Much has happened since the last update:
My son has been accepted to Notre Dame University in the USA. He is a very happy young man today. He wants to pursue Biology and pre-med courses. I look forward to getting him set up in South Bend in the coming weeks. Classes start August 23rd.
Brazil is a circus. But, that is also the norm. Vaccination ages are down to the 38 year olds. The Delta variant is ripping through non vaccinated populations. The current admin is under investigation for its handling of the pandemic. Much chatter about impeachment. The current admin's approval rating is down to 24%.
The central bank has been increasing interest rates and also doing some currency swaps to keep the REAL under control. So far, they seem to be doing a good job. The equilibrium price for the REAL seems to be about 5:1. FX at 5.30:1 seems too cheap with many economists thinking the REAL should be 4.50:1. With political uncertainty for 2022, my guess is the REAL will remain weak as to factor in some political risk for the year ahead.
Expensive corn, crude oil, beef, chicken, and pork are all big headwinds for current admin to deal with in the year ahead. I made a comment a few months back in my newsletter stating that the current president's destiny is tied to Brazil domestic corn market. Some would say that energy prices will be the undoing of him. With the current dry season in play and water reservoirs at record lows, the ability to keep the lights and air conditioning on in the coming months might be a determining factor for the presidents' future.
Ag sector is 100% behind the current President. They want to see the projects that have been initiated during the current admin completed in the next 3 to 5 years. If we see a new admin at the beginning of 2023, many projects could stall. Brazil is well known for starting a project and never finishing on time. It seems like even a small project takes a decade.
Weather guys tell me to keep an eye on the cool water in the Pacific and Atlantic Oceans. The weather could be a repeat of last season. A dry, late start to planting followed by heavy rains at harvest and then dry again for 2nd crop. I doubt the year will be as screwed up as last season. If a repeat of last year, many will lose their minds.
Brazil looks like it will add another 1.5 million hectares of soybeans again for 2022. The fertilizer imports and sales are verifying this datapoint. Much chatter about lack of glyphosate for 2022. Farmer organizations have sent out press releases saying not to worry. The prices are higher, but there will be enough product.
We will see a limited amount of X-tend soybean seeds out in the market this year. Farmer test plots and the like. 5-10-15 hectare plots I think.
Replacement parts and getting delivery of new machines are also running behind. Basically, if you need a new tractor or combine, do not expect delivery until well into 2022.
Two major lessons to take away from the 2021 Brazil crop.
1. Do not kill the soybean crop before Christmas.
2. Do not plant 2nd crop corn after March 10th.
Brazil needs to get its 1st/2nd crop corn ratio back in balance. I think we will see a bit more 1st crop corn in 2022, but the increase will be nominal. It will be up to RGDS and Santa Cat farmers to step up to the plate and get more 1st corn planted. This can happen as early as August.
Things to keep an eye on in coming months:
1. Political impeachment proceedings
2. Late start to soybean planting i.e. not starting on Sept 15th
3. Lack of water and electricity in metro areas
4. Corn imports from ARG and USA later in the year
5. A lifting of travel restrictions by USA for Brazilians to travel abroad
6. Who will be the lead presidential candidates to counter the current admin?
7. Selic interest rates to 7% by year end to curb inflation
8. A breakout of the BRL below 4.80:1 or above 5.30:1
Drop me a note at email@example.com for more info.
Good luck with harvest