Soybean traders continue to heavily debate the latest political scandal and turmoil circulating inside Brazil. From what I understand, many Brazilians are now calling for current president Michael Temer to step down as bribery allegations and more widespread talk of corruption escalates.
Many insiders are worried that this latest Brazilian scandal could be more destabilizing than what many are anticipating and cause much greater turmoil across Brazil in the days and weeks ahead. In fact I've heard some traders suggest that Brazilian currency could ultimately fall another -20% before finding more stable footing. And that a total collapse in the Brazilian political system is a possible "wild-card".
Keep in mind if Temer were to resign, the next in line of succession is Rodrigo Maia, the speaker of the lower house, who is also facing his own federal investigation. From there Brazil’s Congress would elect a new president to serve the remainder of Mr. Temer’s term, which lasts through 2018. To say it's a political "powder-keg" would be an understatement.
Since Brazil is a commodity driven economy, money that has been invested has been rotating and making the necessary adjustments to protect and insulate the downside in the event of a complete meltdown. I have to believe as long as major "political uncertainty" in Brazil continues to dominate the headlines and the Brazilian currency remains under pressure soybean prices will find it tough to rally. I would currently be stretching it if I argued that the trade could eventually flip on their positioning in regards to Brazil, but if the situation becomes so chaotic and dire that it brings about concerns and headlines that the worlds #1 exporter of soybeans is unable to fully deliver, then we have a bird of an entirely different color.
You also have to wonder how long it will be before, what's left of the Brazilian government, steps in to support their currency? As a producer I continue to keep all of my current hedges in place. As a spec I will be closely monitoring the market the next few weeks and looking for a possible spot to dip a bullish toe in the waters..staying fully engaged!