Saturday, April 15, 2017

Big crops, econ, politics, and looking ahead

2017: a year it did not pay to be conservative with crop size estimates for South America

It looks like the Brazil soy crop will shake out at 110 mmt+.
Given some of the weather concerns back in November for southern
and NE Brazil, I would have thought it was not possible for Brazil to jump from
95 mmt to 110 mmt in one year. The fertilizer sales data for 2016 was
telling us to be optimistic, but weather patterns were telling us to be cautious.
In the end, top notch seeds, fungicides, and nearly ideal rainfall for most of
the country gave us record yields. 2017 soy crop was all about productivity.
The acreage expansion for soybeans was only 1.4% this past season.
The rate of expansion has been declining lately. We need to look back to
the 2005/2006 timeframe to see an acreage reduction year over year.

Rio Grande do Sul stands out for me this year. They are at 17.5 mmt and some
think it could be as high as 19 mmt - larger than Parana. Who wudda ever thunk that?
Remember the drought year of 2011/2012? RGDS was at 6.5 mmt. Therefore, it is hard
for me to grasp that an established ag state could triple soybean production in a few
years from a low period to a peak period. These new soy genetics are down right

I am still hearing of a few guys converting pasture to soybean area for 2018.
With big crops, even if prices are low, they still have the equity to bring
more land into production. The economics are not there for expansion, but
if one has the land just sitting there, the idea is to make the best use of it.
Hope for the best...

2nd crop corn is zipping right along, and I think we will see similar results
with it. Crop estimates of 91 mmt for Brazil and 26 mmt for Mato Grosso could very
well end up being close to 100 mmt for Brazil and 30 mmt for MT.
(Mountains of corn) Brazil needs about 55-58 mmt for her own needs.
The rest is EXTRA.

Inflation is under control and central bank dropped interest rates again last week.
The country seems to functioning in a Zombie state. The poor are doing whatever they
can to survive. The middle class is disappearing. The rich, well they are rich. Some rich
seem depressed because they have less money than before. But these same people drive
new Land Rover´s and think nothing of spending R$ 100 for a nice breakfast in the
morning. Apartment prices are coming down albeit slowly. However, new buildings
keep popping up and I have even seen one new one here in Goiania where the cheapest
apartment in it is R$ 3.5 million. The high end apartment was R$ 5 million.
This is obviously not the norm, but I bring it up because there are those buying these
units yet. The have and have nots gap is defintely widening in Brazil during this
downturn. One cannot compare Brazil to USA in 2009-2010 time frame. In USA,
properties are foreclosed on and flushed thru the system at 40-50% on the dollar.
Not here, one maybe will see 10% drop in price for cash and finance in house for
a bit and not at a bank. They will work with you and in the end get close to their
price. Shopping malls and retail stores are different. There are deals to be had on cars
and appliances etc. If you have cash, 40-50% discount can be negotiated these days.
Brazil does not function as per the normal rules of economic cycles and supply and
demand. She has a rule book all to herself. It is up to the resident to figure it out
depending on where you are at in any given economic environment you may find
yourself in. Econ 101, take the book, set it on fire, and throw it out the window in Brazil.

The operation car wash investigation has now encircled everyone. The current President
has received kickbacks and this past week even Blario Maggi is said to have received
campaign funds from Odebrecht construction. No one´s hands are clean.

Elections are due again in Oct of 2018. President Temer will do everything he
can to run out the clock in the coming months. If this situation would accelerate
at the Supreme Court and or Congress that the whole Rouseff/Temer ticket should
have been nullified, this gets complicated quickly. This means that the impeachment
of Dilma was started by those with the most dirty hands to begin with. "The pot calling
the kettle black" quite literally.

Someone like Marina Silva has name recognition and is still considered honest and
not entangled in kickbacks. She lives a very humble lifestyle. She might be good
for Brazil, the poor and environment, but she would not be pro-development in the
Amazon and forget about railroads if she becomes President. So one could ask the
question? Is she good for Brazil or not at the end of the day?

I am trying to look ahead and remain optimistic. With the Dollar:Real at 3.15:1,
Brazil seems very expensive yet. With the economic and political risk in the coming months,
it seems to me the FX should be more like 3.50:1.

The next Presidential cycle will include a new group of faces. Lula has said he will
run again. I doubt it will go anywhere, but he could throw his support behind a new
guy and start to form a coalition again. This would be dangerous for the country and
if something like that would manifest, we can start to see Brazil looking like Venezuela
quickly. I doubt this will happen, but the risk must be monitored.

Temer is trying to cut out waste by reforming retirement programs i.e. social security.
He has cut back funding for international education programs. He is getting much
kickback from the public.

