Sunday, February 10, 2019

Feb 10th blog update

Back to trend line yields

Harvest is zipping along in Brazil. The hot December 

and January took its toll on some fields. The general 
commentary from producers are that yields are 
coming in 10% less than last year's record productivity.

The USDA is still too high as per Brazil 2019 production.

But they are a lagging indicator especially when the 
government was not working for a month.

2018 was a late planting year but ideal weather made for a 

record crop.
2019 was ideal planting date but late season stress mixed with 
an above average amount of early season soybeans nipped 
them in the 8th and 9th innings. More than likely the 2nd 
crop corn and cotton will make up for the shortfall of the 
first crop.

Bottom line is that from the drought of three years ago, 

the sudden rise in soybean production from 95 mmt to 
122 mmt was the outlier not the norm.

The Brazil stock market has been trading at record highs. 

The Dollar has been weaker in Brazil until this past week. 
The dam break was not good for Vale. President Bolsonaro 
is back in the hospital for a follow up procedure due to his 
stabbing during the campaign. The fear is that this
will delay negotiations on the social security reform bill. 
Brazil has ambitious ideas to try and cut ONE TRILLION REAIS from budget over the next 10 years. This will be a heavy lift.

The big news in the media this past week is the continued talk that

Brazil will overturn the limit on foreign land ownership that was
implemented under Lula to help Dilma back in August of 2010.
In March, it will have been 8.6 years since this policy shift.
Cyclically, this is interesting as we might be on the cusp of another
policy shift. With the Dollar FX at 3.70:1, this does make Brazil assets
seem cheap again to foreigners.

The Bolsonaro position is that Americans are welcome. Brazil is also waving the need for tourist visa for Americans this summer. 
From June 1 through September 18, tourists from the US, Australia, Canada and Japan will be able to enter Brazil for up to 90 days without a visa.

Mato Grosso implemented an updated FETHAB witholding tax for soybeans,corn, cotton, and cattle on Feb 1. Farmers are not happy with quick application of a new tax that actually seems like double taxation for many on the same hectare.

There is also much banter in media that the "Grain Railroad" will be approved in 2019. This the rail from Sinop to Mirituba, Para. The Minister of Logistics took a ride in a soybean semi-truck on BR 163 to see the condition for himself.
He promised that BR 163 paving will be completed in 2019. This is a huge factor for 2020 grain movement to the north. 

The FS energy corn ethanol mill at Lucas do Rio Verde has completed its doubling of capacity. They should be at 400 million liters per year now or the 100 million gallon size. Construction has started on the 2nd mill at Sorriso. This will also be a big one.

Impasa mill at Sinop was approved for increased warehouse capacity at thier site.
They are now building 3 - 200,000 ton warehouse to store corn. That is 24 million
bushel of onsite corn storage. Mato Grosso corn in the future will stay in the state and be made into fuel and DDG's. It is truly a paradigm shift. 
Mato Grosso will likely produce 1.1 billion bushel of corn this season again. 

The Ag shows have started with Show Rural in Parana this past week.
I am eager to hear results.

The Show Safra 163 in Lucas do Rio Verde is the last week of March. It will be record large. I know CASE IH Brazil has sent a record large 
order  to Steiger Tractor in Fargo, ND for 2019 for their 4 wheel drive articulated tractors. The modernization of the BR fleet continues. 

Producers are very happy with the new administration. However, the late season drought and the application of new taxes has a catch 22 feel about it. 

The vicissitudes for the Brazilian producer continue. It is an occupational hazard. There are so many positives on the horizon, but there always seems to be a counter force that keeps things in check. 

Keywords: BR soy crop, Grain Railroad, Fethab, Budget,Corn ethanol, Case IH

Sunday, January 13, 2019

Brazil: A New Day

Brazil's new President has taken office.

He has made some policy moves that favors the rural coalition.
He made good on some campaign promises to help farmers deal
with environmental issues and Native Indian lands.

This will help him with votes he needs later regarding pension
reform and budget cuts etc.

