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.

Kory




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
recovery.

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

Kory


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
corn.

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.







Friday, November 11, 2016

Nov 11 The week the world changed

As recently as last week I was reading economic reports from
various banks and they were lowering their dollar:real forecast for
2017. They were thinking 3.15 was the new norm. We are long the Real
they said. From experience, these longer term FX forecasts never work
out as planned in Brazil.

On Tuesday, the dollar was 3.17. Everyone knew Hillary was going to
be the next President.

In two days, the dollar touched 3.50 and settled the week 3.40:1.
I had just written a couple quarterly reports for Brazil investors and
I forecasted that I thought the REAL would drop back closer to
3.50 for the 2017 season. This was based on rising interest rates
in USA and declining rates in Brazil. I never dreamt the forecast
would come true in a few days.

Trump shook the developing world to its knees. Wednesday it seemed
like everyone was in shock. It took until Thursday for the globe to
figure out what does this all mean?

Major global banks were caught on wrong side of FX trades. Position
liquidation fueled the moves.

In addition the the northern hemisphere drama, Brazil was creating a new
one for herself. Someone found a bribe check for R$ 1 million
made out to President Temer for a project. Maybe, he will be impeached?

All of this came at a perfect time for the Brazil farmer. We have 10 dollar
soy in Chi-town and a weaking FX. All this after they bought inputs at
3.20:1 is what doctor ordered going into a whopper bean harvest.

It sounds like Trump is serious about bringing home circa 2 trillion
dollars trapped in other countries. I think smaller developing countries
sense a massive sucking sound of dollars leaving their banking systems
in 2017. Cayman Islands, Mexico, Hong Kong, Ireland to name a few.

If and when all these dollars come home, they will be looking for a new home.
I think the next two to three years will be inflationary beyond our wildest dreams.
I think all of those things that Jim Rogers was touting back in 2008/2009 during
the crisis and stimulus packages are now going to come true.

Inflation is the best drug man ever created. The artifical sense of wealth
and prosperity. More than likely debt driven, it will lead us to even a greater
bubble.

These dollars are finding their way into commodities again. Even if some
commodities are not bullish per se, they are receiving the liquidity and
giving us wild moves when there seems to be no fundamentals to justify it.

China has been sniffing this out for months. China does not want to deal
with a USA that is bi-polar. They cannot risk a trade war and free
flow of food.

China has been buying Brazil and Argentina. This is the biggest fundamental
change in global agriculture taking place right now.

They are buying ports. They are buying soy and corn warehouses. They
are buying majority stakes in grain trading companies in Mato Grosso.
They are buying sugarcane mills in Sao Paulo state. This past week
Brazil and China formed a R$ 1 billion Real infrastucture developement
fund to help get projects off the ground in Brazil. Railroad concessions are
first and foremost on their list for 2017.

China is hedging her food sourcing options away from an unstable USA
environment in the future. I am not predicting a trade war or embargo
type scenario, but China is making damn sure she is not caught with her
panties off in case someone gets cute.

This is super bullish for South America in the coming years. I hope Brazil can
keep herself on the recovery path and not fall off the bar stool again.
Temer and company have a long way to go and a short time to get there.

I will be in Mato Grosso the next week or so. I am hearing that early soybeans
could be ready by December 15th.

If the Amazon rains do not hit during peak soy harvest in late Janaury and
early February, Mato Grosso could have 5 million hectares of soybeans harvested
of her 9.2 million hectares by Feb 15th. This is like a really big deal dude.
This eludes to a massive 2nd crop planted area during the ideal window.
Keep an eye on this.

Looking at politics: During Obama´s first two years, he placed all his chips
on Obamacare. In hindsight, he maybe should have done things differently.

Trump has two years. Let us give him a chance. I realize the vote was more of
a FU to Washington DC. They needed it.
The worry I have coming from an ag background that has needed so many subsidies
in the 80´s and 90´s to survive via govt payments, crop insurance, CRP, disaster
payments, and emergency ag loans, that I fear that sometime in the future when we
least expect it and we need help the most, we will get the same vote back to us in rural
America. FU2 will be the response to our plea for help.

I think we need to be ready for that sometime in the future.

The game has changed. The rules have changed.

