Wednesday, November 25, 2020

40 year drought in Brazil

Happy Holidays

Much has happened since Sept 1. 

Back in Sept, I too was a proponent of 135 mmt of soybeans

and 110 mmt+ of corn. Today, I am not.

I read weather reports saying that this is worst drought in 40 years.

I might remind readers that 2015/2016 drought was quite severe.

I must try and rationalize this. Forty years ago there were no soybeans

in Mato Grosso. There were only cows, gold speculators and T-rex's

roaming the great Cerrado or transitional Amazon rain forest. 

Back in August and September, when the Pantanal was on fire and 

making global media attention, I read that this is the worst Pantanal fire

since 1950 or some such date 60 or 70 years ago.

"Correio Braziliense writer Simone Kafruni noted that, “while the eyes of the world are focused on deforestation in the Amazon, the fires do not stop burning the Brazilian Pantanal.”  According to the article, the lack of rain in the biome for the period is one of the worst in that region in the last 47 years:"

The point being is that this has happened before- before the modern soybean era

So, in my mind, we cannot blame this on soybean farmers and deforestation. 

We maybe can make a case for an acceleration of a natural process, but we cannot

blame 100% of this on agriculture. 

As of today, Nov 25th, 2020, we are experiencing below normal rainfall in several

Brazil states and into Argentina. Many call it La Nina. However, in the Pacific Ocean,

we do not have La Nina type conditions. So, for the sake of argument, let us say we are

experiencing a weather anomaly that has La Nina type conditions. 

This has caused the replanting of soybeans. It has caused a few producers, who grow cotton as a 2nd crop, to hold back some intended area of 1st crop soybeans so they can plant their cotton in a timely manner in December. 

We are hearing about major losses in 1st crop corn in RGDS.

We have some soybean fields that look fantastic and others that are flowering and setting

pods and are only 10 inches high. 

Generally speaking, if we draw a line EAST/WEST from Cuiaba, MT across the country,

to the north of this line the crops are fine and to the south of this line we have crops that range from

terrible condition to those running on luck because they have caught a few random showers. 

Cuiaba  to Goiania is 16 deg S latitude. 

I would say those crops north of 15 Deg S latitude are in good shape or at least

have some cushion to handle a hot dry week such as what we are experiencing.

So the question is: How much soy is growing north of 15 Deg S latitude and how

much is under stress to the south of this line?

Mato Grosso  37 mmt potential with 7 mmt in SE MT under stress

Goias   13 mmt potential with 50% under stress 

MaPiToBa potential is 15.7 mmt and all is in good condition

Minas Gerias 6 mmt with 50% under stress

Sao Paulo       4 mmt with 50% under stress

Parana           20 mmt with 50% under stress

RGDS          20 mmt with 50% or more under stress, but later planting

Santa Cat     2.5 mmt and under stress

MGDS        12 mmt with 50% under stress

Para and Rondonia 3 mmt and in good shape

So if we split out the production north and south of 15 deg S latitude, we get

something like this:

Good soybeans = 30+ 6.5+15.7+ 3 = 55 mmt of potential in good shape(bumper crop)

Soybeans under stress either yellow or orange alert = 78 mmt

Of the 78 mmt there are perfect fields growing, there are fields with yellow

alert drought stress and some orange spots where soybeans are complete crap.

Maybe 20% of the areas are in dire need of water yesterday or are already

podding and the potential is fixed. 

So, Yes December is critical for maintaining yields.

This week is dry.

There is rain in the forecast for next week.

If these rains hit the areas in need, that can help stabilize the 78 mmt


If these rains miss, we need to start talking about 10% and 20% production

hits to those areas south of 15 deg S latitude or the 78 mmt potential at the

beginning of the season.

Place your bets


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Saturday, August 29, 2020

Sept 1 I've given her all she's got Captain

When I think ahead to the 2021 crop year for Brazilian farmer, I cannot help but think of Scotty in an old Star Trek episode: "I've given her all she's got Captain." 

I must say I am most impressed with Brazil ports this past season. They pumped out 70 mmt of soybeans in record time- even with Covid.

The Northern Arc ports keep taking market share from the south. 

