Travels and thoughts Nov 21

Last week I was in Mato Grosso.
I am not impressed with soy crop.

I was to Brasilia this week. Many fields to be
planted yet in Goias.

Next week I will be in Southern Goias- stay tuned.

The soy crop is super late with below normal rains.

Parana and Mato Grosso do Sul are being hammered by rains.
Rain makes grain.
Will there be rust? Sure- there is always rust.
Spray fungicides and spray them again. Three applications are normal
these days.

We seem to get rain about once a week. Not everyday as per normal this
time of year.

In Mato Grosso, last week, good to excellent fields were from 10-15% of the
total area.

Reports out of Sorriso county last week of producers switching 1st crop
soy area to a 1st and only crop of corn.
This has never happened before.

We are dealing with a Mega El-Nino. It got stronger yet last week
from what I read.

The last big El-Nino was back in 1997.

Back in 1997 Mato Grosso planted 2 million hectares of soybeans with a yield
of 2.7 tons/ha. Today Mato Grosso plants 9 million ha with yields of 3.1 tons/ ha +.

Back in 1997 Goias produced 1 million ha of soybeans with yields of 2.5 tons.
Today Goias produces 3 million ha with yields of 3 tons/ha.

Tocantins back in 1997 produced Zero soybeans. Today the state plants 850,000 ha
and has yields of 3 tons/ha also.

If we go back to a previous El-Nino, we do not have any data to work with.

Bottom line to all of this. The crop is basically planted. The crop is young.
Harvest will be in March and April in many Cerrado states for 2016.

I have told clients that I do not think we have a 100 million ton crop on the way.

With Argentina ready to sell 10 million tons of soybeans, we are at a Mexican standoff
in the marketplace. Brazil is mildly bullish today. Argentina is mildly bearish today.

Does Brazil have the potential for a 10 million crop loss this season so far? No

Thus, until we have data supporting significant losses, we tread water it seems.

We need to burn up some carryover stock potentials in the coming months in order
to get optimistic again.

Dry January and a dry April/May 2016 would have the markets attention for both soy and corn.

I will be in Mato Grosso the end of March for the Show Safra 163 ag show.
This ag show is growing fast.

Kory

Nov 7 blog Where is the rain?

It just can´t seem to rain like normal. We had some nice showers last weekend. Then it turned dry again.

I am headed to Mato Grosso this week. We have a tale of two worlds again. We talked about this last year but the rains started Oct 22 and continued normally. This year we have soybeans that are soon 45 days old and look good. We have soybeans that are 25 days old and need to replanted. We have vast areas not planted yet. Specifically Goias and the NE 1/4 of Brazil. Planting now will be considered late in these regions.

I am waiting for November 15th before I start to call this soy crop smaller than what is in the media today. There is still a chance things can correct and we have a late planted record soy crop and a very at risk 2nd crop corn. With Mato Grosso receiving above normal rainfall the past FIVE 2nd crop growing seasons, our memories tend to get short sided and we forget what "Can happen".

Brazil is pumping out all this extra corn at a record pace. 28.8 million tons for Nov 1, 2014- Oct 31 2015. Some say that for calender 2015, Brazil corn exports will be above 30 mmt.

Petrobras workers have been on stike this past week. Interupted total oil production for the week is about 800,000 barrels. Not a big deal on the global oil market, but needs to be watched if this continues a week or two- moreso for Brasil domestic energy markets.

Truckers plan to strike again on Monday. Let us see if they can make something stick this time.
It seems to take about 2 weeks for shortages to start showing up in the supply chain of various products.
With enough of these disruptions, this will eventually bring government to thier knees. There will not be enough fire trucks to keep all the fires out.

Currency market has been controlled again in recent weeks. Central bank is crapping in their pants that USA raises interest rates in December. It puts the Brazilian Real in a no win scenario. They cant keep ahead of inflation and budget concerns.

More movement this past week on the proposed rail project for Northern Mato Grosso up to the Amazon river system and then barge soy, corn, and meal further up the Amazon for loading of Panamax ships.
This would be a boon for the region. I still have my doubts as per the short term practicality of such projects given that government can´t even pay contractors for work that has been done on other roads and rail roads this year. If the multi-national grain companies and China could get together and float this project without Brazilian government intervention, this thing could have legs in the next year or two.
But as we have seen, when has Brazilian government ever not obstructed progress? They don´t even have the statesmanship to resign when clearly they are not working in the publics best interest.

Bottom line to all of this:

I am not sounding the alarm bells quite yet. With current weather patterns, I will sound the yellow alert after Nov 15th. Soy production will be at risk and 2nd crop corn at great risk. At the moment Parana is the "Garden of Eden" and well on the way of producing 18 mmt alone. Will Mato Grosso come in at 29 mmt as per expectations? and 20 mmt of 2nd crop corn? With this pattern we have today- no way-
If it rains cats and dogs Nov 15th- Jan 15th, we still have a chance on seeing Mato Grosso blow us away with yet another record, but my antennae is up!!!!

