Sunday, May 24, 2015

What have we learned from 2015 crop year?

As I think back to last October and the hot dry conditions,
we read countless emails and articles about how this will
affect the soybean crop and eventually the 2nd crop corn.

I was in the heat of it with my opinions about crop size and
potential losses.

I remember watching the canal rual ag show in mid-November
interview a farmer from western Mato Grosso. He was adamant
that soy losses in western Mato Grosso would be 30%. I calculated
this and told clients that Mato Grosso has likely lost 1 million tons
of potential already.

At the end of the day, Mato Grosso had a bumper crop and record
production. The average yield for the state did drop about 1/2 bushel
per acre from 2014. This is an indicator that the drought and late planting
did have an affect, but with the increase in planted area of 5%, the overall
production was still an increase year over year.

January was record hot and dry for Goias state and areas to the Northeast.
It was easy to see that Goias would lose 1 million tons of potential. The question
would be if the state would lose 2 million tons???

Bahia, Piaui, and Maranhao states did remarkably well considering the conditions.
They increased area and productivity came in higher than 2014. I was not expecting
this to happen.

The two states that stand out this year were Tocantins and Para state. Tocantins had
Garden of Eden conditions. Tocantins increased area by 10% and production by 15%.
Para expanded area and production by 27%. We need to keep in mind that these
increases come from relatively small base lines. But the expansion in these areas cannot
be ignored. Two crop years go by and all of a sudden there is another million tons
of production that very few on the planet are aware of.

In summary, Brazil lost about 1 million tons of soybean potential this past season.
This occurred mainly in Goias state. The most recent Conab report stated that Brazil
produced 95 million tons of soybeans for 2015. Early on I was thinking more like
93 million tons should cap this crop.

Therefore, Brazil´s 2015 potential was 96 mmt. Period..........

Brazil expanded 1.4 million hectares this past season. I was not expecting that.

What can we divine from this for 2016?

I said last year that the more Brazil expands, the more she will contract later.
The dollar was 2.40:1 at the time - tight cashflows....

The FX currency exchange is the saving grace for the Brazil farmer for 2016.
The dollar at 3:1 keeps them in the game. Every hectare is a "blackjack".

Costs are going up. Fertilizer, chemicals and seed are higher in local currency
after they are imported. Some farmers are saving their own seed. Some are
cutting back on volumes of fertilizer. Will this affect productivity in 2016?
We do not know.....

A few that still had expansion plans are scrapping these projects. Conserve
working capital is the mantra at the moment. Banks are cutting back credit
lines and interest rates are on the rise.

At this time, I am not seeing Brazil expand for 2016. But at the same time,
she does not need to contract quite yet.

It is a "Check Mate" at the moment with Chicago. Who will flinch?  Chicago,
Brazil soybean expansion, China, or will Argentina scare the daylights out
of everyone later in the year and bury the soybean market but good........

As long as dollar trades 3:1 to 3.30:1 between now and next February,
I think the Brazil farmer can tolerate these prices. If the dollar would drop to
2.50:1, the tears from all the farmers would flood the Amazon.

I will continue to monitor the situation and update clients in Real Time.

With decent weather and high 8´s in Chicago, Brazil can produce a damn
nice crop in 2016. We could be looking at 100mmt.

If soy prices drop to 7´s by October, could Brazil tap the brakes a little
bit and contract for 2016? answer-  yes it is possible......

Saturday, May 16, 2015

China investment ideas, reality, etc

May 16th

It was an "other worldy" week for me. Events unfolded personally and in the media that had no connection to normalcy or reality of the current conditions.

The pernsonal stuff is best left for a soap opera writer to deal with.
The common underlying theme with Brazil is that is operates on pure, raw emotion.
If you cannot deal with drama, Brazil is not for you.
I did blow a gasket this week as events unfolded. It had been a while since the last
head gasket sprung a leak. It felt good to vent. It cost me 2 packs of cigarettes to
say I am sorry to my security guard. He received much Viking rage. He was just the
messenger and not the cause of the problems.

Family, booze, cat fights, dealing with hospitals and energy company mistakes all
came together and twisted my shear pin. Period....

To dovetail with the above "trip", I have read two different articles this week talking
about China and railroad investment????  Huh???

The East/West railroad was approved and announced back in March 2010. Not one
spadeful of dirt has been moved.

The government has announced that all infrastructure projects will be put on hold
during this period of fical austerity.

In the media, licensing of the North/South railroad through Mato Grosso/Para has been
announced. Great, let the licensing begin !!!!!!!!  Keep he shovels in the garage!!!!

Next up was the 50 billion dollar announcement that China will be investing in a transcontinental
railroad across South America. The countries included are Peru, Bolivia and Brazil.

I am not sure why all of these pie in the sky projects are being talked about now.
One would think an election is coming up soon. This is not the case.

It is like taking a pain killer to avoid the current reality. Let us talk about this over there,
while cuts, zero growth, and lay offs are occuring over here.

The articles make no sense at the current time.

These projects might become reality one day, but that is years from now,
not 2015.

In 2015, we need to find the money to fill the holes in the road. At the moment,
contractors with Dept of Transport are 90 days past due on their invoices
and they are shutting all projects down !!!!!!!!!!!!!

Friday, May 1, 2015

May 1 update

April rains have gone a long way to making the 2nd crop corn. The 2nd crop is going to
be much better than I originally thought. The center-west part of Brazil has received
late season rains four years in a row. Given the late planting, this is very fortunate.

Conab will be out with another report May 12th, let us see what they do with the
corn and soybean numbers. I am thinking a small down tick in soybean number
and increase in corn number.

Funding for Brazil infrastructure projects are on hold. This is frustrating to those
waiting for years for roads and railroads to be completed.

This past week was the big Agri-show in Ribeirao Preto, SP. Equipment manufacturers
have had a difficult 1st quarter of 2015. Sales have been slow.

Most expect the 2nd half to better.

I think this will depend on how corn and soybean prices continue downward or
stablize in this area.

If corn is trading low 3 dollars and soybeans break into the 8´s, then I think 2nd
half of 2015 will be equally as weak as the 1st half.

Fertilizer sales have been a good leading indicator for the coming year´s soybean
expansion rate. Last year fertilizer grew by 5% and area grew by 5%.

As of the first quarter of 2015, the fertilizer sales rate is 5% below that of last year.
Many blame the lack of agricultural credit for this. The new plan is said to be announced
by May 19th.

I think with the strong dollar weak real relationship; soybeans remain the only game in
town as per planting for 2016.

I do not think we will see a decline in planted area in Brazil for soybeans, but I think the
era of 5%+ per year expansion has run its course. I think we platueau in this area of
31.5 million hectares and see where soybeans bottom out assuming a 4 billion bushel
USA crop for 2015.

I will update as I know more via my newsletter and VIP flash updates.

Drop me a note if interested.