Rumo rail is dropping their freight rates for 2021 and 2022. This is giving grain traders some help with locking in margins selling corn and soy ahead for 2021 and 2022. 

Soybean and corn demand is red hot. This past week we have seen new record high prices for both corn and soybeans. This took place while Conab found extra tons from the last few years- even the drought year was bigger than we expected. 2021 we will blow the bin doors out with photon torpedos loaded with soy. 

I get asked questions from non-subscribers as to why? how ? what are the factors for this fantastic Brazilian profitability. Subscribers have been well versed on this the past couple years as I broadcast on all channels regarding FX and BRL above 4:1. The CME no longer matters when FX is 4.50:1, 5.0:1 or 5.50: 1. 

This is not just a language barrier. This is not a Lost in Translation movie. To understand this, I have come to the conclusion that the North American onlooker needs to understand not only Portuguese and Madarin, but also Klingon. 

I say this facetiously with a twinkle in my eye. 

We have seen a dollar rally in soybeans recently. We are above 9 bucks again. I think we have turned the corner from this long term downtrend in soybeans. However, with soybeans trading R$ 130 per sac(old crop), R$ 100 per sac (new crop), and corn R$ 50 (old crop) and R$ 40+ for new crop in Mato Grosso and Parana, I feel like I am on the Halo-deck. What soy and corn fantasy can I create today?

For the Brazil farmer, it feels like 2012 or 2013 did for the USA farmer without the drought. It feels like they are selling 7+ dollar corn and 16 dollar beans. With the help of FX, i.e. strong Chinese Yuan and cheap BRL, they can still compete with USA looking two years out. The only limiting factor is not enough production. Prior to the Iowa wind storm, the USA farmer was looking at a different Halo-deck experience. Brazil remains competitive in dollar terms. 

Brazil farmer has costs under control for 2021. However, these FX costs will come into play in 2022 for crop inputs and machinery pieces that are imported.

It all seems so surreal. With only minor crop production problems in Parana and RGDS, how can domestic markets be at record highs?

In conclusion, as I try to explain this to clients and possible new clients, I feel that not only am I translating Portuguese to English, but at times it seems other worldly. It seems like USA farmer is in one solar system and the Brazilians are in another. I will let the reader decide who the Klingons are? I could make a good case for both given the last few years politics. 

One needs to contemplate as to when the Klingons will decloak? At some point the Federation might have a brief moment to gain some market share? Change in FX? Natural disaster? Change in admin? Inflation and commodity fund interest given the trillions injected by Fedpedos?

Is it too precocious of me to sign off as the Soy Jedi Master? Or is that too much of a leap? Too much of a juxtaposition for the reader to handle?

Good Luck with harvest

Good luck with planting- It will begin in a few days

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Closing thought: At what point does one acquire enough wealth that one can trade in his Tri-axle struggle bus for a single axle? 

Keywords: Brazil soy and corn 2021, Record high prices, BRL, USA/BR ag econ comp, hidden fundamental changes to the market 

Saturday, April 25, 2020

Dollar/Real traded 5.74:1

Much has changed in the past month.

Sorriso soybeans are quoted at R$ 92.00 per sac on April 24, 2020.
19 years ago on April 12th, 2001, the low for Sorriso soybeans was
R$ 13.27 per sac. That is a 7:1 change. That is perspective.

Back in April 2001, Chicago soybean low was 4.29. As of Friday,
May soy was quoted at US$ 8.30 per bu. A 1.93:1 ratio.

Back in 2001 the Dollar:Real was 2:1.
As of Friday, April 24, 2020, the Dollar/Real traded as wide as 5.74:1.

Needless to say, I am shell shocked like everyone else. I wrote a newsletter
back in February stating that a close above 4.32:1 would indicate a move
to 5.20:1 and possibly 7:1 if one factors in inflation. I myself did not
believe this was possible.

Back in 2001, both the USA farmer and BR farmer were broke.
What bothered me back in 2001, when I first visited Mato Grosso,
was that the BR farmer was was expanding by clearing forest and back
home in Minnesota we were living on CRP, LDP'S, and Pre-vent plant
checks from the government.  How the hell can these guys justify expanding
was what I was thinking back then. I would justify this by saying, "they have
FX working for them at 2:1."