This will go on as long as the poor and working man will allow it. At some point,
the poor man will say to the rich man- enough !!!!

The middle class became to indebted the past 10 years in Brazil. The poor were able
to milk the food stamp system for his family and work on the side for cash. Life
seemed better for him. He had access to a car and flat screen TV. Lula was a good
guy in his eyes. The middle class started to act like the wealthy classes and bought
way too much and now he is in decline as per his quality of living. The rich have
their stress too as per the social contract they make with the public. I will take
care of you, but you need to do this for me. With some businessmen feeling the
contraction of the economic cycle in their business´s, they feel the loss of status
and for them this can be crippling. The king was wearing no clothes at the end of
the day.

The Mitsubishi car plant at Catalao, Goias announced last week that they will
cut production yet again. They were at 350 cars per day two years ago.
They cut back to 150 cars per day. Now they will only produce 80 cars
per day- Yes 80 !!!!!

For now, we will keep an eye on the Ribeirao Preto ag show the 1st week of
May. It should be good, but farmers are pissy at the moment as per soybean
and corn prices. They did not sell enough in advance.

Ag equipment manufactures are gearing up for a rebound this year.
Expect a 20% increase in sales and manufacturing from last year´s
very low numbers.

Early corn harvest will begin in Mato Grosso in mid-May. Silage first and
then into wet corn. We will have an idea of yields then.

Sugarcane crop looks to be a copy of last year. +/- 1%.

The industry is hoping to restart the import tariff on ethanol again
in the coming months. Brazil imported large amounts from USA in
recent months. It has depressed prices. They are looking for a way
to prop the ethanol industry up again after kicking it in the balls
for the past 7+ years.

Drop me a note if you have any questions:

Keywords: Big soy and corn crops, BR politics, BR econ, anecdotal BR comments

Sunday, March 26, 2017

March 26 blog: MT Ag show, yields, ethanol, and meat

I am back from the MT Ag show in Lucas do Rio Verde.

It was a very good show. Very homey...

Everyone is so open and wanting to talk about everything.

I will keep this brief as I have included much more detail
in newsletters.

The ag equipment dealers are all very optimistic about sales potentials
this year.

Fertilizer for 2018 crop year for MT is basically all wrapped up.
A few deals are being done for 2019 crop year.

Seed sales are fantastic. Yields were off the charts for some
varieties and maturity groups.

The shocker is how the 95-105 day soy outyielded the longer
120-125 day soy.

The basis for soybean prices widened again last week in MT.
Plentiful port supplies and meat scandel did not help.
Farmers are holding tight on the last portion of their crop.

JD 690 combines showed up at show. R$ 1.8 million for
machine with 45 ft flex header. Interest rate promo is
8.5% per year for that. Ponder that for awhile.......

I am hearing fantastic yields coming out of Piaui.

We are now hearing that BR soy crop is 108 to maybe even 111
million tons.

Given some of the yields we are hearing, I can see how we get there
via planted area X very high avg yields.

We are now even hearing 56 mmt for Argie.

At one time, a few were thinking sub 50 mmt????

Rain makes grain, but we need to becareful with the drowned out areas.
I think by the end of the day, we will be dropping these Argie numbers
a little.  (harvested area combined with disease issues)

BR soy crop size is a little befuddling. If the planted area really
is 34 M ha and record avg yields, then yes, crop is a 110 mmt.


We have a few crop consultants saying the 1st crop corn is 33-34 mmt,
up from Conab 29 mmt. Some say planted area of 1st crop corn is 
greatly understated by Conab in a few states. 

This is my dilemma. If 1st crop corn area increased by 30% in some
locals, and 2nd crop soy was made illegal in a few states, that gets to
be 500, 600, and maybe even 700,000 ha total swing in planted area
of soybeans. 

My point is: I do not think Brazil expanded 1 million ha(for example)
beyond the acreage switch to able to surge to a new planted area record.
Yes, I agree, the productivity per ha in phenomenal. 


There are only so many acres to work with.

My argument is that if 1st crop is understated, then soy crop
is overstated. period

Now the final result might be like this, I might be right that planted
soy area may come down in coming months, but if yields keep coming
in super high, then it does not matter much.

The soy crop will shake out at 106-108 mmt, not quite 110-111 mmt,
but a heck of a lot more than 102/103 mmt where we started at for the year.

In the end, it´s all academic and not market moving info.

2nd crop corn is coming along nicely. If rains through April and no
frosts in May, 60 mmt+ 2nd crop should be on deck.

The corn ethanol mill in Lucas do Rio Verde is making progress.
It should be online in June.