Oct 22 update The heat is on

I now know what it feels like to live in Baghdad. It seems like from time to time we see remote areas of the planet with heat readings of 150 degrees F. That has been the heat index in the sun for many spots in the Brazilian Cerrado this past week. Sun, no clouds, no wind- pure heat!!!! Last year at this time we were having much the same weather. Rains started about Oct 20th and saved the day. Last year the loss potential from dry weather was about a million tons. Western Mato Grosso and SW Goias were hardest hit with early planted soybeans. This year we are off to a slow start in Mato Grosso with replanting very likely in some locations. The risk of soybean seed burnout is very high. Goias has not planted anything yet. A few fields might be planted, but they are under pivots. At this time it is futile to forecast Brazil soy crop potential. At this time, a 100 million ton crop is likely. But if we are still dealing with erratic weather on November 15th, we can start subtracting from that number. Last year the rains came in the nick of time to save soybean potential in the Bahia and Minas Gerais region. Tocantins, a frontier state, had record soybean yields. They were the "Garden of Eden" last year. This year feels different to me. The past two weeks records have been broken going back 75 years in some locals. Mato Grosso has had soybeans now for about 30 years. In the heart of Mato Grosso, soybeans are 20 years old. How do we deal with 75 year old records when the crop we are trying to forecast has a 20 year history? We all know we don´t kill soybeans in June in USA. We kill them in August. This year was a perfect example. From June 15th to July 15th, we were killing the USA crop. In the end, damn nice crop. It is much the same here, we will kill the Brazil crop in January- if it is going to happen. We are pushing the bulk of the harvest into February now. February better be nice, or we will have a real mess. It better not rain for two weeks straight in February, or everyone will lose their minds. I read today that some are expecting a 13% increase in 2nd crop corn area. I don´t see it. They will be damn lucky to maintain last year´s area. I will know more in November after my Mato Grosso trip. I cannot help but think to myself- what if this year is 180 degrees different than last season? We could knock 10 million ton off the soybean crop and the 2nd crop corn could be a disaster....... Am I forecasting this today? NO..... But, there are things in play today that are out of everyone´s control and the calender will dictate what can and can´t be done by March 5th. I expect 1 million ha of 2nd crop soybeans up from last season´s 680,000 ha. If 1st crop soy is nipped by drought, my guess is that many will plant soy again and skip 2nd corn. This is the last year for them to do a soy/soy, it just might happen, especially with FX in their favor. Lots of variables as of today. I can build a soy story ranging from 90 mmt to 102 mmt tons, depending on the soybean gods. Six percent decrease in fertilizer sales, expected area to increase by 3%, late planting, insects, poor germination, strong FX, and murphy´s law all come into play for the next 90 days. Let us see if Monsanto can collect royalties on saved seed in February? What was looking like a boring season back in June is rapidily becoming "Thriller 2.0". Subscribers will be the first to know. Thank you all, Kory

Oct 10 update

The start of soybean planting is off to a slow start. The center-west region of Brazil remains hot and dry. It looks like a repeat of last year. Late planting concerns will be the hot topic the next couple weeks. Conab report came out with a 100-102 million metric ton soybean crop for 2016. With 2016 the last year farmers can legally plant soy/soy, they are probably correct with their estimate. 2017 will start the no planting of a 2nd crop of soybeans from January through September each year. The dollar has traded 4.25:1 two weeks ago and as I type this the dollar is 3.75:1. If we drop back to 3.50:1, farmers will start to complain they will lose money in 2016. For those of you that have come down on a tour in recent years, you know how much things cost when the dollar was below 2:1. If anyone is interested in a winter tour this season, we could probably add in a couple nights in Rio for the same prices as three years ago. It depends on the group size obviously. The bottom line is that US$ 5000 will get a you a little more bang for your buck than three years ago. A few days in Mato Grosso with either a Foz do Iguacu or Rio add on to your tour. We are likely in a 3.80-4.20:1 trading range with the Dollar/Real in the coming months.

