Saturday, September 2, 2023

Behind the scenes and a new BR planting season

 Sept 2, 2023

It has been awhile since the last blog. We have been busy behind the scenes.

I have been well, but we have been dealing with family members medical issues. Earlier in the year my son's childhood intestinal colitis returned while he was at college in the USA. He had a difficult Spring and Summer trying out new meds. He seems stable at the moment and he is studying abroad in Copenhagen, Denmark this Fall semester. He is getting some pre-med school practical experience there. So far, he loves being there.

My Father-in-Law suffered another stroke this Summer. He has not known us for more than two years. His significant other and my wife are dealing with that. It is not easy when a parent is in their final days. 

For the most part, Brazil, USA and the markets played out as outlined earlier in the year. Brazil started out with a 153 mmt soybean crop with a two million hectare increase year over year. The final crop size is in the 154 mmt area. Brazil's full potential was probably eight million ton more than that, but Rio Grande do Sul lost about eight million from its starting point for the year. The soybean yields in the MaPiToBa region were exceptional this past year. We hear reports of 80 to 90 sacs/ha soybean yields where 50 is the norm.The past two seasons, the Northeast part of Brazil has been blessed during the "La Nina" part of the cycle. As we move into peak "El-Nino", I think we will see different results from northern Brazil. 

Second crop corn has also performed much better than earlier expectations. The 2nd crop is said to be in the 108 mmt area. Late season rains with no frost allowed the later planted corn to mature to its potential in Parana, MGDS, and Mato Grosso. Mato Grosso is now producing more corn than soybeans. The soybean crop was 46 mmt and the 2nd crop corn was 50 mmt+. This is truly mind-blowing to me as I reflect on the evolution of crop sizes over the past 23 years. I remember when the corn crop in Mato Grosso was five million tons and the corn was worth nothing. The corn was worth about one dollar per bu and that was the cost of the freight to move to where they needed it. I feel like an old grandfather telling stories about the Great Depression. " I remember when" I shipped a cow to Fargo, ND in the 1930's and the value of the cow did not pay the freight  etc  etc......

The other data point that stands out to me is that Mato Grosso is much more significant than all of Argentina. Argentina soybean crop of 20/21 mmt and a total corn crop of 32-35 mmt is quite significant in the whole scheme of things. With El-Nino now in control, I would expect Argentina and southern Brazil to return to normal production levels. Who knows, in a few months we maybe talking about flooding in Argentina. They have Presidential elections in October. Argentina is on the cusp of a long term paradigm shift for the better, however, I fear it will get worse domestically for them before it gets better. They are in the final purge. 

Soybean and corn prices in Brazil have declined significantly over the past year. Paradoxically, the Brazil farmer is set to expand planted area yet again for 2024. We are looking for 500,000 hectares more soybeans and maybe a bit more. First crop corn continues to shrink and 2nd crop corn may decline a bit in 2024 as we see more hectares of cotton and wheat. 

The USA has had its challenges in 2023. The corn and soybean crop have suffered in the 9th inning. It seems like the USA has plenty of corn no matter the final number. The soybean crop is a powder keg. If the USA comes in at the 4.1 billion bushel level, that means the USA will need to import beans again in 2024. If Brazil produces a 165mmt+ crop, she can solve the problem. All Brazil needs to do is let out a small fart and one million tons will arrive at USA ports. However, if the Super-El-Nino manifests by the end of 2023, I would think we will have echos of the 2015/2016 growing season at some point. This does not mean disaster, but it does curtail Brazil's potential to shoot the moon in 2024. The kicker is, even if Brazil loses 10 mmt in a given region, that still is a repeat of 2023 soybean production and a near record crop again. It would take a loss of >10mmt in order to grab the market's attention assuming Argentina is normal. The USA domestic market has bullish tendencies but South America can solve the problem by Spring 2024. What do we do with that?

I thought back in February 2023 that we would see a "nut cruncher" rally in the summer of 2023. We had a three dollar rally off the May 31 low. I thought we would have a high in late August or early September. It looks like soybeans put in a high last Monday on August 27th. 

Soybean prices are likely range bound until we get a better grasp of USA yields and production potential.  A range of 13.25 to 14.25 probably defines the market. If the USA comes in at 4.2 billion bu or more, down we go. If the USA has a smaller yield, then up we go to curb demand. 

Until we see a 30 day dry spell forming in Brazil, soybeans will likely be range bound. However, any talk of early planted beans needing to be replanted because of burnout, that will grab the market's attention. I still think we have a shot at higher prices basis March and May 2024 soybeans into January and April 2024. What is the catalyst? I am not 100% sure. Could be USA production, War, demand, and/or Brazil production problems. It might be just an inflation hedge as commodities remain popular to own during these uncertain times. 

If there are good rains in Brazil in November and December, we do need to be realistic that soybean prices could crash with a 165 mmt crop on deck. A 165 mmt Brazil crop kills the bull no matter the size of USA soybean crop.  A 155 mmt Brazil crop maintains prices and the hint of a 145 mmt Brazil crop sends soybeans prices back to 17-18 dollars. The next 3 or 4 months tells the tale on the future of soybean prices. Are we headed to US$ 10.50? or US$ 17.00? or do we maintain US$ 13.50 to 14.00 until we are certain of South America saturation of the protein market once again. Given the extreme heat around the planet and the recent record high temps in Bolivia and Peru, I would say the risk is to the upside yet. I do not think the bullish story is completely over with quite yet. However, we are in the 8th or 9th inning and we have the USA harvest for the next 45 days. A "light" USA soybean crop and any 30 day dry spell in Brazil will light the fuse. How far do we go? Well, money flow and funds tend to drive that story. 

I will be sending out updates to those on my subscriber list and VIP distribution list in the coming months. Sometimes, I send out several updates per day to those on the VIP list. It depends on your interest and needs. 

Good luck with harvest and I enjoy hearing from all of you.



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