Fast forward to today and Brazil farmer is expanding yet again and back
home everyone is surviving on MFP, Crop revenue insurance, and PLC payments.
Everything has changed yet nothing has changed?

I have told many on my tours that the one factor that could have halted
the Brazilian soybean renaissance would have been a smaller USA CRP
program. That 40 million acres taken out of production gave Brazil the
green light to expand. Even though soybeans were 4 dollars in Chicago,
that was still too high of a price. 

If we did not have 40 million acres in CRP and let the market wash out

back then, that would have halted Brazil's advance in Mato Grosso. 

Today it is too late. 

I hear rumblings that the USA needs a temporary set aside program

to take acres out of production in USA. Brazilians would say YES!!!
Please do that !!!!

The problem is that new USDA programs intended to help in

the short run end up being long term programs.

There has been talk about paying Brazil farmers to not clear more

forest. In essence, a Brazilian CRP program for the Amazon.

Yes, Brazil would like that. The problem is that there is no FSA office

to administer, certify, and oversee the program. This would be ripe
with corruption and abuse. 

There is no correct answer today. We all have been too reliant on China

as the supplier of cheap goods and the buyer of our bulk commodities. 

For the time being, FX will protect the Brazil farmer. Sometime in the next

12 months the costs of production will start to explode here. Imported goods
will become more and more expensive at the same time manufactured goods 
produced in Brazil will be harder and harder to export. 

Bulk commodities like soy, corn, cotton, coffee and cattle will be the short

term winners in this devaluation game. 

Political situation here in Brazil changed a lot this past week with the

firing of Minister of Health and the resignation of Minister of Justice Moro.
There are rumblings that Minister of Ag is next to go.

This is not the forum to discuss politics.

I will do that in a private setting such as the newsletter. 

Back in 2004, 24,000 sqr KM of deforesation occured which

was peak soybean expansion year over year. 

Last year, it was 10,000 sqr KM and look at the media attention

Brazil received because of that. I chuckled at the time.
You think that was a fire? Just wait, I will show you a fire.

Now that's a fire!!!!

This August you will being hearing much of this.

USDA has Brazil expanding by 3-4% for 2021.
That is now the baseline.

I ask myself could it be double that?

Maybe, it is difficult to keep expanding by big
percentages when the numbers get this big.

Anything that can  be produced and generate new
dollars will be gold in the year ahead.

Buckle up- the new Brazil/Amazon Disney roller
roaster will be the best ride around.

For full updates, subscribe to the newsletter or
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who has 20 years experience in Brazil.

Stay safe


keywords:  soybean price history, BRL record high,
deforesation rates, expectations for 2021

Tuesday, March 31, 2020

BRL:USD 5.20:1 and record high soybean prices

We are well.

We are now in week three of full Brazil shutdown.
Brazil has never been so quiet.
Brazilians love their noise, music, and movement in general.
They like to be going somewhere or getting back from somewhere.

As a Norwegian, I find this social distancing quite refreshing.
In the Brazilian culture, hugging and kissing when greeting
someone or saying goodbye is normal protocol.

What has happened the past three weeks is so anti-Brazilian
as per the cultural norms. Brazilians are like cats. They like to
purr and be petted. Yes, they like to hiss sometimes when
their latin blood feels betrayed for some reason or another,
but it quickly passes.

I link this in with the Gaucho tradition of sipping chimarron
tea in the morning and passing the cup around to everyone
in the room or office- even strangers.

Corona virus has disrupted Brazilian culture - to say the least.

Personally, I enjoy the isolation and slower pace.
So long as Mcdonalds, Burger King, Dominos, and
Pizza Hut stay open, I am good but getting fatter.

My son is using Zoom to connect with colleagues and
school classes.

The ambience of my building has changed. Older people are
worried and do not want to interact anymore- if they do, it
is from a distance. Three weeks ago they would touch you
and not let you go. The main stream media has scared the
bejesus out of them.

The Brazilian economy is slowing down as per the rest
of the world. This is having a weakening effect on the
Real. I included some charts back in February in my
March newsletter. One chart showed the Real going to
5.20 area and another discounting inflation showed
a potential for 7:1.

At the time I published them, I did not believe it was
possible to trade 5:1. Low and behold two weeks later,
it became reality.

This has been a boon for farmers with physical soybeans
and corn to sell. On Monday, March 30, Sorriso soybeans
traded at a new all time high price of R$ 86.00 per sac.
New crop bids are following and are in the R$ 80.00
per sac area for 2021. Many farmers have all their soybean
inputs purchased for 2021. Some were locking in input
prices in January when FX was 4:1. This is a perfect world
for Brazilian farmer at the moment. Win win win......

At some point, even if it is a year from now, this high
FX will bite them in the ass. Even if you can stay on top
of your variable costs such as fertilizer and chemical, eventually,
the high FX will seep through all costs of production and we will
see higher and higher depreciation costs. The new JD combine,
planter, or tractor will not go up 5% in a year, but maybe 20%
in one year - ouch.

Brazilian interest rates have dropped to 3.75% which is also a record
low. Interest rates will need to stay low because when a farmer
needs a new tractor or combine in the future, the starting price will be
anywhere from R$ 2 million to R$ 2.5 million Reais to start with.

I am sure JD will be offering zero% on new 500,000 dollar toys in
USA soon. In Brazil, ponder paying 6 or 7% on a new R$ 2.5 million
item and do that in multiples.

For the current year and the year ahead, Brazil farmer is in the
drivers seat. Some will have 40%-50% return on variable costs
to plant soybeans and corn in the year ahead.

There will be much land clearing and prep for the year ahead.
Hang on to your nuts- the numbers will be impressive when they
finally get counted which might take 1 or 2 seasons before Conab
or IMEA gets a handle on things.

We have seen this the past year with 1 million ha increase in soybean
area. That prep actually started during the trade war year of 2018.

I have had consults recently on Rumo expansion and also the
implementation of new soybean and corn traits into the Brazilian
market- Conquista, Intacta, and Xtend are all on the horizon and
will be adopted quickly in Brazil.

Stay safe up there

Drop me a note if you are interested in becoming
a subscriber or a VIP client.


Corona, Brazil culture, BR soy expansion,
soybean profitability, Brasilian Real FX

Saturday, March 7, 2020

In Brazil, Corn and Soybeans are now sub-products of FX

I have been sending out regular updates to subscribers
on the current pricing dynamic in Brazil.

I have been pounding the table about FX for months.

The underlying theme has been when USD:BRL gets above
4:1, Chicago becomes less and less important as a hedging tool
and price discovery mechanism within Brazil.

I sense the North American producer is not grasping this
and its importance. As long as MFP 3.0 comes, one can
continue to ignore this South American phenomenon.

I must admit, I too am surprised that we are trading
above 4.32:1. We hit 4.67 on Friday. 
There is more talk of 4.80-5.0 in the coming months.
What I have experienced in the past is that when these forecasts
come in, either to an extreme high or low, they tend
not to quite make the projection.

With the BRL, there is never anyone that forecasts that the
new trend i.e. 4:1 to 4.67, but when the break out comes,
everyone sees it going to 5:1. This is called bullshit.

In January, when FX was 4:1, the projections by major banks
were for 3.80:1 for the year. When we broke out of the 4.32:1 
Nov 2019 high, then the forecasts flipped to how high we can go. 

To the chagrin of many, the Brazilian economy is quite stable.
Low inflation, low interest rates, and an admin that has and still
wants to cut spending. The Brazilian GDP has been cut from 2.5%
to 1.5% for 2020 because of Corona, but even so, this is quite
stable. It looks like Brazil will cut the Selic rate to 4% soon.

The Brazilian farmer is selling his crop quickly and getting 2021
sold too. Soybean prices in Mato Grosso are trading at the highest
level since July 2016(the drought year). Meanwhile, Chicago soybeans
are trading near contract lows. Corn prices in Mato Grosso feel like
US$ 7.00 per bu in Chicago. 

When we talk about sub-products with soybeans and corn, we
tend to think of ethanol, DDGs, corn syrup, soybean oil and meal.

