Saturday, April 25, 2020

Dollar/Real traded 5.74:1

Much has changed in the past month.

Sorriso soybeans are quoted at R$ 92.00 per sac on April 24, 2020.
19 years ago on April 12th, 2001, the low for Sorriso soybeans was
R$ 13.27 per sac. That is a 7:1 change. That is perspective.

Back in April 2001, Chicago soybean low was 4.29. As of Friday,
May soy was quoted at US$ 8.30 per bu. A 1.93:1 ratio.

Back in 2001 the Dollar:Real was 2:1.
As of Friday, April 24, 2020, the Dollar/Real traded as wide as 5.74:1.

Needless to say, I am shell shocked like everyone else. I wrote a newsletter
back in February stating that a close above 4.32:1 would indicate a move
to 5.20:1 and possibly 7:1 if one factors in inflation. I myself did not
believe this was possible.

Back in 2001, both the USA farmer and BR farmer were broke.
What bothered me back in 2001, when I first visited Mato Grosso,
was that the BR farmer was was expanding by clearing forest and back
home in Minnesota we were living on CRP, LDP'S, and Pre-vent plant
checks from the government.  How the hell can these guys justify expanding
was what I was thinking back then. I would justify this by saying, "they have
FX working for them at 2:1."

Fast forward to today and Brazil farmer is expanding yet again and back
home everyone is surviving on MFP, Crop revenue insurance, and PLC payments.
Everything has changed yet nothing has changed?

I have told many on my tours that the one factor that could have halted
the Brazilian soybean renaissance would have been a smaller USA CRP
program. That 40 million acres taken out of production gave Brazil the
green light to expand. Even though soybeans were 4 dollars in Chicago,
that was still too high of a price. 

If we did not have 40 million acres in CRP and let the market wash out

back then, that would have halted Brazil's advance in Mato Grosso. 

Today it is too late. 

I hear rumblings that the USA needs a temporary set aside program

to take acres out of production in USA. Brazilians would say YES!!!
Please do that !!!!

The problem is that new USDA programs intended to help in

the short run end up being long term programs.

There has been talk about paying Brazil farmers to not clear more

forest. In essence, a Brazilian CRP program for the Amazon.

Yes, Brazil would like that. The problem is that there is no FSA office

to administer, certify, and oversee the program. This would be ripe
with corruption and abuse. 

There is no correct answer today. We all have been too reliant on China

as the supplier of cheap goods and the buyer of our bulk commodities. 

For the time being, FX will protect the Brazil farmer. Sometime in the next

12 months the costs of production will start to explode here. Imported goods
will become more and more expensive at the same time manufactured goods 
produced in Brazil will be harder and harder to export. 

Bulk commodities like soy, corn, cotton, coffee and cattle will be the short

term winners in this devaluation game. 

Political situation here in Brazil changed a lot this past week with the

firing of Minister of Health and the resignation of Minister of Justice Moro.
There are rumblings that Minister of Ag is next to go.

This is not the forum to discuss politics.

I will do that in a private setting such as the newsletter. 

Back in 2004, 24,000 sqr KM of deforesation occured which

was peak soybean expansion year over year. 

Last year, it was 10,000 sqr KM and look at the media attention

Brazil received because of that. I chuckled at the time.
You think that was a fire? Just wait, I will show you a fire.

Now that's a fire!!!!

This August you will being hearing much of this.

USDA has Brazil expanding by 3-4% for 2021.
That is now the baseline.

I ask myself could it be double that?

Maybe, it is difficult to keep expanding by big
percentages when the numbers get this big.

Anything that can  be produced and generate new
dollars will be gold in the year ahead.

Buckle up- the new Brazil/Amazon Disney roller
roaster will be the best ride around.

For full updates, subscribe to the newsletter or
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who has 20 years experience in Brazil.

Stay safe


keywords:  soybean price history, BRL record high,
deforesation rates, expectations for 2021

Tuesday, March 31, 2020

BRL:USD 5.20:1 and record high soybean prices

We are well.

We are now in week three of full Brazil shutdown.
Brazil has never been so quiet.
Brazilians love their noise, music, and movement in general.
They like to be going somewhere or getting back from somewhere.

As a Norwegian, I find this social distancing quite refreshing.
In the Brazilian culture, hugging and kissing when greeting
someone or saying goodbye is normal protocol.

What has happened the past three weeks is so anti-Brazilian
as per the cultural norms. Brazilians are like cats. They like to
purr and be petted. Yes, they like to hiss sometimes when
their latin blood feels betrayed for some reason or another,
but it quickly passes.

