VIEW FROM THE INDUSTRY: EL NIŇO, SOYBEAN PRICES, ALGO TRADING, PROSPECTS IN THE MATOPIBA REGION AND MORE

Interview with Prof. Rodrigo Alexandre Gomes de Oliveira, Director - Head of Strategy, Agro Financiera

Published August 2018

Macro 

What do you see as the two most important issues globally currently and why? How will these impact the market?

All of my work is related to speculative strategies with soybean futures and price risk management, therefore this is my area of expertise. So I will focus my thoughts on such matters. I would say that on either speculating or managing price risk in the short term only two things would bring good opportunities: 1) The end of the trade war between the US and China, 2) A worsening of the United States climate. If we move to a longer term, this is an El Niño year so it could do some harm to the production of soybean on the northern production states in Brazil (the MATOPIBA region). But at the same time, El Niño is supposed to bring very good weather to the south of Brazil and Argentina, therefore, I truly believe that we are on the verge of bad soybean prices for the next year or so.   

What do you think has been the biggest change in the grain and oilseed industry over the last 24-36 months?

The election of President Trump for sure. Before he got elected, only two figures would represent price movements. You were either bearish or bullish….. Nowadays sometimes we are “trumpish” or a tweet away from market tsunamis. 

Do you think the role of the grain or oilseed trader has changed in the last 5 years? If so in what way?

If we are discussing the person responsible to buy and sell the actual product I could not say much. If we are discussing the trader as a person responsible to trade futures and options over futures contracts, there is a completely new type of trader. The Algo traders. A brand new breed of trader using robots and extremely complex calculation to either predict market movements or to analyze investors’ reaction to either economic fundamentalist news or technical sweet spots.   

Regional

What impact do you think the geopolitics of twitter / Trump-China relations have had a on the Brazilian and Argentina soybean market?

It has made Brazil a much more attractive market. As the US pretty much closed its doors to China, Brazil became the only alternative. As Argentina has had a huge drought problem this year, Brazil was the only place to go to if you needed beans.  

What do you think will be the next hotspot region and why?

Talking about arable land opportunities, the MATOPIBA region is for sure the last world agriculture frontier with today’s grains and fiber production technology. In the future, the Sub Saharan region may be a good place to invest but growing technology is not so developed in order to bring huge productions. Also political and institutional safety is another thing to have in mind if you have Africa in your investment portfolio. That is why the MATOPIBA region is the place to be. 

Do you think that as China is buying more soy beans from Brazil, Brazil will be forced to export less to Europe?

It is not a matter of being forced to do something. The market is sovereign, in this way you sell to those who pay more. At the end of the day, you will send your goods to the one with the largest bag of money. It is simple as that. 

Freight

What are the major issues affecting pricing of grain freight?

In Brazil it is the new freight table. Grain producers are almost hostages of truckers and trucking companies.

Where will the opportunities lie for traders, producers and end-users?

They will have to buy their own trucks. Or at least 50% of their transportation needs.  

About you
How did you get in to the industry?

20 years ago, I joined Monsanto on a program called “High Potential”. At the time I was a bank branch manager and Monsanto invited me to join their commercial team. 

If you weren’t in the grain and oilseed/agriculture industry, what industry would you have gone in to? 

I would either be an airplane pilot or a lawyer.

If you could take 3 things to a desert island that are not practical (ie. a boat, rope or a knife); what would they be?

The Bible to keep my spirit strong, a picture of my family to keep me focus, the third one I believe I would find at the desert island.   

You can hear more from Rodrigo at Global Grain South America, taking place on 12 - 13 September 2018.