The value of soybeans and corn in Chicago are derived from what
the sub-products are worth on the global stage.

In Brazil, when FX is at 4.60, we can start to think of corn and soybeans
as sub-products of the USD FX. 
If the Corona virus wanes and economic activity picks up and the Dollar
declines, we can get back to normal.
However, if we do trade up to 5:1 on a USA/Global meltdown, the
Brazilian farmer need not even look at a Chicago quote screen.

It will not matter. FX is the driver- not supply and demand. 

The Brazilian farmer and USA farmer live in two different worlds
at the moment.

The Brazilian farmer sees a bull market and is preparing for 2021
and 2022 accordingly i.e. expansion of production. 

The USA farmer sees a bear market and is preparing accordingly i.e
crop insurance revenue protection, PLC/ARC payments, and potential
for MFP 3.0. In other words, producing for below the cost of production
unless max yield is achieved. This reminds me of the LDP mindset of the

Lots of interest in RUMO these days. Railroad expansion and who will
get the Ferrograo concession scheduled for June. 

For those paying attention, now is the time to send money to Brazil.

Drop me a note if any questions.

Happy Easter


Sunday, January 5, 2020

Happy New Year

The start of the 2020 growing season has been one
of below normal rainfall. Rains are now more general at
the start of 2020.

Mato Grosso has a record soybean crop on deck. Given
all the attention to the Amazon back in August, I must
ask myself where the media is today?

France offers to help Brazil back in August and the
aid is declined. Today, Brazil offers to help Australia.

Bottom line to all of this: In August, that is the burning
season for Brazil. Australia is on fire in December, and
it is not the burning season. It seems to me that is the
story and not the former.

Flip side: Is burning and clearing increasing in Brazil?  Yes

It looks like 10,000 square KM were cleared in 2019.
I am not surprised by this as I predicted this in the August newsletters.
But, to keep things in perspective, back in 2004, the clearing rate
was 24,000 sq Km. So, even though we have seen an increase in
clearing, we are still at 40% of the previous peak. That was happening
before social media was so passionate or should I say fickle?

I still say the bigger story is what has happened since 2004.
24,000 sq KM or 10,000 square miles were opened in one year.
That is 277 townships. Today, those 277 townships all have
70 bu beans on them.

We have had some problems in RGDS, Bahia, and Piaui. There has
been some loss in 1st crop corn and need for replanting of soybeans
in the Northeast. It will take time to see how this plays out.

Brazil economy looks to be starting out on a firm note. 2.3%
growth for the year ahead is the projection so far.

The price of beef is at record highs.

Old crop corn prices are very firm. Brisk export pace and
increasing domestic demand combined with a shrinking first
crop has created some fear in the market.

Look for imports of corn from ARG and USA in coming months.

FX has stablized for the time being after peaking in late November
at 4.27:1. This gets the animal spirits flowing in AG.

Mato Grosso's 3rd 100% corn only ethanol mill will come
online in late January. This mill will be 210 million gallon
capacity when complete. It is huge.

Looking forward, April rains will determine how Brazil
shakes out this year for soy, corn, and cotton.

Will Brazil produce 120 mmt of soy or a 125 mmt?

Will Brazil produce 85 mmt of corn or 100 mmt?

Even with expanded cotton area, will Brazil be able
to repeat the 2019 record productivity in cotton?

The BR 163 highway is complete to Mirituba, Para.
This is along the Tapajos River where barges can be loaded
and transfered to ports at Belem.
Trucks will be zipping north during soybean harvest.
We can now measure turn around time in hours and days,
compared to the last few years, when trucks would disappear for
weeks and even months at a time into the jungle.
I look for these northern ports to increase volumes from about 6 million
tons in 2019 to possibly 10 mmt or more in 2020.
Freight rates have dropped from US$ 60 per ton to ship north in 2019
to US$ 40 per ton in 2020. This is a game changer.

I have increased the price of my newsletter to US$ 600 per year.

VIP light with consult time and special send outs are now US$ 3250 per year.

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Keywords: Amazon, soybeans, corn, freight rates, Brazil production,
                   deforestation rates, historical comparison