Saturday, June 9, 2018

June 9th blog update

If you would like a copy of my June newsletter, drop me a line
at I think I did a pretty good job of
summarizing recent events in Brazil.

The trucker strike resembled something that looked like an
outtake from The Boston Tea Party meets The Lord of the Flies
and a hint of The Planet of the Apes behavior.

It looks like the freight tables have been updated and corn
and soy are moving again.

It is likely we will see other flare ups between now and October

I doubt Brasilians will protest much while the World Cup is being
played out.

On Tuesday, June 12, Conab will be out with updated 2nd crop
corn numbers. I look for a significant cut in production.

Brazil analysts have a wide range for this year's total corn crop.
78 mmt to about 84 mmt.
I am in the low 80s

Early Mato Grosso corn yields are fantastic. But this early corn
accounts for only about 8% of the area planted in late January.
The yields will drag lower as harvest progresses.

The biggest issue of the last week was the ability of the US$: BRL to
trade as high as 3.97:1 on Thursday. By Friday on the close, the central
bank was able to quash it back to 3.70:1.

For those that bought fertilizer and chemicals for 2019 back in March
when Dollar was 3.25:1, they are in the drivers seat. They can't wait
to plant the 2019 crop.

For those who have waited, they are crapping rubber nickels as to
what to do when the FX is swinging around 20 pts per day.
One day your a hero, and the next day you need a new sign.
The sign says:  I am a stupid.

Here is your sign.

I get the feeling that many will feel like this on a weekly basis
until the end of the year.

Brazil bought some time during the Dilma years by selling Swaps.
They did that again during impeachment process.

The central bank quashed the FX from 3.80 back to 3.10. They ended up
making money on the trade.

Two years have gone by and Brazil has not been able to get their fiscal house
in order. Many promises to resolve social security and retirement and so far nadda.

When the government folded their hand to the truckers, that really spooked
the financial markets. More red ink to pick up now with a diesel subsidy.

I think back to Indonesia FX crisis and even Russia. Argentina is also
an example of a fiscal situation gone wild.

It looks like Central bank was able to quash the speculation for now.
US$ 20 billion in swaps ready to dump at any time.

This acted as emergency coolant into the nuclear reactor core for now.
The international FX markets do not dick around. If they smell a hint of
BS or fear, they will tell you quickly to get your fiscal house in order,
or we will do it for you !!!!
Real Quick!!!!

The financial media articles quickly turned to how high the FX is going to
go in 2018 and 2019. Some say 4.40 to 1. Others say  5.50 to 1.

These pundits always seem to be wrong. They were saying that once Lula
was put in prison, the Dollar Real would be 3:1 by the end of 2018.
And 2.80:1 in 2019.

Given the cost of things in Brazil, that made me cringe. It seemed impossible
to be that we could be at 2.80:1. Things simply cost too much.
But at 4:1, things start to seem reasonable again.

I fear that if we do start trading above 4:1 again, the general public
will revolt. I have no idea how the average joe that makes minimum wage
can raise a family here. The Central bank knows this.

I do expect the Central bank to spend many billion in the coming weeks
trying to protect the Real.

Much of this will depend on who next president will be.

But, if the Central bank loses control of this as we pop to 4.50 to:1
and they start marking losses to their book for 2019 swap rollovers,
that also means more red ink for them to cover.

Will they play their hand correctly this time?

or is this the time the House needs to pay out-
and Pay out Big this time??

Much volatility in coming weeks.

So far, all of this plays very well to the soybean farmer for 2019.

R$ 70 per sac new crop soy bids in Mato Grosso meanwhile
CME is selling off.  ponder that


key words: BRL FX, Brazil soy, trucker strike, newsletter, swaps