Investment and Risk Management Tools for the Brazilian Agribusiness

commodity prices

“Commodity prices are highly volatile. Several external factors have an impact on them, such as macroeconomic context, exchange rate, weather and socio-environmental issues.”

Louis Gourbin is the head of commodities at B3, holds an executive MBA from Insper and a degree in economics and political science from the University of Montreal.

Gourbin is an expert in commodity trading and risk management. He was a grain trader and financial risk manager at Bunge Brasil.

Louis Gourbin, head of commodities at B3

AgriBrasilis – Why is risk management so important for farmers?

Louis Gourbin – Commodity prices are highly volatile. Several external factors have an impact on them, such as macroeconomic context, exchange rate, weather and socio-environmental issues. Risk management, through exchange tools, such as commodity or exchange options, makes it possible to mitigate price risk and guarantee the level of revenue for production. Being the cost of production visible, the farmer is able to guarantee a margin and to not be exposed to price volatility.

AgriBrasilis – What are derivative contracts? Why are they different from insurance?

Louis Gourbin – Derivatives are futures and options contracts, like those traded on B3. Futures contracts allow you to trade a commodity at a future date (next month or next season), placing yourself on the buyer or seller side.

With options, you negotiate the right to buy or sell a certain asset in the future, for a pre-defined price, upon payment or receipt of a prize.

The buyer has the right to exercise his option if it is favorable at maturity. The seller has the obligation to carry out the operation. The purpose of these contracts is to set a price lock that acts as insurance for your operation in the physical market. This mechanism is known as hedging.

Insurance has the same purpose: to guarantee a price. The difference is that a contract with an insurance company is a bilateral commercial contract between the parties. Derivatives traded on B3 are governed by trading rules and have prices on screen. Insurance offered by a company uses its own calculations or may use exchange-listed futures and options.

AgriBrasilis – What is the Soybean Futures Brazil* contract in partnership with the Chicago stock exchange? How does it benefit the farmer?

Louis Gourbin – The Soybean Futures Brazil was developed in partnership with the Chicago exchange, CME Group, with the aim of being a safer protection mechanism, based on the price of Brazilian soybean and traded on two exchanges that are world leaders.

The contract is based on the export price at the port of Santos and financial settlement calculated in dollars per tonne using the S&P Global Platts index.

Until the contract launch, the farmer needed to resort to the NYSE Chicago and the price of American soybeans to hedge the traded grains. With the new Brazilian derivative, local farmers have at their disposal a risk management tool for the price of Brazilian soybeans.

AgriBrasilis – How did the B3 Corn Futures Index (IFMILHO B3) come about?

Louis Gourbin – B3 Corn Futures Index (IFMILHO B3) was created in response to a demand from market players for more agribusiness-related products.

Corn is a commodity of great importance in Brazil, widely used by the industry in the manufacture of animal feed. The two annual harvests in Brazil guarantee supply for most of the year. However, most of the negotiations take place in the season and off-season periods.

Thus, the Cash-Settled Corn (CCM) was developed to give market players a tool to manage the risk of fluctuations in the price of this commodity, allowing them to predict in advance how much they will receive for production or disburse for purchase.

IFMILHO B3 is the result of a theoretical portfolio of CCM. Thus, the indicator will reflect the change in the price of the commodity.

AgriBrasilis – What should be expected from Brazilian agribusiness for the next year?

Louis Gourbin – I believe that the Brazilian agricultural market will continue to grow in a sustainable way, using technology that optimizes land yields.

Brazil also has a lot of pasture land that can be turned into crops or into more intensive feedlots. This optimization contributes to increased production and fosters food security in Brazil and the world.

As B3, we support the sustainable growth of production and the increased relevance of Brazil’s role in this context. We offer products and services that connect investors to the sector, ensuring protection and financing options for players in this segment.


* In 2021, B3 launched the Soybean Futures Brazil contract, which began trading in November 29 on B3 and on NYSE Chicago.