It’s Snowing In Brazil, And the Elephant in the Room

It is snowing in Brazil. What you say? Well, I’m over the top there for sure, but in a way, it did. American soybeans were imported into Brazil last week. It was only one cargo load according to Bloomberg, but that is akin to Canada importing snow in January. We all know Brazil sold all the soybeans plus the kitchen sink last season, driving up Brazilian soybean prices. With Brazil dropping an import tariff, their domestic shortage got some relief.

Arbitrage is a funny thing, whether its piles of rocks in South Dakota shipped to Home Depot (Attention DTN’s Elaine Kub) or American beans being sent to the world’s largest soybean producer, price can make that work. Despite soybean futures prices going down recently, this Brazilian snowstorm isn’t over. Expect more strangeness in agricultural trade bedfellows as we move ahead.

Needless to say, as October comes to an end and November starts up, let’s deal with the elephant in the room. With the November 3rd election about to take place, our agricultural marketplace could look much different next week. I don’t get a vote, so I don’t know what is going to happen. However, there is a chance everything will change next week. Those geopolitical concerns affect grain markets. We’ll deal with that next week. So far, no big surprises on the tweet front to affect markets. However, there are 5 days to go.

Back in Brazil, the spigot of demand for American soybeans is set to continue as crushers are looking at a way to get beans. Interestingly enough, the Bloomberg story talked about the issue of GMO varieties which could be in future shipments as at least 9 GM soybean varieties could be present, which are not approved for Brazil. I’m pretty sure that problem will be like a gnat on a windshield. However, from an agricultural economics perspective, the US Brazil soybean trade is incredibly interesting.

Could Canadian soybeans reach Brazil too? Well, I suppose all things are possible especially when it comes to having the cheapest price on the high seas. However, our volume isn’t what the Brazilians would want. Ditto for China buying Canadian soybeans. Even if we shipped them every Canadian soybean, we might keep them busy for 10 days. Needless to say, Canadian exporters have been adept in the past when China embargoed American beans. They also get a lot of Ontario and Quebec corn into Europe when price dictates. Needless to say, it’s always part of the plan ever since the CETA agreement was signed.

You might in in late summer I was asking about something amiss about China? Its old news now, as we’ve seen such a runup in crop prices. Clearly, from my perspective, there was. Remember ASF? I don’t remember it either, (in jest), but it was always a negative factor in China buying more agricultural commodities. However, China has been buying corn and according to Bloomberg, is set to double the amount of American corn they are set to buy in 2020/21. (17 million tons) We might not be back to pre-China US trade war exports in soybeans to China, but in corn, it seems to be a wide-open avenue.

Back in Ontario and Quebec, wet weather has a lot of us at a standstill on soybean harvest. It has also slowed corn harvest. In my own case, I’ve have been out of the harvest field since October 18th and hope to finish off soybeans as soon as we get sun for two days, a tall order over the last two weeks. Needless to say, it can be argued this has been a very good crop season for Ontario and Quebec farmers. The crop is quite good, and prices are too. In a CBC radio interview last week, I told that story along with the continual COVID19 segue.

Unfortunately, as I talked about last week, COVID 19 is still spoiling the party. Canadian finance minister Chrystia Freeland said the other day the federal government will continue with its recovery plan and deal with the deficit built up by Covid 19. This came after the Bank of Canada announced no interest rate increase, and in fact, Canadians could expect low interest rates for the next several years. That means there should be an incredible launching pad for Canadian farms to reinvest in themselves.

We have snow in Brazil, lower interest rates, dreary soybean weather for me, but also the elephant in the room. Make no mistake, November 3rd represents a true inflection point for Canadian agriculture. It will be the story for the next several years.