Barter Trade is a widely used tool to originate soybeans in exchange by agriculture inputs in South America. Its one of the best alternatives to avoid delfault risks or impairments generated by the price fluctuations.

1. How to originate a strategic raw material with profitability and safety?

2. Barter Trade

3. The solution to Soybean origination in South America
• It’s a common practice in South
American Countries that produce
Soybeans for export.
• Primarily, as a financing mechanism
for local farmers to obtain the inputs.
• Large Tradings, such as ADM,
Bunge, Cargill, Dreyfuss and others,
are increasing the use of this tool as
an approach to direct access to
farmers and their production.
• The best way to secure the raw
material origination and dampen the
impact of price volatility without invest
in production assets and/or land.

4. Main Players Avoiding Risk of Default
• Soybean Traders, Crushing
Industries, Seed Suppliers,
F e r t i l i z e r F a c t o r i e s a n d
Agrochemical Multinationals are
the main players that take the
Barter system to reduce the
default risk of the Farmers.

5. • Accounts receivable are usually
collateralised with the crop for
which the price risk can be
hedged on the commoditiy
exchanges (CME, Dalian, BM&F).
• The securitization of the accounts
receivables can also be used by
the Tradings and Farm Input
Suppliers as collateral to attract
external funding from Banks,
lowering their credit need and
working capital to the Barter-
Trade scheme.
Financial Management

6. • Chinese Giant Groups like COFCO, through the affiliated companies
(NIDERA and NOBLE), are ensuring the soybean supply while
reducing their dependence on the Grain Trading Companies.
• China is the most important production platform of some strategic
agricultural inputs (Agrochemicals and Fertilizers) in the World.
• Its a logical decision for chinese corporations to take the advantage
of the low prices of the inputs to exchange by Grains, in order to
reduce the final cost or to improve the profitability of their operations.
Chinese Players are using the Barter Trade

7. In the context of high prices and global scarcity, the “Battle" for South American Soybean Supply
will be won by those with the most direct access to Farmers.
The direct access involves having the key inputs and the financial platform, which Chinese
companies have.

8. • Competitive Portfolio of Inputs
• Domain of different aspects of the Supply Chain
(origination, transport, storage, etc), the Financial Flows,
the Legal variations and the Risk Environment
• Deep knowledge of the Hedge mechanisms to mitigate
the price flutuation and to ensure the profit level
Which are the elements that can ensure for a
chinese Crusher or Grain Trading to obtain
Soybean for “cheapest” Prices?

9. • The Trading close the barter transaction with a Reseller/Cooperative or Farming Company in
South America.
• The Bank previously approves a credit limit to the Client.
• The Bank grants a credit facility to the Client acquiring the Inputs supplied by the Trading. In
exchange, the Client signs a “Futures Delivery Contract” in favor of the Trading by the
equivalent amount of Inputs purchased plus the interest rate.
• The Trading signs a Risk Participation Agreement - “RPA" with the Bank, holding an equivalent
risk of the gross margin correspondent of the Input Supply transaction. In the case of default by
the Client, the Bank would pay x% of the contract value less the gross margin of the operation.
ZERO CAPITAL RISK.
• The Client shall endorse or transfer the collaterals in favor of the Bank.
• The collateral value (“Futures Delivery Contract”) endorsed to the Bank shall be sufficient to
cover 130% of the Principal plus the interest rates of the deal.
Risk Management in partnership with an
International Bank

10. Risk Management in partnership with an
International Bank
• In the harvest period, the soybean must be delivered to the designated
warehouses, which will be monitored by SGS, Contról Union or other international
surveyor.
• The Stock Cover Ratio must be at least 120% of the Principal Value plus the
interests.
• The soybean export transaction must be made by the Trading to acceptable Off-
takers such as Chinatex, Cofco, etc. The financial liquidation of the shipments shall
be made through the coordination of the partner Bank.
• If all the transaction runs well, the holding margin deposited as the “RPA” will be
transferred by the Bank, after the deduction of the banking expenses, to the
Trading.
• The Bank will open an account on behalf of the Trading to execute the hedge
operations.

11. • 1 hectare of Soybean produces in average 3 ton (medium technology).
• 1 hectare requires in average USD 450,00 of different Inputs (Seeds,
Fertilizers and Agrochemicals), most of them produced in China.
• The average gross margin can reach 20% or USD 90,00/hectare or
240kg of soybean, considering an average yield of 3.000kg per hectare.
• Taking an entire vessel of 60.000 ton, this ratio means a gross
profitability of 4.800 ton of soybean or USD 1.795.200,00* or USD 29,92/
ton per shipment.
• * Price Basis of USD 10,20/bushel as an example.
A practical example - Barter Trade - Inputs/Soybean
Ratio

12. • Taking the commercial prices of different Inputs, the originator can
choose the better options to generate the exchanging by Soybeans.
• Its a matter to plan a consistent strategy, considering all the costs,
the complexity of the process and the risks involved.
• Due the high value added of the Agrochemicals, such as the
Insecticides and Fungicides, its possible to build a very profitable
exchange ratio (superior than 30%).
Barter Trade - Flexibility

13. • The scarcity of credit in South America, the raise of the
interest rates and collateral demands will increase the
necessity to build an efficient Barter Trade system at the
Soybean sector.
• The Chinese companies shall increment their market-
share at the Soybean origination through the exchange by
Inputs, taking the advantage of its solid economy and its
robust demand for protein as the key fundament.
Barter Trade - Trends

14. Eduardo Lima Porto - May/2016
"When it is obvious that the goals cannot be reached,
don't adjust the goals, adjust the action steps”.
Confucius