31st January 2008
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Company Announcement
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Barter trade loss in Brazil
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Further to yesterday's announcement re the Company's non-operating loss in Brazil the following information may help to clarify how the barter trade system operates and what occurred in this instance:
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- 'Barter Trade' involves a structured transaction on the sale of agricultural chemicals for soybeans.
- The grower issues a grain certificate (CPR) and the crop protection company – in this instance, Agripec - invoices the agchem.
- During the crop period, a grain price is fixed with a third party (an 'offtaker'). After the harvest, the grower delivers the grain to the buyer, and the buyer pays Agripec.
- Agripec´s barter operation for the contract in question was structured as follows:
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 | - The base price to barter was USD8.00 per bushell.
- Agripec gave the customer the opportunity to take advantage of a higher selling price for soybeans and this was capped at USD9.20 per bushell. In pratice, Agripec will invoice agchem to customer for any difference between the base price and the fixed higher price.
- Agripec hedged its position by buying a combination of options in the soybean futures market (covering its exposure between USD8.00 and USD9.20).
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- There was no protection above USD9.20.
- In December, soybean prices rose strongly, achieving the highest price in the last 34 years (see graph below).
- Nufarm has opted to close out the hedge position to cap any further losses associated with further increases in the soybean price.
- Agripec does not have any additional negative exposure with respect to barter trade contracts.
- Any future contracts will be structured so that appropriate cover is taken over all soybean price movements.
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Further information:
Nufarm Limited
Robert Reis
+61 3 9282 1177 |
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