Brazil Is Parched. Period.

As the largest exporter of coffee, sugar, and orange juice, Brazil’s weather woes should worry the world.

A rainy season just ended with hardly any rain, and many farmers have already used up water reserves they hold on to for the upcoming dry season.

To put it in perspective: “My irrigation reservoir is drying up now — that usually happens in August,” said Mauricio Pinheiro, who lives in Pedregulho in the Alta Mogiana region, in Sao Paulo. “I’m really concerned about running out of water in the coming months.”

Even irrigated areas aren’t making it rain. The outcome? Orange output is already down 31% from last season, and the USDA is predicting Brazil will have the smallest coffee crop in the past four years.

And it’s not just the run-of-the-mill coffee. It’s Arabica coffee beans, the high-end variety used by stores like Starbucks.

Where this goes: All told, Brazilian farmers are facing a perfect dry storm, and its implications go further than the country’s second corn crop.

Brazil’s Soy Surveillance Situation

As soybean prices skyrocket, global grain traders are looking for their very own spy kids to keep an eye on Brazilian farmers.

The situation: Casual contracts – communicated months ago via WhatsApp, phone calls, and emails – are tempting farmers to dump deals and double their profit by selling at current market prices.

Farmers claim that verbal agreements aren’t contractually binding or cite a washout clause allowing them to resolve their contracts without delivering on their commitments.

Undercover cops: In response, trading companies have set up satellites and spies to surveil farmers, making sure they don’t secretly sell their soybeans to another buyer. Lawsuits have been brought against farmers who have walked away from contracts.

Despite grower privacy and harassment concerns, tough tactics seem to be working. Courts are mostly siding with traders.

Zoom out: Soybeans have rallied to an 8-year high, and China has been a big buyer of Brazilian beans as their pig herd bounces back from African Swine Fever. But Brazilian soy exports are expected to fall in May as China dials back its demand following their large purchases.

But wait, there’s more: Brazilian soybean exports are actually set to take a back seat to iron ore exports for the first time in six years, driven by demand from iron ore producer Vale and – you guessed it – China.

Wheat’s Power Move

Brazil meatpackers aren’t messing around.

High corn prices have big-time meat players, like JBS and BRF, influencing a pivot to wheat planting intentions. Brazil’s ag federation revealed data pointing to a potential 40% increase in hectares of wheat.

The reason? Wheat is the solid, affordable alternative to corn in pork and poultry feed. Other winter crops like triticale and barley are also being gobbled up in futures markets.

Desperate times call for desperate measures. Dry conditions have curbed Brazil’s corn yields, leading to a price spike. Plus, the country’s second corn crop is already being delayed, putting meatpackers in a tough predicament.

The government is turning to Paraguay and Argentina for corn, but even that’s not enough. Brazil went as far as to kick import duties to the curb due to the shortage, allowing corn imports from the United States and Ukraine.

Do the math: With U.S. corn futures at eight-year highs, it’s not like American farmers are necessarily passing out deals. One trader even noted that without import duties, trying to siphon corn from other nations still doesn’t make economic sense.