Friday, July 28, 2017

August 1 blog

Happy August

I cannot believe how fast this year is progressing.

Thank you for all the consults this month and annual renewals.
Always appreciated.

I sent out in my April newsletter on how I expected the year to play
out as per soybean prices. So far, we are tracking well.
Drop me a note if you would like a free copy of the April
newsletter. I will send you a copy.

I am expecting cool air to drop down early in September for Northern plains.
My guess is we will put in a low in early September and then
start to rally again. More on this in future newsletters.

The political environment in Brazil continues drive a normal
person batty. The leaked tape of JBS owner recording
the current President was something right out of a 007 movie.
But, since no legal action has been taken as of today, it seems more
like an episode of twilight zone.

I then turn my attention to USA and I want to scream at times.
Six months have gone by and what? What is it I am am supposed to
be impressed with?

I tend to return to my own little world of soybeans and corn. Even though
they have seen better times, at least they seem more rational and predictable.

The USA drought has taken the top end off the crop this year. By no means
a disaster, but at least gives us something to base off of going forward.

The Brazilian farmer has zero incentive to produce 1st crop corn this
next season. This means more soybeans. Maybe a lot more beans.

If we use a five year average for BR soybean yields, 2018 crop will
look much like last year. If we use last year's record yield, then we
will have a soybean crop several million ton larger than the current USA
crop. CME, China and BR will have to deal with this new reality.
We are trading beans in Chicago that are being produced south
of equator and headed to China. It will be more and more difficult to
square the circle with logistics always lagging the production surges.

It is looking like an early start to rainy season. It has been unusually
cool for this time of year. Last year we were baking in dry heat and
this year Brazilians are wearing jackets.

Elections are scheduled for Oct 2018 for Brazil. The field is wide open.
The BRL FX remains mysteriously strong given all the upheaval of late.

Outside of the ag economy, the REAL economy of Brazil really sucks.
The amount of small businsses that have closed their doors in city's
like Goiania is surreal. Many of the younger generation have given up.
Just as well leave the country is the motto.

Much talk of railroads in recent weeks. Let us hope so.
With a big 2018 soybean crop followed by a large 2nd crop
corn again, Brazil continues to bury herself in commodities.

Brazil is playing a dangerous game longer term with her corn production.
The 1st crop continues to disappear and is replaced by soybeans.
The 2nd crop area continues to expand fueled by rotation needs and
goverment minimum pricing. An early frost in southern states combined
with an early dry spell in Cerrado states will spell disaster for domestic corn
production in the future. There will be no cushion to work with- only sharp
increases in domestic corn prices to cull demand quickly. Not an optimal
business model.

For the next 12 months, there is no shortage of corn anywhere.

There will be a fair amount of shifting away from GMO soy and corn seeds
in 2018. A nice R$ 10-12 per bag premium to grow non GMO soybeans.
And the technology is breaking down as per bug resistence for the GMO
corn seeds. The price for seed does not compensate for the advertised benefits.
Back to a basic RR corn and apply insecticides as needed.

Cut the seed costs will be the mantra.

I will be in Mato Grosso next week. I will send out updates as I learn more.

I will attend the inauguration of the 1st 100% corn ethanol mill in Mato Grosso.

Much talk of amending production to increase the amount of flex-mill capability
of the existing sugarcane mills in Mato Grosso. The idea is to produce
ethanol from corn during sugarcane off season. There are three mills that do this
on a small scale so far.

Happy harvesting in Northern hemisphere.

Planting will likely begin early this year and on time circa Sept 15th for
Southern hemisphere.


Keywords: newsletter, politics, Mato Grosso, ethanol, railroads, GMO seeds

Saturday, July 1, 2017

July 1 blog, drought, bull again, acreage battle for 2018

I sent this out to subscribers back in Feb 12th, 2017

* One data point I am watching as per USA weather for 2017. As per seminars I attended 20-25 years
ago on weather and markets.

One major leading indicator for a midwest drought is a 60 degree temp in Des Moines for the month of
February increases the odds of a drought to 80%.

The forcast for 2/19 for Des Moines is 61 deg.

Last year I was watching for this and it did not happen. Even though there
were a few predicting drought for 2016, I felt the June high was solid and we
would head lower. For the most part that was correct. We never had an August
rally as it was hot and wet every day and record yields were the result.

2017 will be different if this data point holds next Sunday

1980 and 88 are analog years among others....  "


So far so good.

We do not have a drought per sey in the " Corn Belt", but the High Northern plains
are sure getting it full force.

The comparisons to 1988 are the key words I have been waiting for.

