Saturday, August 24, 2013

Peak protein follow up from July 2012

With recent market action and weekend weather forecasts for USA,
it got me to thinking about a newsletter I wrote back in July 2012.

I posed the question of Peak Protein?  What would it look like?

USA was in full drought mode. Brazil and Argentina were left with
job to fill in the global soybean needs.

The markets rallied until Sept 4th, 2012 and basically
did what they needed to do.

With a big USA crop for 2013, all problems solved.  right?

We now see crop size estimates for USA soybeans at 3.1 billion bu.

With strong demand, USA needs every last bushel.

Deja vu? 2012

With late season hot, dry weather the odds of a smaller soybean
crop are increasing. Could the crop be smaller than 2012?
That does not seem possible???  

Carryover for 2013 soybeans into 2014 will now be as tight as the 
previous season.

Brazil and Argentina will respond with bells on. wink wink....

In the USA, there will be perceived shortages again in summer 2014.

Brazil and Argentina et al will harvest 160 million ton in the interim.

The globe will have plenty but spots like USA will not have enough
cheap soybean meal.

The same logistical nightmares will all repeat again in South America.
Roads, trucks, strikes, ports  etc, etc.......

We have a scenario of peak protein again. The world in general
cannot get ahead of the demand curve. Shipping of soybeans is always
"Just in time".

If USA only produces 3 billion bushels again for 2013, the world
needs to depend on South America one more time.

Brazil must fill in the holes in the soybean demand DAM.

It should be no problem,  but what if????  fill in the blank.

Excerpt from JULY 2012 newsletter

Sunday, August 18, 2013

Aug 18 update

The dollar made it to 2.38 Friday.

Who wudda thunk?

Overnight we had a light shower of rain. This is rare for mid August.
Last year it was hot and dry for 6 weeks prior to the rainy season.
This is a refreshing change.

I think back to two years ago when the dollar was 1.55:1.
It seemed like it was not possible to earn enough dollars
to make a living. Meanwhile, Brazilians were filling up the
airplanes and heading to Florida to visit Mickey and stock
up on school supplies. Yes, it made sense for Brazilians to
fly to Miami to buy school stuff for their kids. The difference
in price paid for the trip.

I try and liken this to a family from interior Minnesota that
takes the family to Sao Paulo to buy school supplies
for their kids???  That would never happen, right?
"International Crazy Days"

One can look back and see the insanity of the dollar at 1.55:1
that made it seem rational to load up the family and head to
Florida just to buy things that originally were made in China.

Something was out of whack!!!!!!!!!!

It was perfect timing. A growing middle class with a
strong demand surge in the Brazilian economy timed
with the global economic crisis and stimulus reaction on
a global scale. All those Obama dollars that were being printed
ended up in Brazil for about two years in Brazil bank notes earning
a nice return. Banks lent out money like candy to consumers and

The Brazil hype was also at its peak. New oil discoveries combined
with new factories being built to make Ipads, cars,  trucks, and industrial

We are now on  the flip side. It seems like there are no positive
Brazil news items. I expect we are in a correction period for 1-2 years.

For Brazil agriculture the increase in the dollar from 2:1 to 2.25 means
an increase in the cost of production. With the jump to 2.40, it means the
price of soybeans for 2014 will have an underlying support based in Reals.
Cash flows for 2014 are tight based in dollar terms.

With recent positive price action in Chicago combined with a declining
REAL, farmers are pricing soybeans aggressively. Soybeans are about the
only crop that works for 2014. Cotton will be back in the black but has little
affect on soybean area.

We will see an increase in soy area once again in Brazil. How much?
28.5 million hectares seems to be in the bag. The question will be if we
can stretch that number to 29.5 million hectares.

85 million tons of soybeans would seem to be in the bag. With good weather
and massive area, could that number jump to 89-90 million tons? Yes

Corn for export is the main concern now. Push as many tons out the door
before the USA crop comes online.

This last season was a complete disaster as per soy and corn logistics and
the 2nd crop corn carryover will be with us into early 2014. If the rains start
early this year so everyone can start planting on Sept 15th, we will have new
crop soybeans at Christmas. We will be piling soybeans on top of the corn-

BR 163 to the north is not done to help with shipping of products
north for Mato Grosso. Bidding on the railroad work is said to happen
in the 2nd half of 2013. I once thought that the railroad would have come
online just in time to save Mato Grosso producer "butts" about in 2014.

The irony will be that for 2014; Mato Grosso producers will luck out
one more time on cashflows not because of Brazil´s infrastructure and
planning, but because of the lack of it. A screwed up economy can
play well into the hands of the producers. 2.25 to 2.50 Dollar:Real can
save them one more time.

The flip side of this can be much higher cost of production going into
2015. Imports  etc.  But now the Potassium fertilizer market has shown
signs of cracking and this can also help the Cerrado farmer big time.
Fertilizer is about 30% of cash flow and Potassium represents half
of that percentage. The question will be if Potassium pricing can drop
as fast as the Real is dropping to offset the cost increase in dollar terms.

The excitement continues in Brazil. Just when one crisis is leading
you one way, another pops up and saves the day.

Good Luck with harvest in Northern latitudes.

We are less than 30 days from planting new crop soy here.

Wednesday, August 7, 2013