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Congratulations on
your November letter. It was really good and informative. I think we
are probably looking at a continued sideways market in soybeans, at
least for now.
Jay
Edwards
Thanks for the great trip! Learned a ton – only wish it had been longer.
Larry DeMaria
Sterne Agee NYC
You did a good job on estimating crop sizes this year
both in Argentina and Brazil. And
also about flat price expectations.
Regards,
Tom Rinaudo
Ag
Blog News
Next Tour: Confirmed
March 21-24 - New Jersey Hedge Fund - Mato Grosso
On Tour:
11 Mar - Thu
I am headed to Cuiabá, MT on Saturday. I will meet my China soybean
buying delegation.
On Monday March 15 five state governors will descend on Lucas do Rio
Verde to announce the new railroad project. 2010 is an election year
so many projects will be announced.
Highways, rail, fertilizer mines, oil wells, and big crops that show
“Progress” will be in the media.
With the low dollar and expensive freight rates, the new railroad is
mandatory to keep central Mato Grosso viable as a production center.
I hope they can survive until the railroad arrives.
Many of the experts have announced 67 MMT ton Brazil soybean crop. I
do not believe it is that large. The perception of a 130 million ton
SA crop is in the market place. I am impressed at how well soybean
prices have held up considering the bearish news. I would have
thought soybeans to be 8 bucks in Chicago by now. Any news items
from experts that they are cutting their Brazil crop size should be
bullish going forward. Brazil soybean farmers have been reluctant
sellers. I don't know how long they can wait.
I will be traveling to many different farms, locals and commodity
groups in the coming two weeks.
I will have a better feel for the future.
Subscribers will get flash updates as conditions warrant.
IMEA Looks at Mato Grosso 10 years Out
02 Mar - Tues
IMEA
released at 10 year forecast for Mato Grosso production of soy,
corn,rice
and livestock.I have a
tremendous respect for their crop size forecasting. They do a better
job thanthe analysts
from other countries.
By 2020 IMEA is
showing an increase in soybean area from 6 million hectares in 2010
to 7 .7 million hectares by 2020. They also expect soy production
to increase from
18 million tons
(currently) to 27 million tons by 2020.
I
have been studyingBrazilfor
10 years. I think this is a bit optimistic. Given the dollar at
1.80:1 and the strict environmental oversight, I don’t see this
happening.
They forecast corn productivity per hectare increasing. I agree with
this. They think corn production in Mato Grosso will increase from 8
million tons to 15 million tons.
Other highlights include livestock numbers increasing:
Cattle: 27
million head (today)to
34 million head (2020)
Chickens: 138
million to 327 million units processed per year
Hogs: 1.3
million head to 4.3 million head per year
Uberlândia, MG
02 Mar - Tues
Uberlândia
producers are talking 10-15% yield losses from expectations. Still
50 sacs but not 60. Too much heat in early February nipped yields in
some areas of Brazil on certain % of crop. Brazil soy crop size is
shrinking. Subscribers received special update March 2.
Last week I sent out a special update to subscribers regarding the
interior Brazilian soybean producer dilemma. The cost of freight and
lack of storage has put pressure on cash soybean prices making it
difficult to cash flow.
I have a soybean buying delegation coming from China starting March
13th.
I will be very busy with their tour.
Starting March 20th, I have a New Jersey hedge fund coming down to
get a better grasp of the Ag situation going forward.
I will send out flash updates if I hear or see any new info that is
pertinent.
I think it will be the end of March before I write a new newsletter.
I will be gaining much info in the coming weeks and will have a
better feel for 2011 crop after the upcoming tours.
For now, I expect Brazil's soybean crop to shrink a little.
Sources from Argentina tell me the crop is fantastic.
I am still hesitant to believe production will be much above 50 MMT
for ARG.
Brazil 64.5 MMT
ARG 50.0 MMT
Paraguay 6.5 MMT
VIDEO:
Campo Novo do Parecis
22 Feb - Monday
NW of Cuiabá
In the first 20 days of February the region has received 20 inches
of rain.
This double normal.
Producers are forced to take soybeans at 27-28% moisture. This
makes for steep discounts at the elevator.
Last year the productivity was 56 sacs. This year is 53 sacs or
about 47 bushel per acre.
The preoccupation for producers now is the
late planting of 2nd crop corn.
The corn could run out of water in May.
Brazilian farmers' dilemma
19 Feb - Friday
The US dollar has
been rallying recently. This has been putting pressure on commodity
prices. With the increase in interest rates in USA, this could
signal the beginning of the unwinding of the dollar carry trade.
This adds more pressure to commodities.
The interior Brazil soybean farmer is feeling the pain.
Freight rates have increased up to US$ 3.25 per bushel to move
grain from central Mato Grosso to port. This equates to as much as
42% of the local cash price for soybeans. This is not sustainable.
The cash price of soybeans at US$ 6.50 per bushel. The dollar is
trading at 1.82:1 as I write this. Two weeks ago the dollar was
1.89:1.
The Brazilian
soybean farmer is reluctant to sell his production when he knows
this is not enough to cover his costs.
To add insult to
injury, he is not getting his “bang for his buck” with the dollar
rally in USA.
The dollar
rally is pressuring commodity prices.
The dollar/real
relationship is not compensating for the drop in soy prices.
Lack of storage
and high freight costs are an added burden.
