Purchasing supplies: check out tips on how to plan

Buying inputs on the commodities market: how to plan correctly and protect yourself from price fluctuations? Check it out here!

February 1, 2024

hEDGEpoint Global Markets

Those who work in the commodities market know that buying inputs is a very important moment. After all, resources such as fertilizers and seeds are essential for optimizing the crop production system.

What’s more, they represent a significant part of expenditure. In this sense, producers who plan their purchases can benefit considerably.

Among the initiatives, careful planning of input purchases, together with hedging instruments for marketing the harvest, help to protect business margins against volatility. Want to know more about managing input purchases in practice?

Read on and find out!

Tips for managing the purchase of inputs

Drawing up a purchasing plan makes all the difference in guaranteeing the availability of the inputs needed to produce a given commodity. It also makes it possible to find the best price conditions and deadlines.

Mismanagement can compromise the entire performance of production and lead to losses. To prevent this from happening, we’ve selected 4 tips for planning the purchase of agricultural inputs. Check them out below!

1.    Study data from past harvests

You need to analyze in detail how you bought inputs in the last few harvests. This way, you can understand the quantities needed to achieve the desired productivity.

Also identify whether the previous purchase was in excess or if it really had the desired quality. In this way, you can be more precise before placing the order.

2.    Research different suppliers

When purchasing inputs, it is essential to know your suppliers well. A valuable tip is to check that the company is reputable and has good recommendations in the market.

Also, take into account the location of the supplier, as freight costs can impact on revenue. Compare prices and try to get discounts by negotiating in advance.

3.    Observe quality issues and payment conditions

Product quality is another differentiator: look for reviews from other buyers. Therefore, determine the quality criteria that must be met for each input.

Look at aspects such as the guarantee and composition. Always check that the supplier is duly registered with the Ministry of Agriculture, Livestock and Supply (MAPA).

About payment methods, it can happen that the rural producer loses the negotiation because he doesn’t have enough capital at the time of purchase. An alternative to avoid this is the barter, in which the producer secures the purchase of the agricultural input. In return, they commit to delivering part of their future production.

Read our full article to understand all the details on the subject: Understand what barter is in the commodities market.

What’s more, the best time to buy is usually when input prices are falling, especially when currencies such as the dollar are down.

Find out more:

  • How does the value of inputs affect agricultural production?

 4.    Manage stock efficiently

Various inputs may be needed by grain producers, such as medicines, food, fertilizers and pesticides. Each one requires specific care, remember that.

Stock management is therefore a crucial step. Pay attention to issues including:

  • Expiration dates.
  • Recommended storage
  • Moisture resistance.

For proper stock management, it is essential to record the quantity of each product, the date of arrival, average consumption and the amount used each week.

To avoid waste and the accumulation of inputs, use those with the closest expiration date first. Bear in mind that incorrect storage generates financial losses. That’s why you should thoroughly evaluate the logistics of your space.

Understand how the purchase of inputs, crop marketing and hedging relate to your business

In Brazil, the purchase of inputs for the 2023/24 summer cycle is in its final stages in the country’s main grain producing regions. However, purchases have been slower than in the previous crop year, as many producers were expecting a drop in fertilizer prices.

Although this happened, the drop in values was less intense than expected. Consider that inputs are subject to price variations, influenced by factors such as weather conditions, global demand, and exchange rate changes. In the same way, the price of commodities harvested at the end of the season also fluctuates, due to the same climatic and geopolitical factors.

Therefore, a producer’s objective to maximize his margins is to buy the inputs at the lowest price and sell the harvested products at the highest price. Once the purchase price of the inputs has been defined, it is up to the producer to optimize the selling price of his commodities.

By using hedging tools for this marketing, farmers can protect themselves from price volatility. In this way, they can obtain a higher income than the defined costs and guarantee a certain predictability in business margins.

Hedging usually involves futures contracts or options that set a price for the sale of agricultural products at a future date. This allows producers to set an acceptable value, regardless of market fluctuations.

By adopting this approach, the risks of costs exceeding revenues are mitigated. In this way, producers can plan the harvest more effectively, which contributes to the financial stability and sustainability of their agricultural operations.

hEDGEpoint: risk management for commodity market producers

Risk management is important for producers to protect their business margins against a backdrop of rising input prices. Fertilizers, seeds, and pesticides are subject to significant variations, as in the case of imminent political conflicts, changes in the weather and other volatile factors.

hEDGEpoint offers sophisticated hedging products to help achieve this goal. Combining data analysis and insights from the market intelligence team, we empower producers who gain a solid foundation for making assertive decisions.

Talk to a hEDGEpoint professional to find out how we can help your business!

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