livestock producers around the world
as China searches for protein in the mean time.

If something like that were to happen, think of how that changes Brazil's
logistics needs?  We flip from huge bulk grain volumes at ports to 
refrigerated warehouses storing meat in containers. We would need
more soy crushers and more corn ethanol mills. DDG's would be in
high demand. Huge increase in Brazil soy and corn storage capacity to
hold grains year around for processing. Could that be Brazil's future
by 2050?  Damn right it could be, maybe even by 2030 if a renewed
search for protein ensues. 

Thank you for all the newsletter renewals and VIP retainers.
I have been doing this for over 15 years now.
I am not sure where the time has gone.
My son is taking Brazil college exams and also the USA SAT is
given 4X per year here in Goiania. Who wudda thunk? 

The more Brazil trys to change- the more she stays the same
i.e. Petrobras and fuel pricing drama.

For those outside South America, one needs to watch the ARG election
in Oct. It will be important that Macri wins again. If ARG would go LEFT,
combined with weak FX in Uraguay and Venezuela problems, that would
be a stiff head wind for Brazil to tolerate going forward. It would lead to
a weaker REAL. 



Keywords:  BR soy and corn, corn ethanol, trucker strike, FX, 
protein shift dynamic long term, USA Ag committee junket to BR and ARG, Trade war,
ARG election Oct 2019

Sunday, March 3, 2019

March 3 blog update

Happy Carnival

Brazil is in party mode for a few days.

People seem to forget the dam collapse just a month or
so ago. The situation was handled terribly.
Many still unaccounted for.

The rains have returned and thus the soybean crop
has stabilized. I am at 114 mmt. Others are thinking
115+ and yet others are down in 106-108 area.
We need to keep in mind that the potential was 125
back in December. Therefore, even a 115 number
is 10 mmt off the highs. That is still 360 million
bushel gone from the peak. The drought was significant
in various regions. Historically, it has to be really bad
to lose more than 15 mmt. Those that were thinking as
low as 101 mmt in January were seaking headlines.
I outlined all of this in newsletters and flash updates.

Yields out of Argentina are fantastic. Rain makes
grain. Look for soy and corn numbers to increase even
more down there.

There has been flooding in Mato Grosso and Para state.
This means the early planted 2nd crop corn will be beyond
fantastic this year. Early corn is ready to tassle. With rains
of up to 8 inches in last two weeks, much of the crop
is already in the bag.

Brazil 2nd crop corn

65 mmt crop is already in the bag
70 mmt is likely
75 mmt is not outside the realm of possiblity
80 mmt is being whispered about by some.

80+ 25 = 105 total   maybe ???

Cotton area expanded by 33% so that has inhibited corn's
ability to shoot the moon. Bottom line: there will be
plenty of corn.

With the excess rains, BR 163 has turned into a 70 km long
truck stop. Some trucks have been sitting for 5 days.
No food and all they have to drink is rain water.
Tempers are flaring now.

The military did pave 45 km last season of the last
90 km to get to Mirituba. From Mirituba to Santarem,
there are a few more KM that need to get covered.
They stopped because of lack of material.

Three weeks ago, the new Minister of Logistics went for
a truck ride himself to see the conditions. The drought
was still intact so he was still able to move.

As the truckers say, come out here now, take another
ride and sit with us out here for a week with no food.

The Mayor of Novo Progresso is pleading with Mato Grosso
grain shippers to stop sending trucks. There is no room.
3000+ trucks are stopped.

It is 70 reais a ton cheaper to send soy north compared to
Santos via rail. Either way the grain buyers lose money.

Demurrage going north or higher freight going south.

Farmers are holding on to 2nd half of soybean crop.
They want higher prices.

Port premiums rallied last week and then backed off.
End of trade war has grain buyers worried.
Port premiums might need to go negative in order
to compete with USA and China bids.

I will be going to Mato Grosso March 25th for a week.
The BR 163 Show Safra will be record large again.
I am curious to see the pace of equipment sales
given the crop came in a bit light and cost of
production is on the way up.
Dollar FX  3.75:1

In early April, I will send out a special newsletter
as per my trip. Drop me a note to subscribe.

Thank you for all the kind notes in recent weeks.
Much appreciated.