With the large
South American crop we can see why there is more price pressure
ahead. In 2007 the Brazil soy farmer made some money. He needed to
after the crisis of 2005/2006. In 2008 he made a little bit of
money. The currency crisis wiped-sawed a few guys but they made
their way through it with high prices at CBOT. I am afraid
2009/10 will be a breakeven year at best. They took on a lot of risk with no
reward.
I have heard of
some farmers keeping their own seed for 2011. The same guys say they
will cut fertilizer application by 50% if this scenario does not
change in coming months.
It is hard to
separate the drama from the truth in Brazil. I do my best but even
then I get hood winked from time to time. I have been researching
and studying Brazil for 10 years now. As a producer from the USA
that understands the Brazilian dilemma, I can tell you the next 6-8
months will be difficult.
No profit 2010
Credit is still
tight
Gloomy outlook
for 2011
Relatively high
cost of production
( historically)
Bear market for
commodities (at least for near term)
With all of this
said, why are land prices as high as they are? I have no
idea.
I do sense in the near future a lot of land for sale.
Cash will talk with
a big stick.
Soybean Update - Weather Update
13 Feb - Saturday
Brazil is starting a 5 day party now. Not much
business will take place. The world will be more preoccupied
with what Beyonce, who is in Rio, decides to wear the next few nights than
soybeans.
The 7 day forecast looks very
good for harvest progress for Mato Grosso, Mato Grosso do Sul and Paraná.
The 14 day forecast shows nice rains for Mato
Grosso. This will slow down harvest, but will be great for 2nd
crop corn and cotton.
The NE has been chronically
dry. Bahia will need to be watched. February is a crucial month
for them. If this dry pattern continues, I expect yield losses
in the NE. It will still be a nice crop just not a bumper crop.
Prices are still low. Selling has been
slow. However, given the lack of storage space for all these
beans, we must remember grain merchandisers still move the beans
through the system.
Soybeans are always moving. Just because a farmer
has not sold his share does not mean that soybeans are sitting
in the elevator in physical form. They will juggle and replace
the risk on CBOT. The physical soybeans keep moving.
Thus I expect the volume of soybeans to increase exponentially
the next two week at ports. There have been some logistical
delays with getting beans to port in a timely manner.
Crushers needed beans first
Bottle neck at railhead
Trucks lines at port
Delays loading ships at port
For those who would like ship line up and port bid premiums,
you can
subscribe to my VIP update list. This includes consulting time and
other premium flash updates. This service is based on a
quarterly retainer.
Western Paraná and Mato Grosso do
Sul
8 Feb - Sunday
Very very hot the last 7 to 10 days.
Mid maturing soybeans planted later have been hurt.
1st by wet weather in mid January and Asian rust pressure.
2nd by recent blast furnace heat at pod filling. With shallow rooted
plants, the soybeans gave up easily and aborted some seeds.
Some fields have been hurt seriously.
Again, lets keep this in perspective.
This is not a disaster.
This does however eliminate the "pie in the sky" mega crop estimates
we have been reading about.
The crop will be big. circa 64 mmt.
This talk of 66-68 MMT makes good headlines.
Conab will be out with a report this week.
The numbers will likely be BIG. This will be the high water mark for
the season.
I will send out a flash update to subscribers when the report comes
out.
Logistical Problems
5 Feb - Friday
Trucks are lined up
for 25 miles at
Alta
Araguaia, Mato Grosso. They are trying to dump soybeans at the
railhead that delivers production to the port of Santos.
In my opinion this just adds more pressure to the local soybean
prices which have dropped to about US$ 6.50 per bushel in interior
Mato Grosso.
Since the crop report soybeans have dropped US$ 1.50 per bushel in
Chicago.
Since the onset of full harvest prices have dropped US$ 2.50 per
bushel.
This wide basis is
a trifecta of events.
Harvest hedge
pressure
Lack of storage
in Mato Grosso because of 1 million + tons of carryover 2nd crop
corn from 2009 winter crop.
Logistical
bottleneck at Alta Araguaia causing a delay with trucks being
unable to get back into the interior to pull production away from
local elevators.
These three things
a creating a situation allowing grain buyers to steal this years
crop at low prices. Farmers that have storage will try and wait this
out.
They will try to
trade physical soybeans for 2011 crop inputs later in the year. The
trade might be better than trying to sell soybeans for cash in the
near future.
This is creating a
negative vibe for the balance of 2010.
Cash flows are
tight now and negative for 2011 with current dynamics.
Weather:
Temperatures
hitting 38C/100F in Central Brazil.
Very odd hot dry
streak for this time of year.
Readers' Comments:
First
let me assure you that I think your newsletter
and information is totally too cheap! I
garner more information that has more value from
you, and for that I am very appreciative.
Scott R. Illinois
Thank
you for your newsletter on sugar and the current state of
the farm crisis in Brazil.
Shaun B.
Minnesota
Kory. I
really enjoyed your news letter. The economics of
sugar production was interesting, as well as the
breakdown of soybean yields per state. Very
educational to see the production differences
throughout Brasil!! Other people only give one
production number for the entire country. Looking
forward to your next newsletter already!!! Have you
considered publishing more often? I wish you would
consider doing a weekly newsletter!! I would be the
first to sign up!!
Kelly D Iowa.
Please e-mail me