Bruce Rastetter from Iowa was given recognition as the most influential
person in Mato Grosso the past year. Mato Grosso pioneers and businessmen
presented him with a plaque of appreciation for his efforts expanding corn
ethanol production to Brazil.

The Governor of Mato Grosso will be visiting Iowa this spring. 

Needless to say, the most challenging aspect for Brazil this past week has
been the meat scandel.

Minister/Secretary of Ag Blario Maggi has worked tirelessly this past week to
calm global meat market trade and even offered to go with representatives from 
any country to any Brazilian slaughter house on a one on one basis if need be to
reassure BR meat quality.

Brazil was lucky to have him at the helm during this event.

Given that China, Egypt, and Chile have already lifted their bans,
I think the crisis is, for the most part, behind us.

Brazil got lucky this time. It could have been much, much worse
with wrong person at the helm.


Brazil corn ethanol, soybean crop, Brazil meat, seed productivity, Ag Show

Friday, February 24, 2017

Feb 24 blog crop size, rains and Carnival

It now looks like the Brazil soy crop is at least 104/105 mmt.

What looked like the ceiling is now a floor.

Rain makes grain.

I do feel that the numbers coming out this week above 107 mmt
and talk of a 110 mmt are getting close to irrational exhuberance.

The NE and RGDS benefitted much from the recent rains.

I still must caution that planted area of soy could be a late
season surprise that could pull the final production tally down a bit.

We are working with a + 500,000 ha YoY increase in planted area.
That may very well be true.

But, depending on the final tally of 1st crop corn production and
planted area, we could drop soy area down a tad.

Also, Parana, MGDS, Goias, MT, MG, and SP all have a ban on 2nd crop
planted area of soybeans. In years past, this has been as much as 400,000 ha
nationally. This has helped push the production higher.
RGDS still has 2nd crop soy as it is planted after wheat.
But, it still is only the one crop of soy per year. It just gets planted
into January and acts like a 2nd crop.

Whatever the final tally, Brazil has record soy crop hands down.

Increased fertilizer usage, more use of Intacta genetics, and precision
ag combined with normal to even above normal rainfall helped Brazil
rebound from last year´s set back.

Mato Grosso has a phenomenal soy crop. Recent rainy weather has caused some
losses to accrue. A few hundred thousand tons have been been lost due to seed burn,
mold, and sprouting issues. I am not sure if we subtract from 31 mmt or maybe at one time
32 mmt. 9.3 M ha X 3.5 tons/ha =  32 mmt+.
It seems like everyone had at least 60 sacs per ha soy.

Transport is the big issue. Mud - mud and more mud. Beans are trying to go north
but hundreds of trucks are stranded in Para state. It was forecast that 9 million tons
could have been shipped north to Amazon this year for both soy and corn.
With conditions like this and a return to normal rainfall patterns, this is now in question.

The plus side of the drought last year was cheap freight and good road conditions.
Today we have the flip side.

This means more grain will likely be routed to Santos and Paranagua.

Carnival the next few days in Brazil. In March, Brazil will come back to life.

We have talk of opening up BR land to foreigners again. Let us see what the details
will be. I have been waiting for this day since August 2010. This is when they slammed
the brakes on foreign investment and the start of Brazil´s demise into political and economic
no man´s land. It is time for a new cycle to begin.

If the government would not have interrupted things back in 2010, we would not
be dealing with the logistical questions yet today as per roads and railroads.
(At least to a lesser extent than we see today)

The global powers are trying to find out a workable solution to the new world
we find ourselves in. China cannot get caught with her pants off as per protein needs
over the next decade. Brazil does not want to give up national sovereignty to other
country´s that want to suck her dry and call her dusty. Meanwhile, USA is pounding
the nationalistic drum so the whole world can hear it. Listen to ME !!!!!!

Bottom line to all of this is that China is working on a 50 year plan.
USA is looking 3 to 6 months ahead.
Brazil does not have plan.

How do we get these three capital and food producing powerhouses on the
same page so none of them feel taken advantage of?

China wants to help with BR infrastructure. Let them.
Let BR farmers produce the grain that they do so well.
Let China help ship it via rail and port systems.
Let USA supply cheap capital and precision ag products so we can
produce more with less area and, in theory, it will be a win win win for
everyone and the environment also.

Happy Carnival


Sunday, February 5, 2017

1st Successful Farming Brazil issue in Portuguese

I picked up the new Successful Farming magazine in Brazil this past week. It is in Portuguese.

It has the same layout as to what we are accustomed to in USA.