Key words:  Mato Grosso soy, BR 163, trucks, rains,
Show Safra 163, 2nd crop corn size

Sunday, February 10, 2019

Feb 10th blog update

Back to trend line yields

Harvest is zipping along in Brazil. The hot December 

and January took its toll on some fields. The general 
commentary from producers are that yields are 
coming in 10% less than last year's record productivity.

The USDA is still too high as per Brazil 2019 production.

But they are a lagging indicator especially when the 
government was not working for a month.

2018 was a late planting year but ideal weather made for a 

record crop.
2019 was ideal planting date but late season stress mixed with 
an above average amount of early season soybeans nipped 
them in the 8th and 9th innings. More than likely the 2nd 
crop corn and cotton will make up for the shortfall of the 
first crop.

Bottom line is that from the drought of three years ago, 

the sudden rise in soybean production from 95 mmt to 
122 mmt was the outlier not the norm.

The Brazil stock market has been trading at record highs. 

The Dollar has been weaker in Brazil until this past week. 
The dam break was not good for Vale. President Bolsonaro 
is back in the hospital for a follow up procedure due to his 
stabbing during the campaign. The fear is that this
will delay negotiations on the social security reform bill. 
Brazil has ambitious ideas to try and cut ONE TRILLION REAIS from budget over the next 10 years. This will be a heavy lift.

The big news in the media this past week is the continued talk that

Brazil will overturn the limit on foreign land ownership that was
implemented under Lula to help Dilma back in August of 2010.
In March, it will have been 8.6 years since this policy shift.
Cyclically, this is interesting as we might be on the cusp of another
policy shift. With the Dollar FX at 3.70:1, this does make Brazil assets
seem cheap again to foreigners.

The Bolsonaro position is that Americans are welcome. Brazil is also waving the need for tourist visa for Americans this summer. 
From June 1 through September 18, tourists from the US, Australia, Canada and Japan will be able to enter Brazil for up to 90 days without a visa.

Mato Grosso implemented an updated FETHAB witholding tax for soybeans,corn, cotton, and cattle on Feb 1. Farmers are not happy with quick application of a new tax that actually seems like double taxation for many on the same hectare.

There is also much banter in media that the "Grain Railroad" will be approved in 2019. This the rail from Sinop to Mirituba, Para. The Minister of Logistics took a ride in a soybean semi-truck on BR 163 to see the condition for himself.
He promised that BR 163 paving will be completed in 2019. This is a huge factor for 2020 grain movement to the north. 

The FS energy corn ethanol mill at Lucas do Rio Verde has completed its doubling of capacity. They should be at 400 million liters per year now or the 100 million gallon size. Construction has started on the 2nd mill at Sorriso. This will also be a big one.

Impasa mill at Sinop was approved for increased warehouse capacity at thier site.
They are now building 3 - 200,000 ton warehouse to store corn. That is 24 million
bushel of onsite corn storage. Mato Grosso corn in the future will stay in the state and be made into fuel and DDG's. It is truly a paradigm shift. 
Mato Grosso will likely produce 1.1 billion bushel of corn this season again. 

The Ag shows have started with Show Rural in Parana this past week.
I am eager to hear results.

The Show Safra 163 in Lucas do Rio Verde is the last week of March. It will be record large. I know CASE IH Brazil has sent a record large 
order  to Steiger Tractor in Fargo, ND for 2019 for their 4 wheel drive articulated tractors. The modernization of the BR fleet continues. 

Producers are very happy with the new administration. However, the late season drought and the application of new taxes has a catch 22 feel about it. 

The vicissitudes for the Brazilian producer continue. It is an occupational hazard. There are so many positives on the horizon, but there always seems to be a counter force that keeps things in check. 

Keywords: BR soy crop, Grain Railroad, Fethab, Budget,Corn ethanol, Case IH

Sunday, January 13, 2019

Brazil: A New Day

Brazil's new President has taken office.

He has made some policy moves that favors the rural coalition.
He made good on some campaign promises to help farmers deal
with environmental issues and Native Indian lands.

This will help him with votes he needs later regarding pension
reform and budget cuts etc.

