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Getting a Firsthand Look at Brazil’s Soybean Season
The thing that matters to agriculture, the trade talks with China, we have virtually no news about recently.
We all hope that no news is good news, and a lot is being accomplished in the backdoor negotiations. After all, only 64 days remain in the self-imposed 90-day deadline to negotiate.
But the soybean market seems to be suggesting differently, dropping below the gap made December 1 with the announcement of the truce between Presidents Trump and Xi. We’ve really dropped every day the past four days, with over 20¢ losses as we pushed below the gap.
So, no news is not good news when it comes to trade negotiations, apparently.
South America, the continent with significant crops growing this time of year, has weather that is decent yet, with the next seven days showing normal to above-normal precip forecast, and above-normal temps in Argentina, with mostly normal temps in Brazil. The eight- to 14-day forecast is for normal precip and normal temps, for the most part.
I happen to be writing this column from South America this week. However, it’s a different type of weather pattern in Brazil than the U.S. since showers don’t really roll from northwest to southeast in the entire country.
As a tropical climate, rainfall springs up almost every afternoon in the rainy season (their summer and our winter), with showers brewing up in about one to two hours, and raining themselves out in about the same period of time. So, an average day holds about a 50% chance of rain this time of year, and the rain that falls is typically from .10 to 1 inch, occasionally 1 to 2 inches, but rarely more. So, in an environment that gets about 40 to 60 inches of rain in a six-month period, that’s a lot of little rain showers. Essentially, there is a chance of rain every day. The only unknowns are how much, and at what time it might rain today.
This is the rainiest period for South America; January rainfall is usually the peak. That typically equates to 1.5 to 2 inches (sometimes 2 to 3 inches) of rain per week in the biggest soybean growing region. These tropical areas are churning up thunderstorms nearly every afternoon or every other afternoon, keeping the sandy soils wet and capable of producing good crops.
South America is almost made specifically for soybean production by God, with very warm and consistent weather almost all year (55°F. to 70°F. in winter, 75°F. to 90°F. in summer) with an average annual rainfall of 55 to 65 inches in most soybean production areas. That is more like the Delta or far southern Corn Belt than any other region of the U.S. (with palm trees growing wild all over Brazil soybean areas), and certainly very different from the northern half of the Corn Belt.
The warmth and high rainfall provide a greenhouse-type environment for soybeans (a warm-season crop). It’s also a bad environment for cool-season crops like wheat, barley, potatoes, and even somewhat poor for corn (which prefers cool nights). That is, unless they are second crops grown into winter (thus the safrina double-crop corn). Winter in northern Brazil is a little bit of a misnomer, as the average temperature in winter is more like 65F. to 70F. rather than 70F. to 76F. in summer.
It just rains a whole lot less in winter, so without irrigation it becomes a tricky timing issue to grow a second crop.
There is a lot of optimism in Brazil right now, with a new political team taking over January 1 with conservative Jair Bolsonaro. The rural areas (farmers) elected Bolsonaro overwhelmingly, so they are excited to finally have a say in some of the things that government does.
Most prevalent on their minds is agricultural infrastructure, as the ag world has expanded hugely in production the past few decades, with almost no investment from the socialist governments to support it.
Axle-breaking roads still exist for farmers on their way to marketing their grain. Farmers are optimistic that roads and shipping infrastructure will improve.
While Brazil the past 20 years has been considered a socialist country (before Bolsonaro’s election), personal taxes were not an overwhelming problem for Brazil like they are in the U.S. (30% to 40% taxes or more) or Europe (50% to 70% taxes). In fact, land taxes in Brazil are almost nonexistent, with less than $1 in almost all areas and $.25 an acre in others. Income taxes are also much lower, with the majority of taxes on consumption/imports.
Historically, tax collections in Brazil were import taxes, and still today a significant amount of tax revenue is collected via import taxes. The main reason seems to be the ease of collecting consumption/import taxes, with companies making the sale are responsible to collect the tax. Brazil had a weak collection system, and therefore a lot of deficiencies in payment of personal taxes. So with consumption taxes, the primary tax system in Brazil is regressive, with low-income individuals paying a much higher percentage of their income in taxes.
The most prevalent example of socialist influence in Brazil are environmental rules, which restrict land development (e.g., 20% land set aside and 80% developed; 80% setaside and 20% developed near the Amazon rainforests). These rules are strong and are strictly enforced, mostly due to sensitivity to the world’s complaints about the destruction of Amazon rain forests.
Cargill was a famous example of that when they pushed down one tree along with other land clearing to build a plant. The resulting bad press made world news, cost Cargill millions eventually, and has become a public relations lesson worldwide.
These socialist influences are likely to be changed by Bolsonaro’s government, but how they are changed we don’t know yet. Some note that Bolsonaro was a captain in the Army, and his vice president-elect a general. The military took over the government in 1964 when a communist president was elected (but kicked out by the military) and ruled for nearly 20 years. That 20 years has been said to be the most prosperous period in Brazil’s history, with many great accomplishments. Many note the irony of electing the military again to lead them starting in 2019.
Here’s wishing you a Happy New Year!!!
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Ray Grabanski can be reached at raygrabanski@progressiveag.com.
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Ray Grabanski is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.
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