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.
https://www.youtube.com/watch?v=SWtyZoN2Vz4
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.
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Stay safe
Kory
keywords: soybean price history, BRL record high,
deforesation rates, expectations for 2021
