Retrospective: soy and corn market in 2021
In January, the USDA predicted in its report that global soy production would reach the mark of 362.05 million tons in the 2020/21 harvest. Of this total, Brazil would be responsible for the production of 133 million, the USA 113.5 million and Argentina 50 million.
As for corn, the expectation was that the world would produce 1.1 billion tons, with Brazil contributing 110 million, the USA 368.9 million and Argentina 49 million tons. And prices mainly reflected the strong demand, with tight inventories, causing the soybean quotation on the CBOT to work at around U$ 13 bushel and corn U$ 5 bushel.
Brazil had ended 2020 with the incredible mark of R$ 101 billion in exports accumulated in the year, the second biggest historical mark in the sector. Agro participated with 48% of everything exported by Brazil in 2020.
After 6 months, according to the latest USDA report released on June 10, the 20/21 soybean crop was readjusted to 368.9 million tons, of which 112.5 million were produced by the USA, 137 million by Brazil and 47 million by Argentina . For corn, the 20/21 crop was readjusted to 1.125 billion tons, of which 360.2 million were produced by the USA, 98.5 million by Brazil and 47 million by Argentina. The big loss that was computed was precisely due to the break in our 2nd corn crop, more accentuated in some regions, due to the loss of the ideal planting window and, consequently, to the impact of the hotter and drier climate. The reflex of this was felt in the stock exchange quotations and in the prices in the interior, when the sack of corn surpassed R$ 100.00.
How to minimize risks in agribusiness?
When we follow this market information, we can reach at least one common conclusion: working with agribusiness requires knowing how to deal with risks. And these can be of different natures, such as market risks, such as these that can impact productivity, marketing, financial, succession and business continuity, even cyber risks. But we often focus and spend our energies much more on those that we monitor daily, such as weather, diseases and pests, prices, in short, on what will impact business revenue, than on others, which can simply stop a company's operations.
However, revenue alone does not demonstrate whether the operating result of the business is doing well, whether the cash it is actually generating matches the potential to be explored. For that, we need two other analyses: first, make a survey of costs and expenses related to the business. And what's the difference between them? Simply put, costs are directly linked to production, such as inputs such as seeds, fertilizers and pesticides. Expenses are those that serve the business as a whole, regardless of the culture being produced. For example, administrative and leasing expenses.
The second analysis is to do this simple calculation: Revenue - Costs - Expenses = Operating Results, or the famous EBITDA. And why is it important for us to understand this indicator? Because the producer needs to understand more and more that it is not enough to sell their production well if this is not accompanied by minimal management tools, such as a budget and cost control, a marketing and investment plan, a income and expense budget. When we started to manage the business from this perspective, we began to understand that there are many more levers capable of helping to improve business performance than simply following market news.
Think about it: the market is for everyone, but the business belongs to each one. We need to monitor what other producers have been doing, how their performance has been for comparison purposes, to find out if their indicators are above or below the market. So then, with the numbers in hand and a keen eye, it will be possible to be prepared to take advantage of the best opportunities in the market, adopt new technologies, being sure which paths should be taken (and which should be avoided!) to improve returns in the short, medium and long term.
The rise in commodity prices tends to be cyclical, but it is not possible to say when this cycle will close, especially while we are dealing with this “short blanket” scenario, where carry-over stocks remain tight. Until this cycle closes, caution and chicken soup don't hurt anyone. Take advantage of this bonanza to better structure your business and be prepared for the lean period.
Conclusion
Take care of your liquidity, your ability to pay off debts and not take a step too far, leveraging yourself too much and putting the financial health of your business at risk. Remember: just as or more important than monitoring the market's comings and goings is monitoring your business' performance indicators. In this way, the product will be better prepared to face not only the next 6 months, but to build a future based on more solid foundations.
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