Sunday, May 13, 2018

May 14 blog

Conab new record high soybean crop, punted on 2nd crop corn, dry weather continues

Conab 117 mmt of soybeans. Mato Grosso 32 mmt and NE states of MaPiToBa at 13 mmt
made up for small losses in Parana and RGDS from the prior year record volumes.

Land is being prepped for 2019. Soybean sales are being made. Corn sales for 2019 are also being made. Machinery is being purchased. There is a renewed sense of optimism in Brazil.

There will be some that will sit on their hands for a while yet. The crop losses in 2nd crop corn are starting to add up in Parana, MGDS, Goias and Sao Paulo state. SE Mato Grosso is also affected.

Conab chose to wait with their estimates. IMEA should be out soon with a new crop size for MT.

I sense MT should shake out at  24/25 mmt. The national 2nd crop will likely drop to 55 mmt +/-.

This will put a floor underneath the domestic corn market for the next year.

This season, the 1 million ha expansion came 60% from expanded area and 40% from
1st crop corn switching. For 2019, the new soybean expansion will be 100% from new areas.
I am sensing this could be more significant than we can imagine.

Could we get some interest in planting more 1st crop corn in the Southern states?

If we think back to 2012 and 2013 for USA, that was the peak of the euphoria. Brazil at that time had a FX of 2:1.

Now we have dollar 3:60:1. We have credit available. We have the animal spirits energized.
The last few years Brazil has been able to expand when the cash flows were so-so at best.
Now we have real profits from the previous crop and 2019 looks fantastic as per the bottom line.
We now can start to think in terms of how many deviations beyond the norm as per production potentials. 120 mmt?   125mmt?
No weather problems?  katie bar the door?

When soy leads the way, corn will not be too far behind.

If we can get started planting in Sept 2018 and not get delayed until into Oct, we can become very aggressive with soy production potentials for 2019.

China continues to buy interests in petroleum refinerys, energy sector, and ports. Brazil is trying to release concessions for various railroads yet this year.

Cofco grain trading is expanding their presence in Mato Grosso and Cerrado. They are picking former traders from Bunge, ADM, and Dryefus. They are going directly to farmers to lock in sales.
Chinese are very aggressive in Brazil.

Meanwhile, Multigrain which used to be partnered with CHS, has announced they are winding down
their grain trading buisness in Brazil. Mega losses in recent years.

South Korean grain trading firm CJ bought Goiania based Selecta a few months back. Non GMO soybean processing and sub products. Many south Korean familes are moving to Goiania.
A very strange mix I must say.

I would say China and a few others are in the right place at the right time to keep picking up distressed assets. Now is the time to be expanding in Brazil as the cycle turns upward again.

World Cup and Elections are next up. The field is wide open. No one is sure what will happen.

From recent polls, the public seems to want a political "outsider" this next cycle. Does not bode
well for those old political operatives with name recognition. Thus the markets and FX are a bit spooked as much of what they thought Temer and current Congress had agreed too might have to start from scratch again in 2019. This delays Brazil's fiscal situation and GDP potentials.

But in these grey time periods, that tends to bode well for the ag sector in the transition.
Brazil ag accounts for 27% of BR  GDP.

BR Ag has its MOJO back.

Now we need to start looking for the next Kryptonite meteor on the horizon.