Kory Melby - Brazilian Ag and Soybean Blog

Brazilian Ag and Soybean Blog

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NEWSLETTER:

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COMMENTS AND OBSERVATIONS

A series of articles giving my comments and observations about agriculture in Brazil going back to 2007

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Testimonials

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

Soybean Update: Western Parana 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.

Soybean Update
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.

Soybean Update
2 Feb - Tues

Cash soybeans central Mato Grosso US$ 6.50 per bushel

Cash corn central Mato Grosso US$ 1.50 per bushel.

With the dollar/real exchange at 1.80:1, these prices are painful for producers.

The crop yields are good.

The rain patterns have aided the development of Asian rust and grey leaf spot.

Argentina has also received some good rains.

I think some of the TOP yields have been nipped in some prime growing regions. Instead of 60 bushel soybeans they might end up being 52 bushels. This is still a very nice crop.

I read that only 40% of Mato Grosso crop is sold. It will be difficult to make any money by selling soybeans at above mentioned prices.

2nd crop corn will be planted in Mato Grosso. They will do so only to market it to the government at the minimum price.

In Paraná, this is much more difficult. They have the climate risk of early frost and a higher local price. The minimum price is not enough to break even on high valued land.

I am watching events closely. I feel we are 6 months away from the next "farm crisis" in Brazil. Maybe in USA too.

As we look ahead to 2011. Cashflows will not work with exchange rate at 1.80 and Chicago soybeans at 8 or 9 dollars. With expensive freight and wide basis - it just don't work.

Fertilizer/Exchange/Prices/
Something will have to give in the next 6 months or there will be a drastic reduction in soybean area planted in 2011.

What could take its place?
Rice is a possibility at least on a few hundred thousand hectares.

Side note:
Credible sources tell me the soybean crop looks the best ever in new development states such as: Tocantins, Bahia, Maranhão, and Piauí

Weather Update:

28 Jan - Thu

More rains in the forecast for next 7 days.

This will keep harvest at a slow pace.

Asian rust will be a concern in medium maturing varieties with chronic wetness. This might nip the "high end" yields we hear about.

7-14 days out looks dry in Parana and Mato Grosso.
A massive amount of soybeans will be ready by this time.

In Brazil, the rain patterns are "normal" for this time of year.

Argentina remains a bit dry. We will need to watch the rainfall amounts in February. If we see dry spells the crop size in Argentina will be capped at the 50 MMT area. The 53 MMT potential we read about will not be possible.

Rust and crop size estimates
25 jan - Mon

I have been reading the nightly market news feeds for Monday.

I now read Brazil soybean crop size estimates of 68 MMT +

This is silly talk.

The crop is 64 MMT give or take a little.

Rust has mushroomed the past week in Parana state. Medium maturing soybeans are being hurt.

Lets keep this in perspective. This is not a disaster.

The rust is taking the top end yield off in some areas. Lots of rain.

The crop is big. It's just not quite as big as some of the experts are saying.

February newsletter went out Monday. It has the latest info I have.

Weather Update:

It looks like some good rains for central Mato Grosso the next 2 weeks.

These are normal volumes of rain.

Keep in mind it is normal to get 2 inches during the night and be harvesting by 10 am the next day.

Until I hear or see talk of an extended 2 week rain event. Harvest progress will continue unabated.

Soybean prices have dropped considerably. Western Parana prices are now R$35 a sac or US$ 9.35 a bushel.

Interior Mato Grosso prices are R$28 reais per sac US$ 7.50 per bushel.

These are basically cost of production prices.

Fazenda Mano Julio, Lucas do Rio Verde, Mato Grosso
19 Jan - Tues

Harvesting Soybeans

Fazenda Mano Julio, Lucas do Rio Verde, Mato Grosso
19 Jan - Tues

Planting Cotton

Lucas do Rio Verde
17 Jan - Sun

The comments I received from farm visits today is that yields are coming in above expectations.

50-52 sacs / 45-46 bushel per acre.

Beans are dry and weather is perfect.

Local beans prices are dropping. R$30 per sac or about US$ 7.90 per bushel.

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.