Articles on who produces the most soy per hectare, who has the best cow, articles on bug control, ethanol, and drones. A heavy focus on technology. An article on Mato Grosso fish farming and another from Minnesota regarding uniform shit spreading as the key to good yields.

Several images of Donald Trump and also an article on chicken farming.

Bigger, better, faster, more efficient are the themes.

These are "Gringo" fabrications. In Brazil, sometimes these business
models do not apply well.
Much of the Brazilian ag sector is very 21st century. However there are areas that lag behind,
and are not into "high productivity."
Many are in survival mode, but do it on a grand scale so they can get by with that model.

One thing the Brazil farmer does well is efficiency. He knows how to get things done with the least amount of investment possible. When interest rates are 10-12-18%/ year or more, one does not add bells and whistles to a combine or tractor just because the neighbor has it on his.
The new add on must pay for itself.

I enjoyed the new corn ethanol article for Mato Grosso. The data in the article is not new news per sey. It has been well known about for one year in Brazil.

I live in electronic/digital world. The only time I even consider picking up a magazine in Brazil is when I pass through the airport. The number of news stands continue to decline in this recession.
A few major park areas in the city have news stands and in shopping malls are about it.

The modern/dynamic Brazilian farmer does not live on his farm in Brazil. He lives in the city.
The manager and workers are at the farm. The modern Brazilian farmer is well connected via several smart phones and in some cases video links to the farm to keep tabs on everyone. Well organized mega farms know what all employees are doing at all times and even have the plan for tommorrow mapped out.

I remember back to the 80´s when I looked forward to walking to the mailbox and getting the newest ag magazine to read through. It was our connection to the world.
By the time the 2000´s came, we wished they would stop sending all this crap. It was 80% advertisements.

Today, why do we even need print media?

A Brazilian farmer does not walk to his mailbox to get the mail like a farmer from the midwest
USA might do each day. It is a different market- a different way of doing things here.

The modern dynamic BR farmer is not easily accessable unless you have his WhatsÁPP number.

Those smaller subsistence family farmers in Brazil are so damn stuck in their ways for the last 60 years, you cannot pay them to change. They take what the land gives them. They refuse to pay for anything. And in some cases, even if you could get them to look at modernizing something, their local church might consider it evil and prohibit the family from doing it !!!!!
I have family members that I have brought Disney clothes and toys from Orlando for the kids.
The church prohibits them from wearing it !!!!

I would imagine driving a new John Deere would be the same !!!???

It is a mindset and a cultural thing that is difficult to explain until you witness and see it first hand.

Brazil is a difficult market for newcomers to the ag market to understand. You don´t just drive into someone´s yard trying to sell something. It is best to make an appointment ahead of time. And even if you did find interest at a given farm site, the person you encountered does not have authority to make a decision.

The dynamic farmer does his own research on technology and efficiency. When he decides to move forward, he jumps on a plane to Germany or USA and buys the technology direct. He does not wait to read about it in a magazine. More often than not, the journalists come to him to learn what he is doing -often 10-20 years ahead of everyone else.

I hope Successful Farming can find their nitch. It might work in RGDS, Parana, and parts of SP.
But out here in Goias,Bahia, Mato Grosso, it will be something found at the dentist office from time to time. The go getters do not have time for it, and those more laid back, will be afraid to touch the magazine and they will never buy it unless it is given to them. The only reason the dentist has it is because he passed through the airport while he flew out to the farm for the weekend and saw the magazine !!!

Friday, January 13, 2017

Jan 13 blog update

On January 1, I put out a newsletter with my ideas as to soy prices in 2017.

So far, it is holding up well.

By Nov 17 soy holding above 9.80 this week, I have told clients
to expect higher prices.

I do not believe the Brazil soy crop is 104 or 105 mmt.

However, I do believe it to be above 100 mmt.

Until we get below 100 mmt, it kinda does not matter much.

NE Brazil must have rain in the coming days.
Even with rain, early planted soy losses are 30% in some regions.

The end of January and February look to be below normal rainfall.
This is of concern.

Argie is a mess. I think the crop is 50-52 mmt as of today.
Much smaller than what is being forecast.

The two events give us some hope in coming months for
sustained prices.

More info in upcoming newsletters and flash updates.

Thank you to all the VIP renewals in January.

I plan to attend a couple ag shows in the coming months.

As the President of New Holland said so nicely this week.
Ag business is the hen that lays the golden eggs in Brazil.
Things are really looking up as per ag machinery sales in
coming months.

Oldtimers in Brazil look at the ag economy as a leading indicator
to the overall economy. If the ag economy is strong, the overall
economy is right behind as per growth prospects.

Not a hotel room to be found in many locals for the ag shows.

I think this is a leading indicator that all ag sales teams will
be out in full force.

