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BrasilAgro credits hedging strategy, after dryness dents yields


BrasilAgro credited the success of its hedging strategy as the South America farm operator unveiled a 40% gain in full-year profits despite setbacks to its crops from dry weather.


The group, unveiling a boost of 40% to R$177.1m in earnings for the year to the end of June, revealed a boost from farm sales, on which its revenues more than tripled year on year, to R$177.2m, producing a gain of R$142.8m.


The sales totalled 13,011 hectares, representing an average price of some R$13,600 ($3,250) per hectare, with the latest sale, in June, of 3,124 hectares in the north east Brazilian state of Bahia at an average of about R$23,500 per hectare.


The price of this plot was 70% above that attributed to it in June last year by Deloitte, which valued BrasilAgro’s total 185,000-hectare portfolio at the time, which stretches into Paraguay as well as five Brazilian states, at R$1.48bn.


‘Very irregular rainfall’

However, BrasilAgro too termed its agricultural performance “strong”, despite a drop of 44% to R$56.48m in ebitda (earnings before interest, tax, depreciation and amortisation) in the face of “high levels of volatility” in prices and “adverse weather which affected the harvest in all productive regions of Brazil”.


The group’s average 2018-19 soybean yield, at 2.93 tonnes per hectare, fell 17.2% year on year, “impacted by very irregular rainfall”, particularly in the farms in north eastern states of Bahia and Maranhao.


“The earliest soybean cultivars, which were already in the reproductive period, were the most affected,” although the group’s overall soy harvest was boosted significantly in volume terms by increased acreage.


‘Invasion of wild animals’

Dryness also depressed the group’s average first crop corn yield by 37% year on year to 4.81 tonnes per hectare, with the safrinha result down a more modest 5.7% at 5.35 tonnes per hectare.


BrasilAgro noted too the “loss of 556 hectares, equivalent to 3,300 tonnes, due to the invasion of wild animals” at a Mato Grosso farm.


The initial cotton at the group’s Chaparral Farm in Bahia achieved a yield of 2.09 tonnes per hectare in yields, 21% below company expectations “due to adverse weather conditions”.


The group also noted that the performance of cotton varieties planted “was also below expectations, as they did not adapt to the farm’s micro-climate”.


Accelerated sales

However, BrasilAgro said that its “significant performance” in agriculture profits over the year was “explained by the hedging strategy… which mitigated which mitigated the impact of climate on production and the negative effects of” weaker global crop prices.


The group said it had, as of last week, hedged 133,230 tonnes of soybeans, essentially all its production, at $9.31 a bushel - a price that prices have touched only once in Chicago, in February, since June last year.


The average price of Chicago’s spot soybean contract over the year to the end of June 2019 is roughly $8.70 a bushel.


The favourable pricing achieved reflects an accelerated hedging pricing strategy, with the group having by late August last year having sold forward 55% of its latest harvest.


As of late last month, the equivalent figure is 23%, in line with the 22% of new crop hedged at this stage of 2017.


‘Still very uncertain’

BrasilAgro added that “the outlook is still very uncertain and challenging.


“Concerns include contingencies for freight prices, the cost of production, the trade war between the United States and China, and the reduction of Chinese demand for grain, as a result of the African swine fever”.

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