|
27 February 12
Another soybean season is
winding down in Brazil. It has been a season with many ups and
downs. Crop size estimates continue to decrease. Some of the lower
numbers are overdone in my opinion. Emotion tends to get the best of
some both to the upside and downside.
2nd crop corn planting is advancing rapidly. Recent rains in
southern Brazil have allowed them to continue planting. The late
season dry spell nipped the potential of the later beans. Many sat
on their hands until rains arrived to continue planting corn. There
has been some concern with lack of seed corn in some locals. I am
sure popular varieties like Dekalb DKB 390 PRO are in short supply.
This is the most popular corn variety in Brazil at the moment. It
seems like at the end of the day the seed guys always find something
to sell to farmers and the farmers plant it.
I am optimistic on 2nd crop corn in Brazil. As long as the rains come
by and into April, a big 2nd crop corn can be expected. It will be a
record planted area and production. The 2nd crop, known as the
little crop, is now a misnomer. The 2nd crop corn will almost be as
large as the first crop. The area of 2nd crop corn will actually be
larger than first crop. The yields of 2nd crop corn tend to be a bit
lower than first crop potential. This year is distorted because of
drought in southern Brazil. Mato Grosso will be planting more than
2.2 million hectares of 2nd corn. 10 million ton crop+ is very
likely. Somehow this corn will need to find its way to southern
Brazil to fill in the production shortfalls there.
Sugarcane - Sugar - Ethanol
My attention is shifting away from soy and corn now. I will be
keeping my ear to the ground as to Brazil expansion potential for
2013. The hot button issues going forward will be sugarcane crop
size, expansion pace, and ag equipment sales volumes at upcoming
Ag-shows. Recent announcements by government to stimulate sugarcane
expansion pace and area are now where my focus lies in the coming
months. The sugarcane area is now 8.5 million hectares in Brazil.
The government wants to bump this up to 10 million hectares by 2015.
Will this happen? No. I do not think it will happen this quickly.
History
Back in the fall of 2005,
hurricane Katrina hit New Orleans. This event combined with
increasing oil prices, ag commodity prices, increased political
mandates for ethanol and liberal investment fund interest in
Brazilian mills (pre-crisis) created the perfect storm for a mania.
The hysteria of building mills and planting cane increased Brazil´s
planted area from 5.5 million hectares to 8 million hectares in the
following years. 2009 came and many went broke. Since then the sugar
industry has been consolidating, licking their wounds, and
reorganizing for the future.
We now have a sugarcane industry that has an aging stand of cane
that is said to average 3.8 years. Ideal maximum production age is
2.8 years. Sugarcane stands last about 6 years but I have heard of
some stands that are 10+ years old in Sao Paulo state.
With strong world sugar prices, the industry is focused on producing
sugar over ethanol. The ratio is at 60/40 sugar/ethanol at the sugar
mills for processing. The government is trying to stimulate the 40%
portion of the ratio. The irony is that with a fixed price of
gasoline throughout Brazil to keep a lid on inflation, the 40%
portion that is ethanol tends to lack profitability for the mills.
Thus, Brazil is trying to turbocharge the part of the sector with
the least bang for the buck. It is like pushing a snowball uphill on
a 60 degree day.
With the upcoming World Cup and Olympic events scheduled for the
coming years, Brazil wants to look as clean and self-sustainable on
the energy front as possible. They want to downplay the huge oil
finds offshore and play up the renewable fuel story. With a hot
economy and ever expanding fleet of flex fuel cars, this is easier
said than done.
 The new sugarcane areas are in Mato Grosso do Sul, Goias, Minas Gerais
and to a limited extent also in Tocantins. Generally speaking the
new areas are in the Cerrado and also coming from formerly pasture
areas. The Cerrado has a fixed dry period of four to five months.
This is great for expanded harvest window and mechanical harvesting.
However, this puts great stress on the recovering sugarcane plant
(vegetative growth) after it has been harvested. Hot and dry for too
long after harvest is a long term yield inhibitor.
I do not come from the sugar world. It is not my area of expertise.
But with the new focus on expansion, incentives, investment, and its
effects on the cattle and soy industries going forward, it very much
will have my
attention in the coming years.
The irony of all of this is the
nebulous issue of foreign investment. On March 23 the Brazil Congress
is supposed to vote on a bill that clarifies how foreigners can
legally participate in Brazil. We will see. We have been in a fog
since August 2010. Its time to clear the issue up so we know where
we all stand. If they can agree to a practical balance to foreign
investment, this can go along way to giving the sugarcane industry
the boost it so desperately needs at the moment. It needs a shot of OPM to get going again. “Other Peoples Money” AKA known as Wall
Street money. |