The Dollar:Real FX has dropped from 3.90:1 to 3.70:1 in recent weeks.
Soybean bids have also dropped with advance of harvest.
Banks think the Real can trade at 3.80 for most of 2019.
Technical analysis shows a possible break to 3.20:1.

The Conab report came in as expected for me. I have seen this before that,
when there is a drought, they tend to wait until February before any
significant adjustments. Most of the data they had was based on December
and most of the last 30 days people have been on vacation.

The yields I hear out of Parana indicate 50% of a crop in the western
1/3 of the state. This region accounts for about 40% of Parana total.
Parana crop conditions are 50% Good, 30% average, and 20% poor.
It is said that in several counties that soybean harvest will be wrapped
up in the next 10 days. The 2nd crop corn is going in very early.
Parana's true soy crop size will show up in the February Conab report.

Mato Grosso: Western 1/3 of the state has fantastic yields.70 sacs per/hectare
or 63 bu per acre is common.

The BR 163 corridor is coming in 10% light on early beans. In general,
if the yield was 60 sacs last season, they are coming in at about 54 sacs
this year. Later beans should be back to normal.

Goias things are going quite well. It sure is a wet drought. Two weeks ago
it rained every other day. This past week was dry and then Saturday
evening a very nice rain again. State wide?  No
But it is raining.

Forecast is dry thru end of the month. Bahia and points to NE need
to be watched. This is a critical month for them.

Mato Grosso taxes:

On December 31, the Fethab II regional witholding tax was retired.
This, in essence, increased the net price to Mato Grosso soybean
producer by 60 centavos per sac for 2019. Good news.

However, Mato Grosso is in dire need of new revenue. The new
Governor has proposed a new elevated Fethab tax rate for cotton,
soy, cattle and corn. Corn is a new addition to Mato Grosso witholding.
There are two levels to this tax. One for domestic sales and one for exports.

I will be keeping various VIP clients that have vested interests in Brazil
updated on this. If there is a new Fethab, I do not think it will be applied
until the July 1 Fethab update. That means it will be more of an issue for
corn and cotton marketing than soybeans.

Soybean crop size and technical prices to watch:

SX 19 soybeans made a high at 9.64 this past week. So far 9.71 is
strong resistance as well as the 200 day MA. A trade at 9.72 1/2 tells
me we are moving higher. A trade at 9.70 or less and a reversal lower
tells me we need another wave lower. If we do make a run at 10 bucks,
make damn sure you sell it. 2018, 2019 and even look at 2020.

Clients know where I am at on crop size and where I think we will be
in two weeks.

We have a range from 104 mmt to 119 mmt among experts.
115 mmt- market does not care
110 mmt will have markets attention
below 110 mmt- we have a story for 2019

I think what is confusing to many is that the past two years
we had near ideal weather conditions combined with application
of the lastest genetics and precision ag. This allowed for two back to
back 10 mmt increases. Some assumed this the new norm.
Thus 130 mmt was mentioned a month ago.

We have expanded area, but maybe not quite as much as we thought
earlier. So now we start to cut productivity on a very large base.
Whoosh- the millions of tons disappear that once were thought to
be baseline.

Thus, the last two years I have been conservative on the way up
and have been wrong. Example: last year I was thinking 113 mmt
with outside chance of 115 mmt.  Final crop size circa 120 mmt and
given exports for 2018, the crop was likely 122 mmt+.

The maximum potentials were already dialed in last year.

I have been hesitant to drop to low too quickly as per experience
in the USA the past two years. We have a drought or flood and we
produce record yields. The stress did the beans good.
Thus, we need to be careful here too on the way down.

Brazil has damn good farmers and they have invested heavily into the
newest technology. This crop will not give up easily.

The issue in Parana and MGDS was not so much lack of rain but
the combination of intense heat at pod fill and a root fungus
that caused the beans to die early. It was like the soybeans were
micro-waved. This gave the illusion that beans were killed early-
intentionally- they were not.

I will update more to my subscriber list.

Drop me a note if you are interested in more real time info
and not info that is 2-3 weeks old by the time it comes
out in general media.

Thank you to all the VIP renewals for 2019.
Much appreciated

keywords:  BR soy crop, Mato Grosso tax, weather, crop conditions, yields