Highlights, Brazilian Corn, Markets & Rain Days Update 6/8/22

Wright Team
Jun 8, 2022
6 min read

Highlights

Several months ago, rebels attacked and put out of action the largest oil field in Libya. That oil field went back into production this past weekend. It was attacked again yesterday by rebel forces and crude oil went from 60 cents lower on the day to $1.20 higher before settling at $119.41, up 91 cents.

India plans to double its purchases of Russian crude oil. They buy it at a 30% discount because of sanctions on Russian crude, blend it 50/50 with non-Russian crude and sell it at full price on the open market as non-Russian crude oil. It is allowed in the fine print of the Russian sanctions decree issued jointly by the EU and the USA. This is just one of thousands of reasons no one wants to see this war end except the people whose lives and property are at risk and Putin gets all the blame publicly. Privately, businessmen and politicians around the world want Putin to never win and never lose, just keep this war going.

There is a meeting in Istanbul, Turkey to discuss the opening of a grain corridor to and from Ukraine. However, the huge grain port of Odessa is still off the table and the corridors are only for Mariupol and Berdyansk in the Russian occupied zone. The Ukrainian ag ministry says that it could take up to 6 months to remove all of the mines before shipping is possible. Turkey says it will help clear the mines, but nobody has started.

Ethanol production in the USA is running 8% higher this marketing year than a year ago.

Exports of distillers’ grains are up 7% in the first four months of 2022 over last year.

US biodiesel exports had a big increase to 70,214 mt in April. Why export? It is over $6 a gallon in the USA.

An area 30 miles west of Des Moines received 6 inches of rain in 2½ hours yesterday morning.

Kory Melby is a former Minnesota farmer who immigrated to Brazil about 21 years ago and became a market advisor on everything agriculture. From time to time he shares his thoughts and impressions. This is what he wrote On June 5th, 2022:

Hi, I will be in Mato Grosso next week for circa two weeks.

I will be posting photos and videos on either Twitter, Facebook or Instagram from time to time.

In Parana state, Cigarrinha do Milho (corn leaf hopper) is spreading a disease called Enfezamento. Basically, it destroys the plants ability to translocate nutrients and fill the cob. The corn plants are dying too early while still in milk stage. There seems to be only a few varieties that are resistant to the disease. There are many factors such as sanitary concerns with volunteer corn, pesticide applications, seed treatment, and climate variability. One variety that is resistant in Mato Grosso might be very susceptible in Parana, for example. Insurance companies are saying they will not pay for the losses. Reports are coming out saying up to 30-40% of Parana 2nd crop is lost due to this disease.

Meanwhile, early corn yields in Mato Grosso are very good. Some reports as high as 180 sacs or 170 bu per acre are being reported on small tracts. This shows the potential with good varieties, proper rainfall, and planting dates.

The later we get into harvest the lower the yields will be. IMEA will be out with a new corn crop size estimate for Mato Grosso Monday evening. I will send that out too subscribers.

There was record area of 2nd crop corn planted in Brazil this year. We have some spots that have not seen a drop of rain for 60 days. These spots will be hurt for yields. But, all in all, given the early start to the dry season, the 2nd crop corn will still be a new record for the country. At one time, we were thinking 90 MMT+. It will likely shake out in the 85 MMT area with a risk of 80 MMT if the Parana losses are confirmed. Last year's drought corn was only 60 MMT for 2nd crop.

Corn prices have weakened in recent weeks as harvest has started. B3 Sao Paulo corn is trading R$ 90 per sac and spot Sorriso, MT corn is R$ 68/sac.

I fear for lots of fires again by August. The Cerrado is very dry again and it will be a tinder box by August.

I find it interesting we have estimates for Brazil's 2023 soybean crop at 148 MMT. I would argue that Brazil will expand very little in the year ahead. Crop input prices are a disincentive to risk too much on new lands. However, the price of land in Brazil has exploded.

Recent 2022 soybean crop estimates are increasing a little bit from their low point. We seem to be in the 124/125 MMT area for a final tally. This past year, we started with a 143 MMT soybean crop potential, but I think the true potential was more like 148 to start with. We can say that Brazil lost 24/25 MMT of its original potential. Brazil has never seen a production hit of that magnitude in soybeans.

After two years of being beaten over the head by climate, I would think southern Brazil can count on a big crop in 2023. They are due a big one.

However, it has been about 7 years in a row of "Feast" of the Northeast quadrant of Brazil- aka MaPiToBa region. I would not be surprised that the "drought" returns to the Northeast in the coming years and other parts of Brazil will be above normal in productivity again. MaPiToBa produces 17 MMT of soybeans these days or equal to a Parana or RGDS. I remember when the region only produced 5 or 6 MMT cumulative. The region might have one or two years of average and then drop into a "Famine" phase of 2 or 3 years. This seems to be the ebb and flow of the Northeast.

As we get into August to October timeframe, it will not only be the climate that will be hot, but also the politics in Brazil. In October, Brazil has a Presidential election. I am a gringo and I do not vote. It is not appropriate for me to comment one way or another on the candidates.

Given my agro interests in Brazil, I and my friends are heavily biased towards the current administration. However, as I talk with locals not in "Ag", I am surprised at the high percentage of Brasileiros that want to go back to the epoch of 10-15 years ago. I do not pretend to understand this. I am only commenting on what I hear on the street talking with the common folk and lower middle class. I think those with investments in Brazil need a strategic plan to deal with possible changes ahead for 2023 and beyond.

In October, as the rainy season starts again, I see the potential for many political Gremlins to get wet in Brazil. High food prices, high fuel prices, inflation, and high interest rates will all be hot button issues this fall. The world needs a "recession" to tamp things down, but I have no idea on what a soft landing entails. The wealthy can handle an asset set back. However, the poor will need assistance during this correction and that only leads to more demand. It is a perfect Catch 22 ahead. Damned if you do and damned if you don't. The world sure did not need a war at this time. It just exacerbated the problems.

There is not a cloud in the sky these days in the Brasilian Cerrado. The morning sun rises and evening sun sets are breath taking. It is the calm before the storm.

Drop me a note if any questions.

agturbobrazil@yahoo.com

I will be doing a couple Brazil/Mato Grosso tours in January/Feb 2023. At least I think so. There is demand again for this, but Covid tests, fuel prices, and logistics could put a damper on things. I do not know today. Any trip to Brazil will be very expensive and subject to travel hiccups along the way. One will need patience or do not come. period........

Thank you, Kory

Market Data

This morning:

Crude oil is at $120.01, up $0.60

The dollar index is at 102.55, up 0.23

July palm oil is at 6,667 MYR, down 61. The contract high was made April, 29th at 7,229 MYR. Palm oil owns 36% and soybean oil owns 28% world market share.

December cotton is at $120.16, up $0.28 per cwt. The contract high was made May, 17th at $133.79 per cwt. Cotton competes with soybeans and corn for acres.

July natural gas is at $9.326, up 0.033. The contract high was made yesterday at $9.544. Natural gas is the primary cost to manufacture nitrogen fertilizer.

July ULSD is at $4.3161 per gallon, down 0.0045. The contract high was made June, 6th at $4.4084. ULSD stands for Ultra Low Sulfur Diesel.

Rain Days Update

The Western Corn Belt has 8 less rain days in the 10 day forecast than yesterday and the Eastern Corn Belt has 1 more rain daysthan yesterday.

The 6 to 10 day forecast updated every day at: https://www.cpc.ncep.noaa.gov/products/predictions/610day/