Margins: how the agricultural business is doing after the reduction of withholdings and the resumption of rains
The 2024/25 campaign, which is entering its final stage, was very fluctuating, with changes in the agricultural business model. In the previous scheme, profitability could be achieved in some areas, such as the financial area, which no longer exist today. The new scenario invites all companies to seek efficiency, with changes that can contribute to revaluing productive profitability. “The rules of the game have changed and that leads to rethinking many actions that had been done on autopilot,” says Matías Amorosi, general manager of AZ-Group.
“We have gone through different moments and different situations throughout the campaign, in which there were variations in prices and taxes on grains and inputs, moments with high temperatures and little rain, changes in financing, etc. Today, with these changes already in place, there is a somewhat more encouraging situation for farmers than a few weeks ago, and because rainfall resumed in February, which is recharging the profiles and limiting yield losses,” he adds.
The reduction in export duties announced in January of this year also contributed to this more positive scenario. This coincided with very few advance sales of grains, which allows the measure to have a fairly direct impact on profitability. Specifically, the price improvement caused by the new tax treatment of grains is in the order of 20%. Therefore, in cases where the loss of yield potential versus the original plan is less than 20% due to the drought, an improvement in profitability will possibly be seen.
“Corn companies that suffer losses of less than 20% of the initially projected yield will be able to see an improvement in their projected margins, supported by the increase in prices generated by the reduction in export duties. On the other hand, for those that lost more than 20% of the estimated yield at sowing, the increase in prices will not fully compensate for the drop in yields,” Amorosi notes.
Regardless of the yield, corn producers could move forward with the commercialization of at least part of the estimated production by taking advantage of the US$200/t offered on the market for early harvest grain.
“Later, with the massive entry of production, in a campaign in which very little was sold in advance, a Gate 12 may appear, because historically companies have to sell approximately 20% of the harvest to pay rent, labor, threshing, etc. So, it may happen that at some point there are price drops due to concentrated supply,” he warns.
In this scenario, "we should not rest on our laurels and take advantage of this improvement in corn prices to close operations and not lose sight of the fact that weeks ago negative results were projected even with high yields," he advises.
The situation is different for soybeans. Prices are lower than those for corn and only high yields generate positive economic results; medium and low yields produce losses.
Going forward, these producers should be attentive to the planting intention in the United States for the 2025/26 cycle, in which a reduction in the area planted with the oilseed is estimated. “In the face of a volatile future context, the determining factor in commercial decisions should be the target price , that is, the price with which costs are saved and a certain profitability is obtained,” Amorosi recommends and adds: “You can take advantage of the commercial tools offered by the market, such as a call to capture possible price rebounds or the sale of soybeans in full harvest and the purchase of a November contract for those who want to keep grain.”
The table shows the better economic result expected for corn in 2024/25 compared to soybeans.
At harvest prices from the beginning of the week, in a rented field in the core area, with technology for high production for early corn, a net margin of US$458/ha can be achieved if 100qq/ha are obtained. The margin is reduced to US$128/ha if 80qq/ha are obtained (20% less) and becomes negative at US$37/ha with 70qq/ha.
A 40 qq/ha soybean in the same area gives a net margin of 104US$/ha; with 32 qq/ha (20% less) it falls to negative numbers -105US$/a- and collapses -236US$/ha with 28 qq/ha.
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