I link this in with the Gaucho tradition of sipping chimarron
tea in the morning and passing the cup around to everyone
in the room or office- even strangers.

Corona virus has disrupted Brazilian culture - to say the least.

Personally, I enjoy the isolation and slower pace.
So long as Mcdonalds, Burger King, Dominos, and
Pizza Hut stay open, I am good but getting fatter.

My son is using Zoom to connect with colleagues and
school classes.

The ambience of my building has changed. Older people are
worried and do not want to interact anymore- if they do, it
is from a distance. Three weeks ago they would touch you
and not let you go. The main stream media has scared the
bejesus out of them.

The Brazilian economy is slowing down as per the rest
of the world. This is having a weakening effect on the
Real. I included some charts back in February in my
March newsletter. One chart showed the Real going to
5.20 area and another discounting inflation showed
a potential for 7:1.

At the time I published them, I did not believe it was
possible to trade 5:1. Low and behold two weeks later,
it became reality.

This has been a boon for farmers with physical soybeans
and corn to sell. On Monday, March 30, Sorriso soybeans
traded at a new all time high price of R$ 86.00 per sac.
New crop bids are following and are in the R$ 80.00
per sac area for 2021. Many farmers have all their soybean
inputs purchased for 2021. Some were locking in input
prices in January when FX was 4:1. This is a perfect world
for Brazilian farmer at the moment. Win win win......

At some point, even if it is a year from now, this high
FX will bite them in the ass. Even if you can stay on top
of your variable costs such as fertilizer and chemical, eventually,
the high FX will seep through all costs of production and we will
see higher and higher depreciation costs. The new JD combine,
planter, or tractor will not go up 5% in a year, but maybe 20%
in one year - ouch.

Brazilian interest rates have dropped to 3.75% which is also a record
low. Interest rates will need to stay low because when a farmer
needs a new tractor or combine in the future, the starting price will be
anywhere from R$ 2 million to R$ 2.5 million Reais to start with.

I am sure JD will be offering zero% on new 500,000 dollar toys in
USA soon. In Brazil, ponder paying 6 or 7% on a new R$ 2.5 million
item and do that in multiples.

For the current year and the year ahead, Brazil farmer is in the
drivers seat. Some will have 40%-50% return on variable costs
to plant soybeans and corn in the year ahead.

There will be much land clearing and prep for the year ahead.
Hang on to your nuts- the numbers will be impressive when they
finally get counted which might take 1 or 2 seasons before Conab
or IMEA gets a handle on things.

We have seen this the past year with 1 million ha increase in soybean
area. That prep actually started during the trade war year of 2018.

I have had consults recently on Rumo expansion and also the
implementation of new soybean and corn traits into the Brazilian
market- Conquista, Intacta, and Xtend are all on the horizon and
will be adopted quickly in Brazil.

Stay safe up there

Drop me a note if you are interested in becoming
a subscriber or a VIP client.


Corona, Brazil culture, BR soy expansion,
soybean profitability, Brasilian Real FX

Saturday, March 7, 2020

In Brazil, Corn and Soybeans are now sub-products of FX

I have been sending out regular updates to subscribers
on the current pricing dynamic in Brazil.

I have been pounding the table about FX for months.

The underlying theme has been when USD:BRL gets above
4:1, Chicago becomes less and less important as a hedging tool
and price discovery mechanism within Brazil.

I sense the North American producer is not grasping this
and its importance. As long as MFP 3.0 comes, one can
continue to ignore this South American phenomenon.

I must admit, I too am surprised that we are trading
above 4.32:1. We hit 4.67 on Friday. 
There is more talk of 4.80-5.0 in the coming months.
What I have experienced in the past is that when these forecasts
come in, either to an extreme high or low, they tend
not to quite make the projection.

With the BRL, there is never anyone that forecasts that the
new trend i.e. 4:1 to 4.67, but when the break out comes,
everyone sees it going to 5:1. This is called bullshit.

In January, when FX was 4:1, the projections by major banks
were for 3.80:1 for the year. When we broke out of the 4.32:1 
Nov 2019 high, then the forecasts flipped to how high we can go. 

To the chagrin of many, the Brazilian economy is quite stable.
Low inflation, low interest rates, and an admin that has and still
wants to cut spending. The Brazilian GDP has been cut from 2.5%
to 1.5% for 2020 because of Corona, but even so, this is quite
stable. It looks like Brazil will cut the Selic rate to 4% soon.