The Dollar:Real FX has dropped from 3.90:1 to 3.70:1 in recent weeks.
Soybean bids have also dropped with advance of harvest.
Banks think the Real can trade at 3.80 for most of 2019.
Technical analysis shows a possible break to 3.20:1.

The Conab report came in as expected for me. I have seen this before that,
when there is a drought, they tend to wait until February before any
significant adjustments. Most of the data they had was based on December
and most of the last 30 days people have been on vacation.

The yields I hear out of Parana indicate 50% of a crop in the western
1/3 of the state. This region accounts for about 40% of Parana total.
Parana crop conditions are 50% Good, 30% average, and 20% poor.
It is said that in several counties that soybean harvest will be wrapped
up in the next 10 days. The 2nd crop corn is going in very early.
Parana's true soy crop size will show up in the February Conab report.

Mato Grosso: Western 1/3 of the state has fantastic yields.70 sacs per/hectare
or 63 bu per acre is common.

The BR 163 corridor is coming in 10% light on early beans. In general,
if the yield was 60 sacs last season, they are coming in at about 54 sacs
this year. Later beans should be back to normal.

Goias things are going quite well. It sure is a wet drought. Two weeks ago
it rained every other day. This past week was dry and then Saturday
evening a very nice rain again. State wide?  No
But it is raining.

Forecast is dry thru end of the month. Bahia and points to NE need
to be watched. This is a critical month for them.

Mato Grosso taxes:

On December 31, the Fethab II regional witholding tax was retired.
This, in essence, increased the net price to Mato Grosso soybean
producer by 60 centavos per sac for 2019. Good news.

However, Mato Grosso is in dire need of new revenue. The new
Governor has proposed a new elevated Fethab tax rate for cotton,
soy, cattle and corn. Corn is a new addition to Mato Grosso witholding.
There are two levels to this tax. One for domestic sales and one for exports.

I will be keeping various VIP clients that have vested interests in Brazil
updated on this. If there is a new Fethab, I do not think it will be applied
until the July 1 Fethab update. That means it will be more of an issue for
corn and cotton marketing than soybeans.

Soybean crop size and technical prices to watch:

SX 19 soybeans made a high at 9.64 this past week. So far 9.71 is
strong resistance as well as the 200 day MA. A trade at 9.72 1/2 tells
me we are moving higher. A trade at 9.70 or less and a reversal lower
tells me we need another wave lower. If we do make a run at 10 bucks,
make damn sure you sell it. 2018, 2019 and even look at 2020.

Clients know where I am at on crop size and where I think we will be
in two weeks.

We have a range from 104 mmt to 119 mmt among experts.
115 mmt- market does not care
110 mmt will have markets attention
below 110 mmt- we have a story for 2019

I think what is confusing to many is that the past two years
we had near ideal weather conditions combined with application
of the lastest genetics and precision ag. This allowed for two back to
back 10 mmt increases. Some assumed this the new norm.
Thus 130 mmt was mentioned a month ago.

We have expanded area, but maybe not quite as much as we thought
earlier. So now we start to cut productivity on a very large base.
Whoosh- the millions of tons disappear that once were thought to
be baseline.

Thus, the last two years I have been conservative on the way up
and have been wrong. Example: last year I was thinking 113 mmt
with outside chance of 115 mmt.  Final crop size circa 120 mmt and
given exports for 2018, the crop was likely 122 mmt+.

The maximum potentials were already dialed in last year.

I have been hesitant to drop to low too quickly as per experience
in the USA the past two years. We have a drought or flood and we
produce record yields. The stress did the beans good.
Thus, we need to be careful here too on the way down.

Brazil has damn good farmers and they have invested heavily into the
newest technology. This crop will not give up easily.

The issue in Parana and MGDS was not so much lack of rain but
the combination of intense heat at pod fill and a root fungus
that caused the beans to die early. It was like the soybeans were
micro-waved. This gave the illusion that beans were killed early-
intentionally- they were not.

I will update more to my subscriber list.

Drop me a note if you are interested in more real time info
and not info that is 2-3 weeks old by the time it comes
out in general media.

Thank you to all the VIP renewals for 2019.
Much appreciated

keywords:  BR soy crop, Mato Grosso tax, weather, crop conditions, yields