Sept 23 blog update

Wow Dollar is 4:1 + now. Soybeans are R$ 85/sac at port and R$ 65/sac in Sorriso, MT. Soybeans are going in the ground in Parana state. Mato Grosso and the Cerrado are literally baking to death. It feels like a nuclear reactor is leaking !!!!!!!! The forecast is for dryness to continue until early October. We now have a late planting issue again. Last year was late and it really did not make much difference in final yields. We maybe lost 1-2% on a national basis. Will this year be different? We have two scenarios unfolding in Brazil politics today. There are those that believe that President Dilma will be gone by Christmas and stability will return to Brazil FX. The other is that this soap opera has just begun and we will see Dollar:Real 5:1 in 2016. At Dollar 5:1, it is hard to wrap one´s mind around what the effect of the "Law of unintended consequences" will be? It seems like it will be a boon for soybean farmers. For some it will be. Then again, they could start to treat soybeans like a currency hedge and refuse to sell them at any price - just like Argentina. There are rumblings that the government wants to tax soybean exports like Argentina. This is insane since Brazil is taxed so many times already with Brazil costs of transport, logistics, and cost of production. But with Dollar 5:1, and a desperate government looking to shake the money tree, we can´t rule anything out. For now it is just smoke. I visited a fertilizer dealer this week. The spreadsheet he gets each day is stable in dollars per ton price quotes. When a client calls, he enters in the spot FX and the fertilizer prices convert to Reals. If you step out to cut your hair and think about the quote, the price is no longer valid when you call back. If the FX moves more than 3% per day, the whole system shuts down and will not accept new fertilizer orders until the FX closes and updates for the following day. These are volatile times in Brazil. One day you can look like a hero and the next you can have your testicles served to you on a silver platter. These feast and famine stories will be common the next 90-120 days- maybe longer. I get the feeling this is just the beginning. Drop me a note if you want to be put on a distribution list. Newsletter is one option. VIP flash updates are another. I was thinking a few months ago, this was going to boring this crop cycle. Nope, Thriller 2.0 is being cast now.

Sept 14 blog update

Soybeans are being planted in Parana state. Mato Grosso remains dry but soybeans are being planted under pivots. Conab will come out with initial crop size forecasts for 2016 Oct 9th. The Dollar is now 3.88:1. 4:1 seems to be around the corner. Last week I sent out a forecast to subscribers that a Dollar/Real FX of 5.80:1 in the next 18 months is possible. I was in shock reading the predictions. It seems other worldly. The FX at 1.60:1 twice, back in 2008 and 2012, seems so rediculous in hindsight. The Brazilian farmer has already sold a good portion of the 2016 crop. 30-40% is common. The rest he will likely use as a currency hedge. It is better to have soybeans or dollars than Reais in a bank. This is the mantra. People with money have taken their money out of the banks and bought livestock, land or apartments as a way to preserve wealth. This makes it harder for banks to make new loans. Fertilizer deliveries are running way behind schedule. Some fertilizer dealers are not giving quotes. They want the farmers to beg. The farmer will pay anything for fertilizer at the last minute in October or November. We know there will be expanded area of soy. We still do not know if a 2nd crop of soybeans will be allowed in some states. We know crop inputs will decrease this year. Could this affect final productivity? When one reverse calculates current soybean prices back to dollar 2.50:1, today soybean prices in Brazil feel like US$ 13.00/bushel in Chicago. Soybeans look better than corn, edible beans, cotton, rice and sugarcane at the moment. Soybeans are equal to 100 dollar bills anytime. All the other commodities require a waiting period to get paid. What do you expect a Brazilian farmer to do? Soybean producers in USA and Argentina need to be alert for a Dollar/Real greater than 4:1. Above 4:1, no one can compete with Brazilian farmer with regards to exports at port. At 5:1, things get even more interesting. One could assume Brazil could compete all the way down to US$ 6 dollars per bushel in Chicago. The caveat will be the imported products such as fertilizer, chemicals and Ag machinery pieces. Key items I will be watching in the next 90 days are saved seed royalties and how they plan to collect them, 2nd crop soy area- if any, soy no-plant dates for 2016, and delayed fertilizer delivers and thier impact on final yields. Thank you all for your interest in the newsletter of late and the phone call consults. I appreciate your confidence. Abracos Kory

Sept 1 blog update

In a few more days producers will start planting soy in western Parana. A few days after that, circa Sept 10th, producers will start to plant soy in Mato Grosso. We have had a few sprinkles in Goiania. This is a bit early but a nice break from the heat. Dollar is trading 3.58:1. I think circa 30% of the 2016 Mato Grosso soybean crop has been priced at higher levels. The strong Dollar/Real realtionship protects Brasilian farmers from lower prices in Chicago. FX trumps CME at the moment. We need to watch legislation to see if 2nd crop planting of soy behind soy will be allowed in Parana and Mato Grosso. They want the no-plant window widened. If they can plant in early September, there will be time to harvest and still plant a 2nd crop soy and harvest it by the no-plant dates. If planting gets delayed, many producers will likely run out of time and plant 2nd crop corn. Last year 700,000 ha were planted to a 2nd crop soybeans which bumped the national production upwards. These will be the swing hectares that will determine if Brasil produces 96/97 mmt in 2016 or the national total rubs up against 100 mmt. El Nino will likely keep us on the edge of our seat during Christmas in one local or another. It will likely be too dry in one region and too wet in another. This may affect 1 or 2 million tons of potential again. Fertilizer sales are said to be 3-4% lower than last year. This is odd since area is said to increase by 3%+ this year again. Could this affect productivity at the end of the day? Intacta II soybean area will likely be 35-40% of the total area in Brasil. These varieties have been yielding very well the previous two seasons. This technology is increasing the trend line yields in Parana and Mato Grosso. Instead of 52 sacs per ha, the average is now closer to 55 sacs per ha. Newsletter subscribers and VIP clients will be the first to know as current events unfold this crop year. Drop me a note if you have any questions. Kory