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Todd's Take
Wednesday, May 24, 2017 12:19PM CDT
By Todd Hultman
DTN Analyst

I realize much has already been written about last Thursday's unexpected 6.5% drop in the Brazilian real and the bearish effect it had on soybean prices. On Friday, DTN Senior Analyst Darin Newsom talked about some of the market clues and advised us to keep an eye on the July/August soybean spread moving forward.

DTN Columnist and long-time observer of all things ag, Philip Shaw pointed out that Thursday's black swan looked more like a black duckling and, judging by soybeans' ability to rebound since Thursday, I suspect he is right.

Finally, DTN Ag Policy Editor Chris Clayton delved into the world of JBS SA late Friday, explaining to us a complicated array of corruption charges, bribery scandals, and the plea bargain which tarnished Brazil President Michel Temer and led to Thursday's lower real.

One other aspect related to JBS SA worth noting is that several news sources, including Brazil's largest newspaper, Jornal O Globo, cited anonymous sources which say that JBS Group bought "large amounts of dollars in the foreign exchange market" shortly before news broke that they were turning over tapes to the Supreme Court which implicated President Temer in bribery payments.*

To be fair, the paper's sources may be wrong and no formal charges have been filed to date, but keep in mind that when it comes to currencies, JBS SA is no slouch. Last year, Bloomberg news reported that in 2015, the currency desk at JBS SA "generated more profit than the company's beef, poultry, and pork operations combined."**

As a market analyst, I have to admit that manipulation is a darker subject we don't often talk about, but it is an important part of market risk. Whether we call Thursday's drop in the real a black swan or duckling, the point is that, for most of us, it came out of the blue. But for the Batista brothers that run JBS Group, it may have been a well-planned and highly profitable day at the office.

For U.S. producers that watched soybean prices drop 3% in the blink of an eye, the thought of some guys in an office profiting off of their pain and laughing all the way to the bank is enough to make anyone see red, but we also have to admit that this isn't the first time markets may have been gamed, and it won't be the last.

For those dependent on grain markets for their livelihood, what can be done to protect oneself from a malicious bearish raid? My best advice is really the same for all forms of risk: Keep a broad perspective, pay attention to market clues, understand seasonal influences, look for low-cost ways to minimize risk (aka buying puts), and recognize that uncertainty is always a significant threat -- whether it comes from unexpected events or billionaires bribing politicians.

A lot of things in life aren't fair -- just ask producers in the Midwest looking at lakes where corn fields should be. Last week's quick drop in soybean prices may have been another. But if it woke us up from any illusion that life or markets are predictable, it was a cheap lesson.

* "JBS would have bought large volume of dollars before report leak" by Rennan Setti of Jornal O Globo, May 18, 2017 at:…

** "JBS Made a Fortune on Its Currency Bets. Then, the Tide Turned" by Gerson Freitas Jr., April 6, 2016 at:…

Todd Hultman can be reached at

Follow Todd Hultman on Twitter @ToddHultman1


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