30 days until planting 50 days until elections

I have been a bit slow this week.

I have been battling a Brazilian winter cold.
It seems hard to believe one can have a cold when its
85 degrees outside. Low humidity is hard on the lungs.

Dry season is intact yet. It does not look like an early
start to planting which can begin in 30 days.

Lots of talk about how much Brazil will expand for 2015.
In the same sentence they talk about cutting costs.

At the end of the day, I do not think Brazil will expand as
much as they think.

I am watching the Northeast drought. The NE tends to
move in seven year cycles. Seven years above normal
rains with good crops and 7 years below average rains
with less than optimal crops.

We are starting year 3 of the drought.

Brazilians are dealing with the loss of one of the Presidential
candidates this week. It opens up the whole Presidential
political landscape again.

Machinery sales are slow with dealers offering more
and more incentives to keep stuff moving.

With the recent trade deals with Russia. The general public
feels that more and more meat will got there and inflation on
food items will continue higher here.

The average family and lower classes are really starting to feel
this increased cost of living.

Crime is on the increase. Seems like everyday a hold up, car is stolen,
or some sort of bandit story locally.

Politics,Cows, Chickens,Pork, Russia, and Ethanol

Exciting week in Brazil.

The government is in the process of increasing the ethanol mandate to a 27.5% mix.
Bio-diesel increases from 6% to 7% in November.

This is a last ditch attempt the pander to sugar industry pre-election.

The government also announced that corn auctions will start on August 20th.
R$ 500 million will be liberated to pay premiums to farmers that sell below
the minimum price of R$ 13.52/sac. US$ 2.50/bushel

It is amazing how fast they can act when Brazil is in the drivers seat.
Russia gives the USA the middle finger and Brazil just loves that.

Upteen slaughter houses were magically approved over night by Russian
inspectors. The flood gates are open for Brazilian Beef, Chicken,Pork and Dairy.

The dollar is at 2.30:1.

Brazil´s economy continues to suck Argentine cold air off the South Pole.

I think we will see 2.35 to 2.40:1 in coming weeks.

My bet is that Central bank will draw a line in the Cerrado at R$2.40.
Sell dollar swaps at any cost to protect 2.40:1 or lower.

Brazilian sugarcane is stuck at 660 million tons for 2014/15.
Exact same size as 2013/2014.

Millions were invested in renewed stands and expanded area.
Net result-  zippo

The drought took 10-15% of the top end off and that was the surge
potential going into this growing season.

We maybe can add 5% back to the total for 2015/2016.
It will be a hard row to hoe.

Less than 58 days to election.

Place your bets.

Productivity starts Monday in Brazil

I think we can sum up 2014 as the lost year for Brazil.

So much energy and resources were wasted gearing up for the
World Cup that everyone forgot to work this year.

The hot item in Brazil for 2014 was big screen TV´s.

I now go to discount stores and there are stacks of 40 and
50 inch TV´s being marked down.

Everyone forgot to buy cars, trucks, clothes washers, and
most everything else the past 7 months.

The industrial productivity in all sectors continue to wane.

School starts again Monday. Everyone is back from their
"winter" vacations and things will start to function again.

I told clients back in June, if you do not have an answer
from a governmental agency by June 5-10th, do not
look for one until August.

Between the World Cup interruptions and the normal
Winter break, many agencies simply do not function when the
boss is out on holiday with his family.

To further complicate things, we have an election on Oct 5th.

There are smoke signals on the horizon saying that the political
winds are about to change.

There two productive months for government to work- a little bit.

But if there is the certainty of a change of leadership, this could
cause more delays.

We have a new minister of Ag in Brazil. If President Dilma is
not re-elected, that means a whole new administration and
cabinet by January 1.

What does that mean for ag support programs, railroad projects,
funding for many projects??

It could mean a review of everything. It can mean a 6 month to
one year delay again on projects that were assumed approved.

I am all for change, but 2015 seems disruptive to me.

Lots of new faces and power plays that we have no idea how they
will manifest today.

It is political season. There will be many announcements for projects
here- there- and everywhere.

There will be last ditch attempts to try and buy this election and
remain in power.

It has been 12 years of power by PT party. If they lose, there will
be some dry heaves as the new power dynamic structures itself.

It makes for great drama, but terrible for getting anything done.

updates available here:
http://www.brazilintl.com/states/matogrosso/korymelby/kory_newsletter/km_newletter.htm

Tastes great, Less filling

A farmers organization in Mato Grosso has filed a complaint against
the large corn seed companies.

The BT corn seed is said to be resistant to caterpillars.

This past season producers needed to apply insecticide in conjunction
with the seed trait to control them.

Some caterpillars say the corn tastes great,

others,

Say the corn is less filling.

https://www.youtube.com/watch?v=argdPEmD9bI

This new evolution needs to be watched with the soon to
be planted RRII intacta trait in soybeans.

I have heard that a few producers did need to spray insecticide
on 2nd crop soybeans to control the Helicoverpa armigera.

Farmers are happy to pay for tech fee if they get results.

If they do not, a novella starts.

* novella = soap opera

Early season rains in Cerrado

It´s raining !!!!!

Why?

Normally this time of year is hot and dry. Last night it rained on and off all night.
I am not complaining but simply making the observation that I have never experienced this
the past 13+ years.

It is making cotton harvest difficult in Mato Grosso. Sugarcane harvest is being delayed in
Sao Paulo and Goias.

I am watching the evolution of cashflows in Argentina and Brazil for 2015.
Many dynamics factors come into play.

Currency FX, inflation, pre-paid inputs verses projected new crop cashflow,
trade ratio in sacs, possible changes in export tax rates and what does that mean
for Argentine gov´t?, machinery sales on the decline,  Presidential election and possible
changes in cabinet,  what next?

