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......