July 6, 2009

Banco do Brasil will offer hedge contracts for Brazilian soy and corn farmers for the 2009-10 crop, the government-controlled bank said Thursday (Jul 2).

 

Soy and corn were chosen as the first hedge contracts as those two crops represent approximately 85 percent of the total harvest of grains and oilseeds, said Jose Carlos Vaz, director of agribusiness for the listed bank.

 

Banco do Brasil, which the Brazilian government uses to disburse agricultural credit, is reserving approximately BRL1.5 billion (US$768 million) for the planned hedge contracts, Vaz said in the federal capital Brasilia.

 

The figure of BRL1.5 billion is not a ceiling, it is an estimate, Vaz said. Banco do Brasil, Brazil's biggest government-controlled bank, will make more resources available should the market demand appear, he said.

 

Offering the hedge contract is the "big novelty" for the 2009-10 crop, Vaz said. Banco do Brasil disclosed the plans for the hedge contracts after announcing that it plans to lend BRL39.5 billion (US$20.2 billion) to Brazilian farmers for the 2009-10 crop year.

 

Banco do Brasil signed an agreement with the Brazilian Commodities and Futures Exchange, or BM&F, to provide the hedge contracts to farmers, said Luis Carlos Guedes Pinto, vice president of agribusiness for the institution. The grower who uses the contracts for price protection will have a cost of between two percent and 3.5 percent of the value guaranteed, said Vaz. The cost of doing the hedge through Banco do Brasil will be a bit less than carrying it out directly on the BM&F, Vaz said.

 

Each hedge contract will encompass a minimum of 450 bags of 60 kilogrammes, said Guedes, the vice president for agribusiness at the bank.

 

The bank, in partnership with the BM&F, will hold meetings in some of Brazil's most important agricultural towns of the country such as Maringa, Londrina, Goiania and Rondonopolis starting in August to disclose the financial instrument to farmers, Guedes said.

 

Brazil's soy crop is planted later this year for harvesting between February and May of 2010.

 

The focus of the bank is medium-sized growers with gross revenue of up to BRL500,000 (US$255,000), Guedes said.

 

Though the bank's capital is majority owned by Brazil's Treasury, its shares are owned by investors around the world and are traded on the Sao Paulo bourse.