Don´t hit on 17

I keep reading more articles about how Brazil and Mato Grosso are going to expand 4 to 5% again in area for 2015. When we look at fertilizer sales data to date, it is easy to make that argument.
In recent years, I would have agreed.

New crop soybean prices for central Mato Grosso are down to USD 16.50 to USD 17.50 per bag.
This is about US$ 7.50/bushel locally for March 2015 delivery.

This will be hard for many producers to swallow as we go into the the Mega USA harvest.

Futures will likely go lower, but I think port bid premiums will rise and compensate for
CME losses and Brazil freight costs- at least to some extent.

We know the Brazil farmer has locked in his fertilizer cost of production months ago.
To some extent his chemicals and seeds have also been taken care of. Keep in mind
that he will plant a lot more Intacta RRII this year which means he is exposing himself
to higher tech fees in lieu of higher chemical/insecticide costs.

There is no rule saying he has to apply all the fertilizer he bought. He could shoot
for productivity or roll some fertilizer forward too.

I am sure there are a few farmers/farming groups that are finishing prepping a some new areas
that were started two or three years ago. In my mind, statistically insignificant.

Many talk about the high soy/corn ratio and it favors soy.

The caveat is that soybean cost of production is also at record highs.
It needs to be a high ratio just to maintain!!!!!!!!!!!!!!!  not switch!!!!!!!!
Those not living in Brazil are clueless to this data point.
Chicago people need to come to Brazil to comprehend this.

I do not think Brazil will plant 31 million hectares this season by the time
all is said and done. A few guys might actually seed some areas back into pasture !!!
Cows are good money !!!!!

2015 soybean cycle can be summerized like this.

I am sitting at Caesars blackjack table with a 100K on the table.
I am dealt a 17 and the dealer is showing a 10 up.
I know in my bones she likely has a 20 hand.

* dealer in this scenario is CME

Do not hit on 17 !!!!  stand pat !!!!!

I need to let this hand go !!!!!!!!!!!!

We will wait until March for the dealer to flip her card over.

If the dollar is 2.50:1 at the time, she will flip over a 7 and
and we had a 6 month "PUSH". We bought another year.

For those thinking she has a 6 underneath and needs a card,
you are betting on the Northeast drought in Brazil continuing.

If she is hiding an ace, you are all going to need new underwear
by March.

Brazil 6 to 10 day precip maps are showing chances of early
rains starting. Very rare if so.

If the Northeast can grab some rains this season, Brazil will produce
93 million tons on same area as last year.  Period.

Waitress,  I need another Corona and lime while I wait.

Thanks

Kory

Here is a 25 dollar chip for you honey.

For those who want more wisdom as to when to take a hit,
click here:

http://www.brazilintl.com/states/matogrosso/korymelby/kory_newsletter/km_newletter.htm#.U80C_ONdWE4

Born again Brazilian

I am back from a 50 day visit to USA.

We did the stardard family thing. Orlando, Mall of America in Minnesota,
and family, cousins, and old neighbor visits. I also managed to visit a few clients along
the way.

It was good for me to get back to the states. It seems like when we spend too
much time in any local, we tend to develope fish bowl tendencies. We get so
caught up in our own little worlds that we cannot see the fish from the sharks.
In recent years, I have found myself becoming more cynical about Brazil.
It is easy to do. Inflation, hospitals, education, cost of living(Custo Brasil), government,
restrictions on foreign ownership of land, currency manipulation, among
many other things make it easy to criticize. Shame on me. I promise to do
better and try and find a positive at the end of any event or situation.

As I got back to Brasilia, I found myself wanting to kiss the ground.
I was delighted to back to Brazil.

I am a Born again Brasilian;. albeit falsificado, I do love it here.

This may sound silly, but I had forgotten what wind was like.

We are having a very strange weather in Northwest Minnesota this season.
It has been cool, rainy and windy. Small grain crops love it. Corn and soy
are suffering. They need heat.

In Brazil, at least in the Cerrado, we do not have wind. In NW MN, a 30 mph
wind in March or October is normal. But a NW wind in July, that is some strange
polar vortex voodoo happening.

I think I had forgotten why I had fell in love with Brazil in the first place.

Climate, girls, carinhoso(caring bunch of people), and a general sense of
belonging(you are welcome here).......

Do not get me wrong, I enjoyed visiting with family, cousins and neighbors.
The cold rainy weather was actually a gift for me to spend some quality time
with many. If it was 85 deg and sunny, no one would have had time for us.
With 45 degree July mornings, everyone had time !!!!!!!!!!!!!!!!!

Brazil has many positives about her. I will try and focus more on those
items in the future.

My wife was very impressed with airports, malls, public restrooms
wherever we went. She was facinated at how the toilets flushed themselves.
She was impressed with the high technology.

Food, car rentals, clothes, and Wallmart souviners are rediculously
cheap in USA. It is hard not to lose control. 10 dollar Levi pants
at Sears compared to R$ 200 for same jeans at shopping mall
in Brazil. It makes it hard to square the circle.

I went to USA with the idea that I would bring back two I-phone 5´s
for myself and my son. It seems like every Brazilian teenager has an
I-phone 5 for R$ 2500 per. I looked at them for US$ 690 dollars with
tax and said I am not worth that much. I do not need it and a new
bill in the mail each month for data and nano chip account.
I can wait.

My son agreed. A new I-pad mini for him and a Mac Book Pro
Retina for Papai. We can be productive with this.

Thank you to all those who helped with our trip´s logisitics.
It is greatly appreciated.

My son just got his first taste of international travel at 11 years old.
From here, all things are now possible. We do not need to fear
those people over there. It is a small world.