Monday, July 21, 2014

Don´t hit on 17

I keep reading more articles about how Brazil and Mato Grosso are going to expand 4 to 5% again in area for 2015. When we look at fertilizer sales data to date, it is easy to make that argument.
In recent years, I would have agreed.

New crop soybean prices for central Mato Grosso are down to USD 16.50 to USD 17.50 per bag.
This is about US$ 7.50/bushel locally for March 2015 delivery.

This will be hard for many producers to swallow as we go into the the Mega USA harvest.

Futures will likely go lower, but I think port bid premiums will rise and compensate for
CME losses and Brazil freight costs- at least to some extent.

We know the Brazil farmer has locked in his fertilizer cost of production months ago.
To some extent his chemicals and seeds have also been taken care of. Keep in mind
that he will plant a lot more Intacta RRII this year which means he is exposing himself
to higher tech fees in lieu of higher chemical/insecticide costs.

There is no rule saying he has to apply all the fertilizer he bought. He could shoot
for productivity or roll some fertilizer forward too.

I am sure there are a few farmers/farming groups that are finishing prepping a some new areas
that were started two or three years ago. In my mind, statistically insignificant.

Many talk about the high soy/corn ratio and it favors soy.

The caveat is that soybean cost of production is also at record highs.
It needs to be a high ratio just to maintain!!!!!!!!!!!!!!!  not switch!!!!!!!!
Those not living in Brazil are clueless to this data point.
Chicago people need to come to Brazil to comprehend this.

I do not think Brazil will plant 31 million hectares this season by the time
all is said and done. A few guys might actually seed some areas back into pasture !!!
Cows are good money !!!!!

2015 soybean cycle can be summerized like this.

I am sitting at Caesars blackjack table with a 100K on the table.
I am dealt a 17 and the dealer is showing a 10 up.
I know in my bones she likely has a 20 hand.

* dealer in this scenario is CME

Do not hit on 17 !!!!  stand pat !!!!!

I need to let this hand go !!!!!!!!!!!!

We will wait until March for the dealer to flip her card over.

If the dollar is 2.50:1 at the time, she will flip over a 7 and
and we had a 6 month "PUSH". We bought another year.

For those thinking she has a 6 underneath and needs a card,
you are betting on the Northeast drought in Brazil continuing.

If she is hiding an ace, you are all going to need new underwear
by March.

Brazil 6 to 10 day precip maps are showing chances of early
rains starting. Very rare if so.

If the Northeast can grab some rains this season, Brazil will produce
93 million tons on same area as last year.  Period.

Waitress,  I need another Corona and lime while I wait.



Here is a 25 dollar chip for you honey.

For those who want more wisdom as to when to take a hit,
click here: