It would be quite an understatement to say that things have not changed drastically all around the world in the last two months. When Lehman Brothers fell in New York City in mid-September, none of us expected to see some of the worst crashes in nearly every marketplace around the globe since 1929. While it has been a bumpy ride the last two months, I think it truly has taught us the meaning of risk management and why being disciplined is what will keep us profitable.
In February I spoke to producers at Commodity Classic in Nashville, TN. My brief message then was that producers could not afford to miss great opportunities to lock in profits. I heard so many producers proclaim that price levels we were seeing were here to stay. My only objection then was that we have opportunities to lock in great profits for the next few years; why not take some of the risk off the table and lock in a good percentage of future production?
I am not an expert on marketing, and will never make that claim, but I am pretty good at looking at our cost of production vs. our average yields, and then making decisions to lock in profits. Last year this same strategy left us a lot of money on the table, as the market rallied after our sales.
But we were still able to make solid returns, and we never looked back. Our disciplined strategy had us lock in sales between 70% and 80% of expected production again this year, which happened to be the highs of the market. By staying disciplined, we have been able to avoid the “greed, hope, fear” of marketing.
THE DIFFERENCE BETWEEN Brazil and the U.S. this year is U.S. producers may get a chance to buy inputs at a lower cost come spring if the commodity market continues to fall. The problem for the Brazilian producers: Many had to buy inputs in June and July when costs were out of sight (fertilizer was up nearly 150% in one year). If they waited, there were concerns of not getting product.
All of these costs were influenced by a weak dollar, high petroleum prices and demand. Producers bought inputs at record highs, and according to the multinational grain buyers here, they did not hedge their production. The multinationals have only bought 10% of what they normally do on forward contracts from producers.
So nearly 90% of the production here has not been forward contracted, and now with the prices tanking every day, most crops with prices at today's levels will lose producers $80-250/acre depending on what they are going to plant. The only hope for them is a price rebound between now and harvest. If that doesn't happen, there will be some fantastic deals for expansion on the market come next May, and many producers are going to be in a world of hurt.
It is still hot and dry here in Bahia; rain is forecasted for our region around Nov. 5. We have been working around the clock to get fields and equipment ready for the season. With a few more days, we should be ready to go. Planting finished in Ukraine on Oct. 25. And in Iowa, a few more weeks are needed to wrap up.
In Brazil we imported a planter from the states: a Deere Bauer (DB) 108-ft., 36-row, 36-inch cotton planter. It came in two containers and had to be assembled on the farm. Our goal is to be able to plant 1,200-1,500 acres every 24 hours. In our biggest field, we should be able to get 47 acres around with the DB108.