Sunday, April 17, 2022

From Peak Pessimism to Peak Optimism

Sept 18th, 2018 November soybeans made a low at 8.12 per bu.

At the time, the USA had 1 billion bushels of soybean carryover and China was
sucking Brazil dry as quickly as possible. (Peak Pessimism)
I would think in the next 60-70 days, we should be reaching
"Peak Optimism". 

By June 18th, 2022, 45 months will have elapsed since the 8.12 low.
November beans are toying with 15.20 per bu and the recent high has been
15.55 per bu.

The 2008 high in Nov soybeans was 16.36 per bu on July 3rd, 2008.
2022 is 14 years from 2008.

A "doubling" of the 8.12 low is 16.24 per bu. 
The 2012 high in SX beans was 17.89 per bu.

Are we headed there again?

Well, the stage is sure set. With 35 million tons lost
in South America and the war in Europe, if there is
a chance to check out the old record high prices, it is in the
near future. 

Brazil's 2nd crop is in good shape. Mato Grosso will
produce a record large corn crop of 40 MMT+.
If there are drought problems in the coming weeks,
it will be in the Goias, MGDS, and Minas Gerias regions.

At this time, I am not worried about 2nd crop corn.
We have record planted area and most of it went in the
ground 4-6 weeks earlier than last season.
There was some late planted corn again this season.
These acres are at risk, but nominal volumes in the whole 
scheme of things.

Soybean planted area is puzzling to me in Brazil.
Obviously, we increased area year over year.
Conab says we are at 40.8 million hectares of soybeans
in 2022. There are analysts that believe the real planted
area is closer to 43 million hectares. 

Given the cost of production for 2023 soybeans, I doubt
Brazil will expand soybeans for the next season.

However, if more acres are found, that will look like
Brazil is increasing year over year. 

There are up to 1.5 million "ghost soybean hectares" in Brazil.
If Conab and others increase their soybean planted area
again for 2023, I would argue that those same acres were
planted during this past season too. 

I will continue to argue that this past season's crop
likely had a larger starting point than what has been
in the media. We need to keep this in mind as we look to
2023. We maybe should penciling in 148-150 MMT for
Brazil for 2023 and not numbers closer to 140. 

I cannot prove this. The only data point I have that
supports this argument are the fertilizer volumes
delivered to producers in 2021. The amounts were
up 12-14% Year over Year. 

For 2022, we will likely see fertilizer decreases of
20% Year over Year. 

If the Brazil farmer can apply some extra "lime"
or calcario, he can buy some time before the lack
of fertilizer affects his productivity. 

It is paramount that the USA produces at least
an average crop of soy and corn for the year ahead.
If we have any hints that the current crop will come in
below trend line, it will be difficult for the world to
"catch up" again regarding global stocks of corn, soy,
and their derivatives. 

If I had to guess as to how things play out in the
coming months, it would be something like this:

Wheat, corn and soybeans make a significant market
top by the 4th of July, 2022.

We have a multi-month sell off and form a new
base at higher levels. 

We then rally again into February 2023. 

This bull market commodity story is likely to last
until early 2024. 

The trend should continue upwards with periodic
3-6 month sell offs. 

Back in November, I was saying you need to be a bull here.
I was shitting bricks at the time.

As we get into June, I need to pivot to being a bear, and 
yet again, I can see myself shitting bricks once again. 

As Top Gun II is finally ready to come out, I feel like
I have been waiting for this movie for three years !!!!.

I think the soy, wheat, and corn markets are about to
experience a higher level of G-forces. Strap in and have
a puke bag handy. We will likely need it this June and July.

For more info:

Thank you all


Keywords: Brazil soybeans, corn, prices, fertilizer