Brazilian Black Swan Slags the Soybean Market

Employees are seen during a technical visit of Brazil’s Agriculture Minister Blairo Maggi at the Brazilian meatpacker JBS SA in the city of Lapa, Parana state, Brazil, March 21, 2017. REUTERS/Ueslei Marcelino

I spent the day trying to salvage one of my largest cornfields.  It was planted in late April before a pretty horrific cold rain event.  Needless to say, when heavy rain inundates a freshly planted crop immediately after planting sometimes it has real difficulty to emerge.  Often, on my heavier fields with soybeans I simply replant.  However, this particular field was lighter soil and the Rotary Hoe hasn’t been at that location since before herbicides were used.  It has the effect of breaking the soil crust.  I hope the corn emerges it always makes things easier.

That particular problem on my farm I could anticipate happening based on that 2 inch April rain immediately after planting.  Interestingly enough, as my tractor started to roll over that field I got news of a Brazilian Black Swan emerging in the southern hemisphere.  Apparently, the president of Brazil Michel Temer may be caught in a bribery scandal.

The allegations against the Brazilian president are apparently on an audiotape handed over as part of a legal procedure with the Batista brother that had the meatpacking giant JBS.  You might remember me writing a column about the Brazilian meatpacking scandal earlier this year.  Well, my Brazilian twitter friends are telling me they’re going to wait to hear the tape before they indict President Temer.  However, commodity and financial markets don’t wait for such things.  The Brazilian Real was down almost 8% on the news.

That made Brazilian soybeans and corn much cheaper on world markets.  It didn’t take soybean prices long to fall, down $.31 on the day with July soybeans coming in at $9.44 a bushel.  Of course, nobody was talking about this the day before, it completely came out of nowhere, at least for the trading algorithms in Chicago.  Soybean meal actually reached a new seven-month low on the news.  July soybeans are very close to their April low of $9.41 a bushel.

I suppose we should wait to hear what is on the tape.  If the tape comes out and we find out that the President of Brazil is innocent, maybe the market goes back up.  However, if we find out that he is anything but innocent, you might think the market might take another swing down based on the value of the Brazilian currency.  Needless to say, I didn’t really think of this as a black swan.  I’ve always considered black swans events to be much bigger in nature, much more than $.30 a bushel.  So maybe, we should call this a Brazilian black duckling.

Interestingly enough, the Brazilian bribe scandal did provide at least some fresh news to grain markets.  We have been in such a sideways range for so long in both corn and soybeans.  Wheat continues to be the cockroach of grains always seemingly reaching for contract lows.  It would seem this spring has not been the easiest for North American crop producers.  However, the market has completely shrugged off any possible production problems here.  Rain continues to mean grain in the market’s eyes.

In Ontario planting progress has been slow up until this week.  For instance, I finished planting corn yesterday.  There is a three-week interval between my first corn planting and my last, shaped by that late April rainstorm.  However, the rest of Ontario has been slow to get planted with this past week seeing some of the best planting progress.  However, I do expect both the Ontario and Québec corn crop to be down from the Statistics Canada estimate of 2.2 million acres. (Ontario)  With the late start and cold and wet conditions predicted for next week, time it’s becoming a big premium for Canadian corn acres.

At the same time corn planting in the southern and central Midwest is proving difficult because of wet weather.  It is interesting how the market seemingly doesn’t care.  It’s almost like those computer algorithms have no empathy for a guy like me running a Rotary Hoe all day trying to get my corn to grow.  The problem is for me, the market is never wrong.  Those computer algorithms trading the corn have their triggers and right now there is nothing pressing.

Of course, the Brazil event that sent grain markets down today can act in reverse.  There are a few problems in Washington DC these days.  It might make that Brazil thing seem so far away if it erupts.  Next week President Trump is going on his first foreign trip.  That should prove interesting.  Do I think there is a black swan event in that?  I simply don’t know, but what I do know is that it will likely take a black swan event to get grain prices significantly higher soon.  Those computer algorithms in Chicago don’t get excited too easily.