Possible Price Increase For Soybeans And Corn Due To Weather Factors

I returned to the US from Uruguay to find very little rain fell in South America as had been forecast for the Christmas weekend. This means that soybean and corn prices are going to be looking for a possible price increase due to weather related risk factors. While there are no yellow lights going off on the global grains dashboard, what I saw in Uruguay should alert everyone to possible yield damage if we don’t get some significant rain soon.

The 90 million ton soybean harvest in Brazil is going to be underway shortly and this will also play a role in any pricing plans related to weather issues. China will also be looking for (better) pricing from Brazil’s record harvest even though China has been front loading bean purchases from the US. One thing to consider about the Brazilian harvest will be how it’s logistical system holds up to the increased flow of beans going to its ports.

The 2014 New Year is going to be the start of an interesting period for Brazil. If Brazil has issues with getting its bean harvest to port (and exported) what will happen when the World Cup starts this summer with the need to get millions of football fans to different venues? The other interesting news from Brazil is that it has missed it GDP growth estimates for Q3 by 0.5% and will most likely end 2013 with GDP growth of only 2.3% instead of 3%.

What has happened to Brazil’s economy? Too much taxing, spending and inflation (needless to say corruption) that is what has happened and with that political economic policy you get sub-par growth that even the US can beat. Where would you put your money? But you can continue to expect more of the same for Brazil. And in Argentina, the Marxist government is trying all sorts of ideas to get farmers to sell their bean crop to exporters so that the 35% export tax can be charged and then used to start plugging holes in Argentina’s budget deficit.

It appears that farmers are waiting for a (massive) devaluation to the official FX rate before selling their beans. Both Argentina and Uruguay need real rain so that they can continue planting late beans on crop land that was destined for corn that did not get planted. Speaking of corn, what was planted in Argentina, Brazil, Paraguay and Uruguay has been hurt by the high temperatures and lack of rain in the Southern cone region that will keep corn pricing on a wait and see attitude. But even this weather related event will not help corn prices because there is well, just too much corn in the market.

On the wheat market, Brazil continues to wait for Argentine exporters to ship wheat that was contracted for the first week of January 2014 but that will not happen. You can’t wait on Argentina’s government to issue the export permits to fill these contracts. It’s amazing and how long will Argentina’s agribusiness sector continue to depend on a Marxist government that has no intention of allowing crop exports to thrive. This will allow Brazil to suspend the common external tariff (about 10%) for Mercosur on wheat and allow Brazil to import US wheat with no tariff. This will hurt wheat prices in Argentina but may help Uruguay’s wheat exports to Brazil. Argentina is expecting a strong wheat harvest with about 10 million tons in 2014. But, total wheat exports will only reach about 2 million tons. Something is going on with wheat exports in Argentina but it is to be expected now that you can’t buy bread in Buenos Aires due to inflation.

Uruguay is predicting a 1.8 million ton wheat harvest with 1.48 million tons for export. Now what do you think the land prices are in Uruguay vs. Argentina? Also an interesting note is that wheat yields were much higher in Uruguay this year at 3.5 tons per hectare. Even with higher production costs hitting Uruguay due to higher input costs due to poor macroeconomic management by the socialist government, farmers were able to make gains on productivity. This improvement in agribusiness was not discussed when Uruguay was given the Country of the Year award by The Economist.

Well, we come to the end of 2013 with agribusiness again being the only real growth driver for the countries in the Southern hemisphere. And I expect that trend to only grow stronger in 2014. Where else can Argentina and Brazil look for GDP growth when their socialist governments’ economic policies are to tax and spend so that inflation continues to grow and their citizens continue to endure less economic freedoms? We will have elections in Brazil and Uruguay in 2014. The prediction today is that the sitting president in Brazil will be elected and a former president in Uruguay will win as well. Both are socialists that head (leftist, socialist and Communist/Marxist) coalition parties that are running on more government intervention in their respective economies instead of economic and tax reform policies.

But agribusiness has survived and even flourished in Uruguay but I doubt that will be the case in Brazil, where it’s getting more expensive to produce. But, what else are you going to do with the Pampas and Mato Grosso? With China slowing, the US Federal Reserve tapering its QE Infinity program and exceptional yields in bean harvest in Argentina and Brazil, it’s time now to think what will happen to crop prices.