It is funny how bankers and crop insurance interrupt common sense sometimes.

NW MN and ND have switched to corn and soybean country in recent years. Long growing
seasons with great yields have changed the historic cropping rotations away from wheat and
sunflowers. Corn and beans are king. A few good years and most everyone has good APH's to
work with. This gross revenue protection is better than growing wheat for a loss.

At the end of April, when I saw the Kansas blizzard and the northern plains in the deep freeze,
I told myself, this is a wheat year- not a corn and bean year.

We were hearing from many sources that this was the lowest planted area of wheat in
circa 100 years. Other comments from farmers saying this was the lowest percentage of
wheat we have ever planted on our farm were early leading indicators of "What if" there
are some weather problems? Here we are.

I must say the wheat rally strength is suprising. It is funny to see so many get bulled
up so quickly. A rally of some sort seemed likely, but with bins full of wheat from
last year yet, the fortitude of this rally is down right impressive.

Where I am from in NW MN, the wheat crop is perfect. Everyone is applying fungicide and
adding liquid N to bump the proteins. Many have 70 bu wheat on deck and I think some
100 bu wheat will be likely on a few fields. The problem is: only about 20-25% of any farm
is spring wheat. The balance of the farm is corn, soy, and canola and some sugar beets and
edible beans. I wonder how many 4th of July picnic table conversations there will be this
weekend of " I shudda planted the whole farm to wheat!!!"  I could have retired !!!!
One must feel for the central ND farmers that are baling up their wheat in order to save
their cow herds. Many hay buyers have been up to NW MN looking for any hay possible.
For them, it is a crop insruance year. Some of the same guys that sent hay to Oklahoma
a few months ago now need help themselves. Crazy how fast things change.

We all remember the 2008 rally in spring wheat to 23 dollars. Best drug ever created
for my area in NW MN. Everyone thought they were instant super heros.

The problem with the bull run of 2007/2008 and again in 2011/2012 was that no one
had any wheat to sell at the higher levels and cost of production was nuts.
That was hard to write checks for a tanker of diesel at 4 dollars per gallon and
fertilizer was circa 1000 dollars per ton. Wheat needed to be 8 dollars ++++ !!!

Since then, fertilizer and price of N have dropped significantly and diesel is
circa a 1.50/gallon again.

Also, back during the commodity boom, everyone was hedging production
on the way up. Some was sold at 8 bucks and more at 10 and 12 bucks.
So if wheat was 13 bucks, no one had any left. And new crop was priced
back at 8 bucks, so why sell that when spot is still 11 bucks was the mantra.

Produce and hold was the new biz model. Build more bins.
That worked until the recent 3.5 year bear market.
Six months ago, bankers were telling farmers to dump that wheat.
US 4.50/bu is good enough. Clean up your operating and let us get ready
for 2017 with corn and beans.

So a good chunk of last year's crop got sold at Christmas time.

Then boom:  a 3 dollar  rally and probably more to come.

The good thing about this year's crop being grown is that prices were so
low that no one has any sold. Why hedge 4.50 wheat? a guaranteed loss.
It is a produce and hold crop. It is a rotation crop.

So when I hear farmers harvesting early spring wheat and hauling direct
to elevator and getting 9 bucks off the field, it makes my heart sing with joy.
Congratulations dude, you deserve it after the last 3 years+ of being patient
and getting a corn cob rammed up your bottom side.

The net margin of producing a 70 or 80 bushel crop this year and selling
off the combine will be better than the margin back in 2008 in most cases.
Cost of production and lack of crop sold come together to line up the 7's.

So back to beans, are corn and beans next to rally back to decent levels?

I have outlined to clients since back in January of what I expect for the year.

The May low was on target.

The recent drop to 9.07 basis Nov 17 was a surprise and worrisome.

As long as 9.03 holds, we can be a bull.

Now in just 5 days, we are already back to 9.58.
A close above 9.82, I think we can rest assured that the
9.07 low was a significant low and we have better prices to come.

I will send out a special technical update in a week.

With a combination of less than optimal spring conditions,
mid season drought stress now in July, and a likely early end to
the 2017 growing season, I doubt we will produce the 4.2 to 4.3 billion
bushels of soybeans being projected.

SA will have plenty of carryover stocks and that will be a weight over
the market.

But, any hiccups in SA weather and the new acreage war about to start for
2018 between Spring wheat and Soybeans, we now have a story. We now have
something to talk about.

We have reason to be optimistic and bulls with small testicles again.

Happy 4th and enjoy your holiday.


keywords: spring wheat, drought, soybeans, acreage war