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