Tuesday, May 21, 2019

The Soybean Wars

May 21 Blog update:

In my July 2018 newsletter, I asked the question: Is it possible
that soybeans are the wheat of the 80s?

With the USDA announcement today of US$ 2 dollar
per bushel soybean payments, I think I have my answer.
For the government to announce something like this
during planting season is mind blowing. Many areas plant
soybeans until July- especially the double crop areas.

We have a situation where the market is telling the world
to back off 10 million acres or 15 million tons.
With a US$ 2.00 payment to USA farmer, that tells
them to put the pedal to the floor. It does not matter
if payments are decoupled and they use past history.
If payments are coming, the farmer will plant.

I think back to the 80s. I am a product of deficiency payments,
CRP, and grain storage programs.
I remember needing every penny we could get from USDA and
then along comes Gramm/Rudman and knocks 15% off our
checks in 1985. We need to balance the budget was the matra.

In the 90s we got paid on 85% of our base acres.

We put 36 million acres into CRP and in the 2000's
Brazil, Argentina and others add 36 million acres and
more to the world stage with the help of double crop acres too.

The national debt at the time was 5 Trillion. Today, it is damn near
22 Trillion dollars. Today, we receive notice that 20 billion more can
come in assistance. God, how we could have used that back in the
80s and 90s instead of fight for crumbs.

The irony of all of this is that if the USDA had the will power back in
the 80s to send out money like this and a reduced CRP program,
the USA could have bankrupted the Brazilian/Mato Grosso soybean
farmer before he had a chance to start.

By the time 18 dollar beans came along, the environmental oversight
would have nipped expansion in the bud -20% to 30% open instead of
80% in areas.

Today, I fear it is too late. If Washington thinks they are going to
break the Brazilian farmer- think again.
Today, Brazil enters the Real Trade war. This is now a fight
to the death. This is now a blood sport.

The trade war creates a strong dollar scenario and that only
entices them more down here. Soybeans are sold in dollars.

Brazil's infrastructure gets a little bit better each year. China is ready
to invest more into Brazil. The FX at 4:1 protects the Brazilian farmer
for the time being.

The Brazil farmer has said for over 10 years, "pay us something for
our reserve area and we will leave it alone." The 50%-80% that
new areas need left alone.

I sometimes wonder if it might have been cheaper for USA and the World
to have paid the Brazilian farmer an Amazon CRP payment of sorts to do
nothing with the frontier area, than to pay the USA farmer not to plant
highly erodible soils and wetlands.

With today's announcement, we will now find out who the low
cost producer is? How many 250,000 dollar planters do we need
to plant US$ 4 dollar soybeans in North Dakota?

Someone needs to blink, but 2019 is not the year. Unless we can freeze
these beans in Sept and knock 500 million bushel off, we have a paradigm
shift ahead with regards to soybeans as signifcant as Round UP ready
technology was to corn and beans- only in reverse.

How many years will soybeans be stored if the government payments
keep coming?

As my Brazilian friends have always said, you guys will be OK,
you guys have the Federal Reserve. You will just print more money.
It is no wonder Brasilians and others think dollars grow on trees.
Just go get some more. It is easy for you guys.

This is going to create more and more hard feelings between
hemispheres now. In 2018 Brazil and ARG could enjoy the
trade war and profit from it.

With MEGA government payments in phase II, now the bleeding
begins?  Who is first?


Keywords: Soybean history, government payments, trade war,
low cost producer, FX