The Brazilian farmer is selling his crop quickly and getting 2021
sold too. Soybean prices in Mato Grosso are trading at the highest
level since July 2016(the drought year). Meanwhile, Chicago soybeans
are trading near contract lows. Corn prices in Mato Grosso feel like
US$ 7.00 per bu in Chicago. 

When we talk about sub-products with soybeans and corn, we
tend to think of ethanol, DDGs, corn syrup, soybean oil and meal.

The value of soybeans and corn in Chicago are derived from what
the sub-products are worth on the global stage.

In Brazil, when FX is at 4.60, we can start to think of corn and soybeans
as sub-products of the USD FX. 
If the Corona virus wanes and economic activity picks up and the Dollar
declines, we can get back to normal.
However, if we do trade up to 5:1 on a USA/Global meltdown, the
Brazilian farmer need not even look at a Chicago quote screen.

It will not matter. FX is the driver- not supply and demand. 

The Brazilian farmer and USA farmer live in two different worlds
at the moment.

The Brazilian farmer sees a bull market and is preparing for 2021
and 2022 accordingly i.e. expansion of production. 

The USA farmer sees a bear market and is preparing accordingly i.e
crop insurance revenue protection, PLC/ARC payments, and potential
for MFP 3.0. In other words, producing for below the cost of production
unless max yield is achieved. This reminds me of the LDP mindset of the

Lots of interest in RUMO these days. Railroad expansion and who will
get the Ferrograo concession scheduled for June. 

For those paying attention, now is the time to send money to Brazil.

Drop me a note if any questions.

Happy Easter


Sunday, January 5, 2020

Happy New Year

The start of the 2020 growing season has been one
of below normal rainfall. Rains are now more general at
the start of 2020.

Mato Grosso has a record soybean crop on deck. Given
all the attention to the Amazon back in August, I must
ask myself where the media is today?

France offers to help Brazil back in August and the
aid is declined. Today, Brazil offers to help Australia.

Bottom line to all of this: In August, that is the burning
season for Brazil. Australia is on fire in December, and
it is not the burning season. It seems to me that is the
story and not the former.

Flip side: Is burning and clearing increasing in Brazil?  Yes

It looks like 10,000 square KM were cleared in 2019.
I am not surprised by this as I predicted this in the August newsletters.
But, to keep things in perspective, back in 2004, the clearing rate
was 24,000 sq Km. So, even though we have seen an increase in
clearing, we are still at 40% of the previous peak. That was happening
before social media was so passionate or should I say fickle?

I still say the bigger story is what has happened since 2004.
24,000 sq KM or 10,000 square miles were opened in one year.
That is 277 townships. Today, those 277 townships all have
70 bu beans on them.

We have had some problems in RGDS, Bahia, and Piaui. There has
been some loss in 1st crop corn and need for replanting of soybeans
in the Northeast. It will take time to see how this plays out.

Brazil economy looks to be starting out on a firm note. 2.3%
growth for the year ahead is the projection so far.

The price of beef is at record highs.

Old crop corn prices are very firm. Brisk export pace and
increasing domestic demand combined with a shrinking first
crop has created some fear in the market.

Look for imports of corn from ARG and USA in coming months.

FX has stablized for the time being after peaking in late November
at 4.27:1. This gets the animal spirits flowing in AG.

Mato Grosso's 3rd 100% corn only ethanol mill will come
online in late January. This mill will be 210 million gallon
capacity when complete. It is huge.

Looking forward, April rains will determine how Brazil
shakes out this year for soy, corn, and cotton.

Will Brazil produce 120 mmt of soy or a 125 mmt?

Will Brazil produce 85 mmt of corn or 100 mmt?

Even with expanded cotton area, will Brazil be able
to repeat the 2019 record productivity in cotton?

The BR 163 highway is complete to Mirituba, Para.
This is along the Tapajos River where barges can be loaded
and transfered to ports at Belem.
Trucks will be zipping north during soybean harvest.
We can now measure turn around time in hours and days,
compared to the last few years, when trucks would disappear for
weeks and even months at a time into the jungle.
I look for these northern ports to increase volumes from about 6 million
tons in 2019 to possibly 10 mmt or more in 2020.
Freight rates have dropped from US$ 60 per ton to ship north in 2019
to US$ 40 per ton in 2020. This is a game changer.

I have increased the price of my newsletter to US$ 600 per year.

VIP light with consult time and special send outs are now US$ 3250 per year.

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Keywords: Amazon, soybeans, corn, freight rates, Brazil production,
                   deforestation rates, historical comparison