Dollar at 3.20 is not ideal. We would like to see 3.50:1,
but that will depend on politics here.

Sounds like interest rates will drop to 10% in 2017.
13% after this weeks cut.

Drop me a note for more info in services.

Links at top of page.


Saturday, December 17, 2016

Optimism in the air

As one walks around the shopping malls and watches how
consumers are acting this holiday season, optimism is not
a word that comes to mind.

I was recently was told that this is the slowest Christmas sales
season in four years. That kinda makes sense since the Brazilian
economy has shrunk 10% in the last three years alone.

There are too many stores closed or for rent these days along the
major avenues in Goiania. It is going to take some time to
swing this ship around away from the headwinds and sail
downwind again.

The optimism I speak of comes from the ag sector in general.

With this massive soybean crop on deck, that will help stop
the bleeding in the economy and probably give us small
positive numbers.

It is about time.

The problem with that is that we are talking about a soybean based
recovery. Not an information technology recovery, a demand based
consumer recovery or a faith in the governmental system type of

This recovery will be based on fairly good soybean prices, fantastic
yeilds, and Chinese demand for protein.

This was turbo-charged last month by Trumps election win.
China wants to hedge herself and combined with a weakening
Yuan, that bodes well for South America short term and probably
long term.

The kicker is: is this really the best way to run an economy?

Soybeans, great weather, and an X factor defacto "good luck" from the
election of Trump by pulling a straight soybean flush by drawing the
Queen of Soybeans on the "River Card".

There is Optimism in the Air in Mato Grosso and other soybean states.
We are not going to believe some of the soybean yields this year.

This optimism will start to be felt in machinery sales, parts sales, demand for
labor, fuel, seed and fertilizer.
I am already hearing of pent up demand for Urea for 2nd crop corn.

The ag sector is about to help Brazil stop shrinking. New honest dollars
are being created everyday. Sun, rain, and investment in themselves i.e. land
will help turn the corner.

Politicians need to recognize this and get on their knees and thank the
Brazilian farmer for sticking with the profession even though it has looked
bleak at times. Government needs to get out of the way of the productive sector.
Let the private and/or international financing of projects happen.

Brazil increased fertilizer sales 11% from last year. When one thinks of the
drought hit areas and lack of credit or damn expensive credit, this means
the farmer invested in himself one more time risking it all in some situations
that it would get better. Of course, record high soybean prices in June 2016
in Reals helped make that decision easier.

The cost of a few things are going down. A new crop of fruits and vegetables
are coming to market. The price of some products like rice and edible beans are
now cheaper than a couple months ago. Food inflation is less of an issue today.
Energy and LP gas bills are still high. Apartment prices are coming down.
The real estate market is stalled throughout the country.

Sugar and ethanol look like money makers in 2017. But it seems like most mills
have been shut down in recent years or in bankruptcy. It is time for a new cycle
to begin.

Brazil loves its 7 year cycles of boom and bust. A few years ago when Brazil
was at the top and could do no wrong, she thought she was immune to her
volatile past.

A few years ago, Rio de Janeiro was arguing about how to divide up all
the money from oil royalties. Today Rio cannot pay her public servants on time?
Whatever happened to all that oil money? The government through tax incentives
tried to stimulate oil and quash inflation. By doing so, they brought the sugarcane
industry to her knees. Today they want to stimulate cane and other
bio fuels again. For the next 5-7 years, bio fuels look like the place to be in Brazil.

There are "green shoots" on the horizon for Brazil in 2017. It is better than
nothing. It will be soybean i.e. AG driven recovery. This recovery can be
as fickle or "flush" as the whims of FX and CME will allow.

No blinds, No limits, Brazilian Hold´em 2017 has begun.

all in ?

Merry Christmas


Sunday, November 27, 2016

Nov 27 blog update MT and Goias trip

I see the previous blog post was very popular.
circa 2000 views

I was in MT last week. Not much more to say than what I put in
Nov part II newsletter. The crop is big. Lack of corn seed for
2nd crop is an issue going into 2017. Expect record area of planted

Dollar has rebounded back to 3.47. Soybeans continue to rally.
Life is good.

I will be in southern Goias this next week.

In have received photos out of Rio Verde, Goias. Ditto.
Soybeans are the darkest green ever.

Fertilizer shipments until October are 8% over last years pace.
This all bodes well for productivity.

Corn ethanol mill constuction in Lucas do Rio Verde is making
fantastic progress. Looks to be up and running by June 2017.

Chinese keep buying more businesses in Brazil.

I will include some photos I took from airplane near Sorriso, MT.
I think the photos tell the story.