The Brazilian Mercantile & Futures Exchange (BM&F) launched on Tuesday, April 24th, a new ethanol futures contract. The new contract was announced during the Agribusiness Perspectives for 2007/2008 Seminar. The event, which takes place every year and is in its sixth edition, has become an important reference for the discussion of Brazilian agribusiness, according to the Secretary of Agricultural Policy of the Ministry of Agriculture, Edílson Guimarães. Among the event’s participants were: the president of Abag (Associação Brasileira de Agribusiness), Carlo Lavatelli; and the Secretary of Agriculture of the State of São Paulo, João de Almeida Sampaio Filho.
BM&F’s Chairman, Manoel Felix Cintra Neto, opened the seminar, highlighting the fact that Brazil has become the “granary of the world”. He stated that BM&F’s agricultural contracts, like soybean, had a volume increase of 250% during the first trimester of 2007, in comparison to the same period last year.
The Exchange is preparing to launch other new agricultural products for 2007, besides the ethanol contract, which will be quoted in dollars. On May 7th, BM&F will host an event in New York to promote the new contact. Among the new products, is the creation of the Brazil Commodities Index, a basket of commodity prices, in partnership with Anbid (Associação Nacional dos Bancos de Investimento).
According to BM&F’s Agribusiness and Energy director, Ivan Wedekin, the Exchange is also planning a new cotton contract, options on corn forward contract, and a coffee futures contract for export. All of these initiatives will be closely monitored by market-makers and by the Operational Qualification Program (PQO), developed by the Exchange with the objective of capacitating its member brokerage houses to be global market players.
The new ethanol contract was presented by Felix Schouchana, BM&F’s director of Agriculture and Energy Derivatives. The president of Única (União da Agroindústria Canavieira de São Paulo), Eduardo Pereira de Carvalho, emphasized the fact that the new contract is “essential” for the industry. “Producers are making a 2.5 billion dollar investment, but can’t hedge the prices”, he said. “Without this instrument we’re bare, forming prices by looking into the rear-view mirror”, Carvalho declared.
Brazil’s former Minister of Agriculture, Luiz Carlos Guedes, also stressed the importance of hedge in the ethanol market. “There are risks in spite of the potential”, he explained. In his opinion, Brazil should seize the moment in order to change its agricultural model. “We have to stop assessing damage after it’s happened”, he affirmed, underlying the fundamental role of risk management. “BM&F’s role is vital for the development of this new model for Brazil’s agricultural policy.”
