Brazilian Farm Life 7-26-19

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Brazilian Farm Life 7-26-19

As farmers in Brazil wrap up their safrinha corn harvest. Many are asking themselves, how competitive is my corn globally? Both Brazil and Argentina are looking at record corn crops with piles on the ground. If Brazilian corn is competitive globally, Brazilian farmers can rejoice in strong prices and good yields. On the other hand, if Brazilian corn exports are weak, corn will flood the domestic market and not be worth much.

Brazilian corn is competitive in the Japanese and Mexican markets, as shown in the charts above. But this competitiveness only matters if ships can be loaded. Some Brazilian farmers are concerned about the Iran embargo and the ability to refuel ships. If ships aren’t refueled, and corn not moved, competitiveness does not much matter.

After finishing harvest, it is time for Brazilian farm families to shift gears. Professionally, this means focusing on input purchases and equipment preparation as they countdown the weeks until planting. On a personal level, it is a great opportunity to go on a fishing trip over an extended weekend or have a churrasco (Brazilian barbeque) with friends and family to celebrate finishing harvest. Since most kids are heading back to school after their short July break, this is not a good time to vacation.

December and January are the main vacationing months for Brazilians. The summer weather in the southern hemisphere, combined with Brazil’s vast coast, means many Brazilians head for the beach around New Year’s. For farm families in Brazil and the USA, a summer vacation typically happens when the crop is in the ground, spraying is on schedule and it’s time to regroup before harvest. The difference, is that in Brazil this happens in January instead of July.

Exchange rate is as common of small talk in Brazil as weather is in Midwest USA. For families, a weak dollar or strong real may mean a trip to Orlando to go to Disney instead of a beach vacation in Brazil. In running their businesses, many farmers think of their output in exported crops as a dollar based revenue stream, but they must cover costs in local Brazilian currency. The chart below shows the bid-ask for corn in the Paranagua port in Brazil. Currently, the bid ask is almost a dime apart. Any number of issues could quickly close this gap and impact competitiveness of Brazilian corn. For example, if the Brazilian real devalues, farmers may become more willing to sell as their price in Brazilian currency will be more attractive. If this gap closes because farmers are anxious sellers, Brazilian corn competitiveness may increase even more.

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