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Global Grain South America 2017 Speaker Q&A

Our speakers from INTL FCStone summarise the current state and potential for the grain industry in both Argentina and Brazil.

Gonzalo Terracini,  Senior Risk Management Consultant, INTL FCStone

Renato Rasmussen, Commodity Intelligence Director, INTL FCStone

Juan Hinojosa, Senior VP Risk Management Consultant, INTL FCStone

As the Macri administration continues to battle high domestic inflation, do you envisage an increase in foreign agricultural investment in Argentina? If so, in which segment of the supply chain?

Gonzalo Terracini - We believe Argentina will continue to be as one of the top agri producers around the globe when we talk about production/crushing, the challenge here is, if Macri´s administration can make it happen, move forward to the next step adding value is key.

Is technology a potential growth area for Argentina? Which crops and market segments would benefit from investment most?

Gonzalo Terracini - Yes, we do believe there is a potential in: biotechnology, crop protection and renewable fuels and wind energy.

What are the repercussions of Operation Car Wash, impeachment of Dilma Rousseff and current political uncertainty? Will this slow Brazilian investment in agriculture going forward?

Renato Rasmussen - The political climate in Brazil has been characterized by a series of storms and cataclysms, which significantly raised agent uncertainty and drove the economy into one of its deepest recessions. Exchange rates, inflation, interest rates and unemployment reached recent highs from 2015 to 2016, generating higher risk and costs for investments in increased productive capacity and expansion on plantations. To exacerbate the producers’ dilemma, the unfavorable political and economic outlook during the period coincided with a particularly strong El Niño, resulting in crop failure in some regions of Brazil, impacting the degree of investment in domestic agribusiness.
Despite lingering economic policy this year, perspectives are more favorable for the sector. Due to the widespread disinflation process and approval of fiscal adjustment measures, the Central Bank of Brazil was prompted to aggressively cut interest rates, reducing the cost of credit. Harvest of the record summer grains crop and expectations of a comparable result for the corn safrinha crop this winter rounds out this benign scenario, which should stimulate rural investments. 

What can be expected in the coming years with regards to Brazilian infrastructure development for grain exports? How can international players best position themselves to take advantage of these upcoming changes?

Renato Rasmussen - In recent years, there have been significant logistics investments made in Brazil, which strengthen competitiveness for grain exports. Port organization has already improved greatly and new investments are in progress, both for traditional export corridors and new grains shipment alternatives. The Port of Santos (São Paulo) is still expected to remain the top corn and soybean exporter in Brazil, though new locations are becoming increasingly important. Currently, there is idle capacity at Northern Arch ports and an increasingly significant portion of grain should move through these ports in the future, taking advantage of proximity to the Panama Canal and major producer centers, such as Mato Grosso, for example. In addition to investment in ports, improvements are expected for the highways, railway and waterways to reduce port access issues.
These changes are expected to improve Brazilian competitiveness in the international scenario, reflecting domestic prices and basis. Within this context, competition among the main export players is expected to rise, favoring global grains consumers, which will find Brazil to be a progressively more efficient supplier.

What area of Price Risk Management (Futures, Options, OTC) has the greatest potential for growth in South America and which of those topics will require the most education?

Juan Hinojosa - OTC undoubtedly. Having the possibility to create and adapt derivative instruments that already exist in the market today to create new possibilities, new structures to price a specific commodity, been able to develop the necessary protection, managing the risk or exposure, when the customer request it, as the customer need it, in times and form that is solicited, provides a whole new world of possibilities, making the concept of pricing and risk management even more efficient and effective.

What do your customers want/need from you that they didn’t 5 years ago?

Juan Hinojosa - They want to know more about the way of operation and commercialization of the main grain producers worldwide. The concept of national sovereignty is strengthened, not by closing borders, but by a greater knowledge on international market.

What markets can be used to manage price risk?

Juan Hinojosa - They need to know more about basis and derivative instruments, both, inside the auction floor of the Stock Exchanges and outside of it, with Over the Counter instruments (OTC)

How do you take a global futures price and convert into a local price?

Juan Hinojosa - Flat price (anywhere in the world) = FUTURES + BASIS

If you would like to hear more from INTL FCStone you can catch them at their pre-conference risk management workshop at Global Grain South America next month. More information here.

This content is provided by Global Grain Events for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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