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Brazilian farmers shift focus to corn

Up close look at crop in Brazil points to opportunity for a soybean rally, but the market seems unconcerned.

Matthew Kruse

February 2, 2024

5 Min Read
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Our 2024 Brazil Farmland Tour showed us the reality behind the reports of weather-weary crops.

Yield damage in Mato Grosso from early-season drought was apparent almost immediately. Many fields seemed half as tall as last year. We know height is not a great indicator of yield by any means, but this was different. Many fields looked “baked” and did not look healthy. There has been a lot of speculation that the crop would not be affected that much and would have time to bounce back. While level of impact varies from region to region, we expect damage in the state of Mato Grosso alone at 10 MMT.

Participants enjoyed all aspects of the tour, but the centerpiece was Mato Grosso, despite the diminished state of the crops. There are not many places like it in the world.

We choose this time of the year as it is when you can see the simultaneous soybean harvest followed by “safrinha,” or second crop, corn planting. Farmers in Mato Grosso are planting earlier to try to improve the safrinha corn opportunity. This worked perfectly last year with farmers setting record yields in both beans and corn.   

This year yields are all over the place. Some fields are great. Irrigated soybeans are doing 80 bpa! At the same time some fields were so poor they were abandoned. We heard of some fields that yielded 10 bpa – and the farmers probably wish they had abandoned those. These are not small operations. They are 15,000- to 500,000-acre operations that see overall yield cuts of 25% to 30% compared to last year. Last year many growers hit 60 bpa. Now they are not sure they will average 40 bpa. While we saw some good fields that could yield 55 or 60 bpa, 10 bpa yields quickly bring down the average.

Brazil rushes to soybean harvest

In some cases, it seemed farmers were rushing the harvest. Moisture levels were at 17% with some green stem. It appeared that with the lack of rain, the crop was not developing normally. They were in a hurry trying to get the corn planted and were reluctant to give more time to a failing soybean crop. This created quality issues that they dealt with later such as mixing the good with the bad at their on-farm storage. Of course, not everyone has on farm storage so they will take a discount at the elevator.

At the last farm we visited, we were received by the third generation of family operators. A 24-year-old man gave us a presentation on how his grandfather, who listened from the back of the room, built a farming enterprise of 50,000 tillable acres (all owned). Apparently to get to 50,000 acres you start with 80. In 1980 he sold 82 acres in the Southern-most state of Rio Grande do Sul and bought 1,000 acres in Goiás. They literally loaded up everything they had on a single axle truck including live chickens and sacks of potatoes and hauled it all there on dirt roads. Seven years later he sold that and moved to central Mato Grosso where over time, he put together 50,000 acres. With irrigation, farmers in Mato Grosso get a third crop. With a second crop of corn and a third crop of irrigated edible beans, they are planting 109,000 acres each year: 50,000 acres of soybeans, followed by 50,000 acres of corn, then by 9,000 acres of edible beans on center pivot.

The main highway, BR-163, which cuts through the heart of Mato Grosso, is becoming an industrial highway with more and more grain storage and ethanol plants lining up on either side.

Producing ethanol with American tech

We visited the first pure corn ethanol plant that uses American technology. They claim to have a cheaper cost of production than comparable U.S. plants because corn, their primary cost, is the cheapest in the world.

Their only bottleneck is the fuel used to operate the plant. There is no natural gas pipeline. And so they burn renewable eucalyptus and bamboo in the form of wood chips. The eucalyptus takes 6 years to grow, and the bamboo grows in half that time. This gives them a much lower carbon score than U.S. plants. They even get a lower carbon score rating because the corn they are using is from a second “rotational” crop as opposed to a single primary crop of corn.

Corn ethanol is growing in Brazil, but it may not grow as fast as it did in the United States as plants need a lot of biomass to operate. If you cannot source enough biomass to fuel the plant, you should not build the plant.


Expect drop in soybean crop

Back to soybean yields. Yield damage was done to surrounding states such as Goiás and Mato Grosso do Sul as well. Parana downgraded their own soybean crop by 2 MMT below CONAB.

We see Brazil’s soybean crop at 145 MMT. Not long ago I would have said that this would have given plenty for bullish traders to help rally soybean prices. But it seems fundamental news is not important to the market at the moment. Managed money has grabbed ahold of this one and they are not done running it lower.

Matthew Kruse is President of Commstock Investments. Subscribe to their report at www.commstock.com.

Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

About the Author(s)

Matthew Kruse

President, Commstock Investments

Matthew grew up farming near Royal, Iowa. In 2002 he co-founded an investment company that purchased and operated Brazilian frontier farmland.  As Chief Operating Officer he lived and worked in Brazil for nearly 14 years, overseeing production of 22,000 acres of soybeans, corn and cotton. He continues to participate in Brazilian agriculture by providing asset management services for institutional investors.  Today Matthew farms in Iowa and Brazil, and holds Series 3, 30, and 31 licenses. He received bachelor’s degrees from Iowa State University in Political Science and Communications, then earned his Executive MBA from Walden University.

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