It has been a great year from start to finish in Mato Grosso. There were a few negative harvest stories about grain trucks stuck in the mud and soybeans rotting in the pods. These made for a couple of good headlines that jolted the market, but ultimately they meant nothing. Bulls will look to point at anything at this point to try and push the market higher. Grain trucks that are stuck in a traffic jam, while foreign to us, are just a way of life in Brazil. Hiring trucks is easy. It is common that when a truck leaves the farm to take a load to town, you might not see it until the next day. Worst-case scenario, you just hire another truck. It may cost a little more but the harvest won’t stop.
As the harvest in Mato Grosso comes to close, they are now focusing on how best to market the unsold crop. Soybean sales have been slow to materialize. The region of Sorriso has been seeing prices fluctuate around 51 reals per sack. This is equivalent to U$7.33 per bushel. This is 25% less than what they were seeing 6 months ago. The recent memory of higher prices will force farmers to store as much as they can and only sell the minimum amounts necessary to get by. With such strong seasonality’s, storage can pay for itself very quickly. While Brazilian farmers are forever optimistic, in increasing number are concerned by the bearish news they are seeing in the world. Soybean expansion in the US has them worried. Lackluster corn prices are not offering an attractive alternative. Some farmers can switch to cotton, but that is not for everyone. Cotton can cost three times as much to plant and requires increased capital expenditures.
Brazilian farmers also have to worry about the exchange rate since soybeans prices are all based in dollars. They should be watching the Fed announcements regarding interest rates along with the rest of the world. Increasing interest rate should strengthen the dollar, which will weaken other currencies, including the Brazilian Real. weaker Real means lower prices at the farm. If dollar was worth 3.5 reals six months ago, it is worth 3.15 reals today. Current soybean prices are profitable, but unprofitable prices are now within sight. An aggressive interest rate hike in the US may be the trigger that sends prices tumbling.
The major corruption scandal involving former President Luland major oil company Petrobras was just the beginning. Police investigators had warned us several months ago that what had become public was only 30% of the puzzle. They were not exaggerating. Criminal investigations at the federal level have now trickled down throughout the entire country at both state and local levels. It has emboldened prosecutors at all levels of government as public opinion has strongly shifted towards prosecuting guilty parties. The consensus is if we can go after the billion dollar scandals at the federal level, we should be able to go after the million dollar scandals at the state levels too.
Ribeirao Preto, large city in upstate Sao Paulo, has been mired in U$65 million dollar corruption scandal involving local politicians. Ribeirao Preto is known as being the epicenter of the sugarcane industry. Sugarcane surrounds the city on all sides for miles. It also hosts the largest Farm Show each year, where manufacturers show off new equipment and technology, similar to our Farm Progress Show.
Revelations of developing corruption scandals are becoming all too familiar in the news. There is direct link between levels of corruption and cities or states that are having trouble balancing their respective budgets. Corruption in Brazil was always there. The boom in commodity prices ten years ago exacerbated the problem. As revenues increased, this created much greater pot of gold politicians could siphon from. They got greedy. As the cyclical tide of commodity prices is being drawn back to the sea, we are now able to see who is not wearing bathing suit. Brazilian judges handed out over 500 sentences last year to city mayors across the country. This compares to only 25 such convictions in 2000.
I have noticed that one interesting feature of those who succumbed to corruption is that they don’t share any particular background. In fact, those that grew up poor, lamenting government abuse of power, seemed to be just as prone to corruption. Lula, the former president, was the champion of the working man, being famous for at one time working as shoe shiner. The mayor of Riberao Preto, was former cotton picker and maid. They both ran on campaigns highlighting their humble beginnings, showing disdain for those who abuse power. They seemed to be natural selection to fight political greed and abuse. Which is why this is so disappointing to Brazilians.
The city where I lived for ten years is just one of many. Yet since it was incorporated in 2001, it has had only two mayors, each one investigated for corruption. The first mayor left office with the highest number of lawsuits in the country. The second mayor is reportedly even worse, having had his assets frozen. They recently held new mayoral election. They re-elected the first mayor again. The consensus was that while he wasn’t perfect, he stole less than the last guy.
Those that are optimistic see this as historic event. Brazil is cleaning house. The powerful and politically connected are going to jail with the rest of them. It wasn’t that long ago where this was unthinkable. Mayoral positions remain vacated for weeks at time as those in the line of succession are also implicated in scandal. This has paralyzing effect on city progress as nothing gets done. Corruption is far to ingrained in Brazilian society to be eliminated overnight. Eradication may take generations.