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