Monday, December 24, 2018

Dec 24th update

Parana received some rains over the weekend.

This will help later planted soybeans. Early soybeans
have been hurt by three weeks of drought.

I think the new mega crop for Brazil is overstated.
I think we have a crop size similar to last year on deck.

It would take a dry January and Feb in Northeast to subtract
more from current potential.

9.71 on the SX19 contract proves to be resistence for now.
If one looks at historical charts, it makes sense.

Dollar remains at the 3.90 level. This seems more to do
with international events than domestic.

Brazil seems like it will ship out 84 mmt in 2018.
If so, 2018 crop was likely larger than published.
Some of the extra came from Paraguay.

The crushing industry had to submit to the export bids
this year and throttle back.
This adds pressure to chicken and hog sectors in Brazil
as per feed rations.

At the moment Brazil and USA are at par for new crop
export bids.

With the declining hog herd in China, I think if China
buys circa 5 mmt of soybeans from USA, that stabilizes their situation for

Brazil will have exportable supplies in two weeks with early burn down
of the 90-95 day soybeans that were planted. This was a mistake
for many, but they will make it back with early planted 2nd corn.

So long as Brazil has 80 mmt to export in 2019, China really does not
need anymore beans until Oct/Nov/Dec 2019. Remember, Argentina
will rebound 15 mmt+ this season also.

What if??

Yes other countries will pick up some of the slack. But China was a 32 mmt
customer for USA, if that drops to 5 mmt, that leaves 27 mmt that needs a 
new home. Let us say 7 mmt finds a new home.

20 mmt = 740 million bushel needs to be carried forward.......

If we are optimistic and USA and China pull off a mega deal and
China buys 20 mmt this spring, then 20 mmt will be added to
Brazil balance sheet for 2020.

In the end, someone is going to be holding 20 mmt?? Who will it be?

The American soybean payment could also be looked at as a nice storage
payment like in the 80s - paid to store grain for years. But it looks like
this is a one off payment. A farmer could take a loan on the beans
this winter which would get him to Sept 2019 before delivery.

SX19 needs to tell American farmer to tap the brakes.

If USA farmer does not, then March 2020 contract needs to tell
Brazil farmer to tap the brakes?
Brazil farmer at moment has 3.90:1 dollar working in his favor.
If that drops back to 3.30, Brazil farmer no longer has life
insurance policy for 2020.

It's going to get interesting. There are going to be tears somewhere.
Who will it be?

There is a tsunami of soybeans out there. If no deal, American farmer
is the last one standing when the music stops with no chair to sit in.

If there is a deal, then it will be the Brazilian farmer standing with no
chair to sit in this year at Carnival when the Samba stops.
Carnival is late this year. March 1-5th  wink wink

I watched a Netflix series this weekend. It was called Pine Gap.
As in Pine Gap, Australia. The secret USA/Australian base
that monitors communication and movements globally.

In the program there was a Chinese businessman trying to do
a natural gas deal in Alice Springs. He made a comment in the last
episode that made me chuckle.

"In the USA, you teach your children to play Chess. The winner is who
can get the others King as quickly as possible."

"In China, we play a game called GOL. The winner is who can amass
the most territory and keep it the longest."

I thought this was an appropriate analogy for the current trade war.
Of course there are many things more important than soybeans at the

I sometimes wonder if Brazil and USA even realize the game they are in?

However, I think China has USA and Brazil by the short hairs going forward.
Both countries have become too dependant on China- each in their own way.
China is going to have cheap beans one way or another for the foreseeable

Brazil has a 120 mmt crop. Maybe a bit more.
Even with a late season drought and a drop to 115 mmt, Chicago will
not care.

Ideally, USA and Brazil would each drop 10 mmt each of soy for 2019/2020,
but I fear both are too stubborn to do so.

Happy New Year


Keywords:  Soy, trade war, USA, China, Pine Gap, drought, soy econ

Saturday, December 1, 2018

Dec 1 blog update

Happy Holidays from Brazil

2018 is coming to an end. From my perspective it cannot
come soon enough. The year has flown by, but jumping from
crisis to crisis all year gets old.

I have been in Mato Grosso and Sao Paulo states the past two weeks.
The crop looks great.

The week ahead looks wet. I am sure we will start to hear about
rust issues  etc. Most will apply 3 or 4 fungicide applications.

I do not lose any sleep over rust. Brazil farmers are too good at what
they do to worry about that.

The new President and Admin will take office Jan 1.
Many are optimistic about the start of 2019.

The soybean crop will be big as will the 2nd crop corn.
Sugarcane crop looks stable for 2019 but with a switch
back to more sugar than ethanol production.

Machinery sales should be good again in 2019.

As I write this, we will all be waiting for a tweet from Trump
sometime Saturday night. With all the option activity this past week,
Sunday night proves to be a big move.

A gap higher, we could say the lows are in and we have a market again.

A gap lower, then I fear we have another leg lower to go and we need to
find some sort of capitulation this winter to discourage soybean production.

A deal in early 2019 would not be good for Brazil farmer. Port premiums have
already retraced and would likely decrease even further. If the USA would start selling
beans again at peak harvest pressure for Brazil farmer, things could get ugly here in a
hurry if the Dollar:Real would revert back to 3.30 instead of 3.80:1.

Dollar at 3.85:1 is a life insurance policy for BR farmer for the medium term.
Jan thru March.

Are we 50-60 cents higher next week or 50-60 cents lower.
This will set the tone for the next few months I think.

USDA production reports in January. USA crop insurance guarantee pricing
in Feb. March 31 planting intentions and a 500 million or a 1 billion
bushel carryover. PNW freight pricing and storage space at ports?
Booking of ocean freight?

This is starting to look like a multi-year issue to chew through all of this.
A private BR consultant is at 125 mmt for BR with outside chance of 129 mmt
of soybeans. Uff-Da
The drought year 3 years ago we were at 95 mmt.
I would have never thought we could be at 130 mmt so quickly.

Many Many moving parts. I do my best with info from China, ARG, BR, and USA

Look for a few early soybeans to be ready about Dec 25th.(cotton ground)
The next block will be ready Jan 5th. By Jan 15th, Parana and MT will be in
full harvest mode.

Drop me a note if you are interested in becoming a subscriber at one of the
levels listed on my site.

Happy New Year to all,


Keywords: BR soy, prices, rust, G-20, Trump Tweet, soy gaps

* I will send out special Conab highlights report Dec 11th.