BrasilAgro stood by its policy of diversifying risk, through advance crop sales and a regional spread of farms, even as it revealed that losses on hedging had dragged it deep into the red.

The farm operator reported an after-tax loss of R$19.1m ($9.4m) for the April-to-June quarter, landing it with loss of the full year to the end of June too, thanks largely to losses of R$18.1m on derivatives.

While hedges against higher fertilizer prices had proved lucrative, with costs up more than 10% since the derivatives were taken out in March and April, advance sales on soybeans were well out of the money.

The group, which began selling forward its 2012-13 crops – which will not be harvested until 2013 – in the first half of calendar 2012 – hedged the first 54% of its expected soybean crop at $13.54 a tonne, well below current prices.

Chicago's November soybean futures contract stood at $17.44 a bushel on Thursday, having touched a contract high of $17.89 a bushel two days ago.

Derivate losses

Since the positions were taken out, the price had "increased significantly, generating unrealised negative results" in derivatives, totalling R$7.81m as of the end of the quarter.

The group took R$10.3m in realised losses during the April-to-June period.

However, the group stood nonetheless by operating an "active management strategy to minimise risks related to… commodity prices".

Indeed, in its land portfolio, a policy of spreading risk by holding its 180,000-hectare landbank over six states had reaped benefits in protecting the group from worse losses to a lack of rainfall in 2011-12.

'Severe drought'

In the north east state of Bahia, where the group holds more than half its land, "severe drought" had cut yields of both corn and soybeans to well below forecast, and "was a cause of concern for the company".

But over with results at its most developed farms in other states in line with expectations and "above historical averages", reductions to the overall result were curtailed.

For corn, the group average yield of 129.2 bags per hectare was down a modest 4.6% year on year although soybean results suffered a deeper decline.

However, the result would have been worse if the group did not have a spread of operations, with results at its most developed farms in other states in line with expectations and "above historical averages".

"The drought in Bahia confirms the importance of the company's portfolio diversification," BrasilAgro said.

Into the red

The group's R$19.1m loss for the April-to-June quarter, despite a jump of 70% to R$63.6m in revenues, compared with earnings of R$7.65m the year before.

For the year to June, BrasilAgro fell R$6.60m into the red, compared with earnings of R$14.7m for the previous year.

BrasilAgro shares closed 1.2% lower at R$8.60 in Sao Paulo.