Kory

Saturday, October 15, 2016

Brazil China relationship status *updated*

São Paulo, 10/13/2016 - The Chinese trading Cofco Agri acquired two warehouses in Mato Grosso, according to a statement by the company. One of them has a capacity of 72,000 tons and is located in Itanhangá; the other can receive up to 60 thousand tons of grain and is in the Novo Mundo. Cofco Agri also purchased land to build a new warehouse in the city of Marcelândia, which will house a warehouse with 70 thousand tons. This warehouse will receive the 2nd crop corn harvest next year. The company did not report the value of the investment. Subsidiary of COFCO International, Cofco Agri operates in trading and agricultural processing products originating in various regions such as South America, South Africa, Eastern Europe, India and Australia. It also operates in the supply regions with high demand, such as Asia and the Middle East. Last August 23, the International Cofco announced the acquisition of 100% of Nidera.

Northern Mato Grosso is the focus area.

Kory

Thursday, October 13, 2016

Brazil China relationship status

The past 6 or 7 years Brazil and China have been doing a lot
of dating.

A Chinese delegation arrives and does a tour. A couple months later
a Brazil delegation makes a visit to China.

Many headlines have been made. Many letters of intention have been
signed by countless politicians and businessmen from both countries
with regards to ag and trade.

Time goes by, not much has changed.

This past year we have had a couple of equity deals done with
Ag business in Brazil and the Chinese.

It seems like we have moved into the "let´s live together awhile and
see how it goes" phase of the relatonship.

If it does not work out, it is still simple to go our separate ways.

Much talk lately of a Brazil/China fund to finance projects.
This catches my ear, but until I see something, all it is is a headline.

If we hear that China is going to help fund one of the railroad projects that
never seem to break ground, I will have to amend the relationship status
to "We are now engaged". No wedding date has been set yet.

If sometime in the next couple years we actually have the Chinese "laying some track",
I will have to say we have a wedding date in mind.

When I see Choo-choo trains zipping back and forth to Amazon hauling beans,
I will say Brazil and China are now married.

Until death do you part ;>)

This is all a ways off but I am getting query´s about this and I need to
act like a daddy here and make sure you love my daughter first.

You only get access to the soybeans after you marry her.

In this case, the daughter is Mato Grosso.

The wedding invitation has not been mailed yet.

Kory

Saturday, September 17, 2016

Sept 17th blog update China visits

Hot and dry at the moment.

Forecast is for rains to start end of Sept. The 30 day forecast
is for irregular rains. We will need to watch this as per if this
affects planting. At this time, not a big deal.

I am working on Oct newsletter. I have some new corn production
graphics to include. As I stated earlier, the headline for the season
will be the amount of 1st crop corn that gets planted and the lack of soybeans.
Soybean area will look very much like last year.

The impeachment process went smoothly and now it looks like they will nab
former President Lula also. Compared to USA politics at the moment, Brazil
looks rational at the present time.

Brazil sure seems to want to open itself up for investment again.
Foreign ownership of land and many infrastructure projects are all on deck
to be bid on by private sector.

President Temer and Sec of AG, Blario Maggi, have spent time in China the
past two weeks. Blario continued onto Vietnam also.

We have had Chinese delegations in Mato Grosso, Tocantins, and Goias recently.

One must wonder why?

It seems like Brazil is serious this time about letting foreigners participate
in infrastructure ptojects. They are printing the consessions to be bid on both in
English and Portuguese. In the past, so many things i.e. details, got lost in translation.
It does no good to bid on a railroad if the environmental impact study has not been
completed.

President Temer and Blario Maggi remind me of the Smokey and the Bandit theme song,
"we have a long way to go and a short time to get there."

They have two years, maybe less, when one considers the election politics of Brazil
for 2018. They need to make hay in 2017 or we will look back in 2.5 years and say they
were nothing but place holders or bench warmers for the new team to come in early 2019.

This new team will be a wild card. We could swing hard left or hard right again depending
on the economic temperment of the populous at that time. At the moment, most everyone
is hurting. Sales, production, and services are much lower than three years ago and at the
same time everything costs more. My electricty bill made a new record high for Sept.
10 years ago the bill was 150 and now it is 800. I am not sure how the average joe
can keep up with that.

There are reasons to be optimistic. But so much of this optimism depends on China, FX,
and cheaper credit in the future. If there is a hiccup in any of these factors mentioned,
it ripples through the whole economy and another year goes by without much change.

Kory