Agricultural Cooperatives: The main differences between Brazil and the U.S.
hEDGEpoint specialists discuss the performance of agricultural cooperatives in the commodity markets in Brazil and the United States, while explaining the differences.
Agricultural cooperatives are organizations formed by producers who come together to achieve common goals. In commodity markets, they play a vital role as intermediaries in the production and commercialization of each commodity, maximizing the economic and social benefits for their members.
To do this, they offer several services to their members including:
- Risk management
- Input purchases
- Conducting training courses
- Assistance in selling products
- Increased production storage capacity
- Technical assistance to producers.
Among its main characteristics, internal cooperation and interest in the community stand out. The participation of cooperative members in the investments, profits, and losses, where each one has an active voice in decisions, is paramount. The aim is to always obtain competitive advantages to improve the quality of life of all members of the cooperative.
The activities developed by agricultural commodity cooperatives depend on the types of goods cultivated by the producers since each has its specificities. Also, they’re influenced by the demands and characteristics of the places where they occur.
In this article, you’ll come to understand the performance of agricultural cooperatives in the commodities sector in Brazil and the U.S., while also examining the main differences between the two countries.
How do agricultural cooperatives act in commodity markets?
In both Brazil and the U.S., agricultural cooperatives bring together farmers with common goals who work together to achieve them. In both countries, agricultural cooperatives play an extremely important role in commodity markets.
According to data from the Organization of Brazilian Cooperatives (OCB), Brazilian agribusiness has one million producers who comprise 1,173 cooperatives. In the U.S., there are about 3,000 farmers’ cooperatives whose members include most of the country’s two million producers, according to the National Council of Agricultural Cooperatives (NCFC).
Now that you have a better idea of the importance of cooperatives, it’s time to find out what they really do. By forming an agricultural cooperative, rural producers come together to serve a specific market, articulating strategically. Marcelo Lacerda, hEDGEpoint’s Head Sales Trader, explains its role in commodity markets:
“The cooperative creates a way for small and medium producers to gain more strength in negotiations, both when purchasing inputs and selling products. Some cooperatives specialize in services, meeting all the producer’s needs and providing operational logistics.”
For Chris Trant, Head of the hEDGEpoint’s Agriculture Desk in the U.S., agricultural cooperatives are also essential to facilitate a series of demands: “Agricultural cooperatives can support farmers with inputs, such as seeds and fertilizers. They also help with the grain storage and marketing, in order to guarantee the best prices,” he explains.
Trant emphasizes that cooperatives are intended to provide value to producers, which can come in many forms. According to hEdDGEpoint’s Head of Desk, another primary role is granting access to broad and diversified markets. “The cooperative helps to obtain favorable prices in negotiations, as it gathers the production of its members, accumulating it in larger and more consistent quantities,” he points out.
By negotiating on behalf of their members, agricultural cooperatives have greater bargaining power, seeking ideal values, beneficial contractual conditions, and long-term contracts. In addition, they work with certifications and adopt recognized quality standards, increasing the reliability of the agricultural products sold.
Agricultural Cooperatives: Are there key differences between Brazil and the U.S.?
In Brazil, cooperatives are organized as a form of society, in which earnings are shared proportionally among all the members, in the same way as investments. They have equal participation and voting rights in assemblies.
In the U.S., agricultural cooperatives are regulated by specific laws of each state in general. Furthermore, they’re commonly organized as limited liability entities or corporations. Thus, the typical structure is more flexible with respect to ownership and governance.
This represents a significant difference compared to Brazil. The Brazilian government has specific bodies, such as the OCB, to promote the development of “cooperativism.” In the U.S., the system is guided more by free initiative, with less direct regulatory intervention.
In the view of hEDGEpoint specialists, the main difference between agricultural cooperatives in the two countries is the question of services provided. Chris Trant explains that initially cooperatives were valued to solve the storage problem of North American farmers. “The cooperatives stored the farmers’ grain, which was fundamental since they didn’t have this capacity on the farms. However, in recent years, farmers have increased their storage space and reduced this dependency,” Trant remarked.
In Brazil, the issue of storage is still one of the main services provided as agricultural cooperatives offer solutions, in Lacerda’s words “The main storage difficulty in Brazil is the static capacity deficit. Today, the country produces much more than it can store in terms of grains. In the U.S., there’s a surplus of storage capacity,” he noted.
Given this scenario, the services provided by agricultural cooperatives in the U.S. needed to improve, and today, they’re more advanced. In the future, Trant predicts that the same will happen in Brazil. “The day will come when Brazilian farmers prefer to have storage on their properties. This will force Brazilian cooperatives to evolve even more, just as it was before in the United States,” he predicts.
As a result, U.S. agricultural cooperatives are currently more focused on marketing and risk management solutions in comparison to Brazil. One of the strategies for this is OTC market transactions.
We’ll get to all the details below!
The importance of risk management in agricultural cooperatives
OTC operations offer investors a new trading environment. These are transactions carried out in the so-called “Over-The-Counter Market.” That is, they allow trading of assets that are not registered on the stock exchange.
The main objective is to reduce the risk of financial exposure. These operations are used by companies, institutions, and investors to protect against unwanted fluctuations in prices, exchange rates, interest rates, and other factors that can affect investments or assets.
When a cooperative performs an OTC operation to hedge, it seeks to mitigate the risks commonly found with certain positions or investments. Thus, it ensures that there’s a counterproposal capable of compensating for possible losses.
With technology, transparency, and business understanding, hEDGEpoint offers strategies that allow the coverage and management of financial risks. To this end, it combines the knowledge of experts and technological tools, operating all throughout the global commodity chain: “Co-ops need a partner like hEDGEpoint to offer these OTC products to their members. With them, it’s possible to guarantee a better price for the grains delivered to the cooperative,” Chris Trant explains.
You can observe the benefits of relying on a company like hEDGEpoint to carry out risk management for agricultural cooperatives in these markets:
- Protection against price volatility
- Stabilized profit margins
- Improved financial planning, along with expert assistance
- More stable, reliable business relationships.
Talk to a hEDGEpoint specialist today to learn more about the advantages of working with us!
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