Friday, April 2, 2021

From droughts to floods and still 135 MMT

 How many hectares of soybeans were planted in 2020?

In the March Conab report, they increased planted area by 200,000 ha from 38.2 M ha to 38.4 M ha. There are some BR consultants using a 38.9 M ha planted area. This extra 500,000 ha would yield an extra 1.5 to 1.7 million tons. This explains part of the difference of opinion of those who think the crop is from 133 to 135 MMT. 

In the January newsletter, I looked at fertilizer delivered to producers and calculated that it is possible the starting point for this year's soybean crop started at 136.5 MMT. 

When I think back to the weather patterns back in Oct, Nov, and Dec, I am amazed that we are looking at a crop that is 133 MMT or larger. What does it take to kill the BR crop? The December 15th rains were a godsend because without them, millions of tons were on the cusp of evaporating. 

Mato Grosso yields were 5-7% less than last year's record productivity. Para state and Tocantins also took a hit from too much rain in February. The city of Sinop in Mato Grosso has received 2000 mm of rain from Oct to March. Most of the rain came in the months of December and February. We had a drought and a flood in the same crop season. 

Early Parana yields were terrible. However, later planted soy turned out ok. The yields were 60 sacs per hectare. This is good but not like the 70 and 80 sac yields from the previous season. 

Bahia was probably the garden of eden in 2021. We are hearing reports of 80 sac soybeans. For Bahia, this is beyond fantastic. Bahia will likely produce 6.5 MMT this year. 

RGDS is also in good shape. There is much talk of a 20 MMT crop. RGDS is the only state that can plant soybeans behind corn due to Asian rust. There are some very young soybeans in RGDS that are benefitting from late season rains. 

We still have a wide range of opinions for the Brazil soybean crop. From 128 MMT to 136 MMT. I find this 8 MMT spread really really interesting. I think back to 10 years ago, it seemed like we would debate the size of the BR soybean crop and everyone was in a 2 or 3 MMT bandwidth. The bigger the BR soybean crop becomes, the wider the ranges have become. 

Subscribers know where I stand. 

For 2022, it looks like a 140 MMT soybean crop is the baseline. It would take some really weird weather to come in less than 140 MMT in 2022 at this rate. 

Cost of production is an issue for the year ahead. KCL has risen from R$ 1600 per ton to R$ 2200 per ton for the next season. Urea has risen from R$ 1650 per ton to R$ 2300 per ton. MAP from R$ 1900 per ton to R$ 3500 per ton. Will this curb expansion? Not likely so long as corn and soybeans remain at record high prices- the animal spirits will run free. 

Land prices and land rents are on the rise. Many are negotiating new rental rates at higher levels up to 2 years in advance of contract expiration. I know of land rents in Mato Grosso that were at 13 to 15 sacs of soybeans per hectare rising to 18 sacs per hectare in the future. This is a wow for MT.

This brings us to 2nd crop corn. Will we kill this crop in the next 30 days or will Brazil pull a 2nd rabbit out of her hat for 2021? 

Corn prices on the B3 are trading at R$ 95 per sac for May. With a weak FX/BRL, this will likely trade at R$ 100 per sac of corn in April. Who wudda thunk?

I remember when corn traded at R$ 5 per sac in Mato Grosso back in 2005 time frame. 

Last year's 2nd crop corn was 75 MMT. We planted a record area of 2nd crop corn this season. I know of corn that is still being planted in Goias and MGDS as I type this. On the surface, one would have to assume these producers are insane to keep planting corn. It would be like planting corn in Iowa in July. 

Why are they doing this? 

It depends on the area. What is your land cost? If you have paid for land, one can plant a low cost corn crop and breakeven at about 30 to 40 bushel per acre. In the states, we would call the crop insurance agent to send out the adjuster. In Brazil, in 2021, if you can harvest something better than 40 bu per acre on cheap land, you are likely to be in the black. This is because of the high price of corn. Keep in mind they are reducing populations and will likely only spray the corn twice. Once with glyphosate and one more time for bugs. Take what you get. 

We have already seen reductions in the 2nd crop corn from 83 MMT to 77 MMT. This will likely continue. We will not get an accurate count of BR corn crop until August. We will likely be hearing production ranges from 70 MMT to 80 MMT+ for a long time yet. 

I ask myself: What if BR 2nd crop corn comes in at 70 MMT at the same time USA is hot and dry in July? That might garner the markets attention? 

We have a market situation in Brazil that is completely out of balance. We are seeing spot corn reaching R$ 100 per sac and soybeans are at R$ 150-R$ 160 per sac. A ratio of 1.5:1.

Can you imagine if Chicago was trading US$ 15 dollar soybeans and corn was trading US$ 10.00 per bushel at the same time? That is what it is like in Brazil at the moment. 

Area of 1st crop corn has been decreasing and shifting to soybeans for over 10 years now. I will assume that in Parana, Santa Cat. and RGDS we will see a reversal of this trend for 2022. We should start to see more 1st crop corn being planted by August this year. Brazil has put too much dependence on the 2nd crop. 

Inflation is running hot in Brazil. Gasoline and Diesel are on the rise. Beef, soy, and corn are all at record high prices. The BRL seems to like the 5.70:1 area. The pandemic has gutted political, economic, and social stability. If the BRL could drop back to the 4.50:1 area, many problems would correct themselves. If we pop above 6:1 in the future, Brazil will be in chaos. 2022 is an election year. 

If one lives inside the BR Ag bubble, things are exciting in Brazil. If one lives outside the bubble, the future is quite scary in Brazil. Vaccinations are picking up pace now, but it is starting to act like much of 2021 will disappear before any sense of normalcy will return to Brazil on a macro level. If the natives get restless, things could deteriorate from here. The publics patience is wearing thin. 

Happy Easter to all,

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keywords: soybeans, corn, crop size, record prices, planted area, inflation 

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