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Financial Glossary: Get to know the terms used in the our markets

Learn the main terms used in commodity markets and increase your knowledge.

February 24

hEDGEpoint Global Markets

It’s common for each market to use terms specific to that area. In finance, for example, there are unique words and expressions that only those who use them daily truly grasp. Thus, there’s nothing better than a financial glossary to help you.

If you’ve ever tried to find out more about financial markets and found them hard to understand, you’re not alone. Specialized content can sound like Greek to those who aren’t in the know.

hEDGEpoint has created a glossary containing the main financial and agricultural market terms. Now you’ll be able to stay on top of the most common expressions and consult them whenever you need.

A

Advance: Negotiation in which part of the financing is advanced to the producer, without immediately fixing the future price or the exchange rate; However, a deadline is established, which the seller chooses to set.

Advance Contract: When the purchasing company advances money or inputs to the producer in exchange for part of its production.

Agribusiness Letter of Credit (LCA): Nominative credit instrument (fixed income) or a promise of payment in cash, issued exclusively by financial institutions; The issuance of the bill depends on the existence and availability in the bank of rights and credits related to agricultural production, commercialization, processing, industrialization of products, or agricultural inputs, machines, and implements used in agricultural activity.

ANEC: Brazilian National Association of Cereal Exporters; Formed by private companies in 1965, its purpose is to promote the development of activities related to grains and cereals and defend member interests before public and private authorities.

ANEC Classification Standard: Soy classification export standard, defined by ANEC, being 14% moisture, 1% impurities, and 8% damaged.

Arbitrage: Operation that seeks gains when the prices of a certain asset are out of line with the same asset in another market; In this way, investors can position themselves to buy in one market while selling in another.

Ask: Represents the price level at which a market participant is willing to sell an asset; Opposite: see “bid”.

Assignment: Term used for the transfer of rights, ownership, and interests related to goods shipped.

ATF: “Advanced To Farmer”, an abbreviation which means advance credit to the producer (costing).

Annotation: Act through which a permanent modification, alteration, or annotation is included in the content of a document, such as records and titles kept in a notary’s office.

B

BACEN: Central Bank of Brazil.

Back-to-Back: Paired buy and sell operations in which both are connected and co-dependent.

Bagged: Product or merchandise packaged in sacks (50 or 60 kgs.) for storage.

Bearish: Expectation that prices will continue to depreciate over a period

Barter: Term used in agribusiness to characterize the exchange of products and inputs (fertilizers, correctives, pesticides, and seeds) for grains (soy and corn); Usually occurs between the supplier of inputs and the producer.

Basis Point (BPS): Refers to a common unit of measurement for interest rates or interest rate futures contracts; A basis point is equal to 1/100 of 1%, or 0.01% (0.0001), and is used to indicate the percentage change in interest rates; The relationship between percentage points and basis points can be summarized as follows: Variation of 1% = 100 basis points and 0.01% = 1 basis point.

Bid: Represents the price level that a market participant is willing to pay for an asset; Opposite: see “ask”.

Biodiesel: Fuel made from vegetable oils (typically soybean or palm oil) or animals (beef tallow) that’s mixed with diesel.

Break Funding Cost: Cost for breaking some types of funding or loans.

Bullish: Positive expectation that prices will continue to appreciate over a period of time.

Bulk: Cargo that is not bagged or boxed; Usually applies to grains such as soybeans, corn, and sorghum.

Bushel: U.S. unit of measure for grain—the volume in a “basket”; One bushel of soybeans or wheat equals 27.2 kg. while one bushel of corn equals 25.4 kg.

 

C

Cabotage: Term used for navigation between maritime ports in coastal waters of the same country.

Carry-In: Term used to refer to the entry stock of the year, or the carry-over stock.

Carry Market: When the price of a certain commodity in the future is higher than the spot price.

Carry Trade: In exchange markets, used when investors borrow capital in a country, at a certain interest rate, and invest in another currency with higher interest rates, thus earning from the interest rate differential.

Carry Out: Term used to refer to the outgoing stock of the year, or the passing stock.

Cash: In commodity markets, refers to the physical product.

Cash Collateral: Cash collateral is cash and equivalents collected and held for the benefit of creditors during Chapter 11 bankruptcy proceedings. Cash and cash equivalents include negotiable instruments, documents of title, securities, and deposit accounts. Unless a court orders otherwise, cash collateral is separated from other assets for the purposes of paying creditors.

CBOT: Chicago Board of Trade, also known as the Chicago Futures Exchange.

Chicago Price (CBOT): Last price made between buyer and seller of a futures contract on the Chicago exchange.

CIF: Term meaning Cost, Insurance, and Freight; Refers to the supplier’s responsibility to deliver the product, assuming all costs and risks related to the delivery of the goods.

Committed/Commercialized Volume: Quantity of soybeans sold by producers to trading companies and processors.

Commodity: Products with little or no differentiation that normally follow a pattern and are traded through international stock exchanges where prices are determined by supply and demand.

CONAB: Brazil National Supply Company, Brazilian government body that conducts price studies and statistics, as well as surveys of agricultural production costs, expectations for planting and harvesting grains, as well as locations and volume of public and private stocks of various products.

COPOM: BACEN Monetary Policy Committee; Serves to establish monetary policy guidelines in Brazil and define the SELIC (prime) interest rate in periodic meetings.

CPR: Rural Product Note; Guarantees Brazilian producers the anticipation of revenue from their production (to be harvested), regulated by the government, and that can be guaranteed by the banking system.

CRB: Index created in 1957 by the Commodities Research Agency (CRB); Another important market benchmark is BCOM: Bloomberg Commodity Index.

Crop Monitoring: Monitoring crop evolution, which can include the pace of planting, crop development, productivity, and market indices.

Crop Year: Period between the beginning of planting and the end of harvest; When we refer to the 23/24 crop, for example, it means that it was planted in 2023 and then harvested in 2024.

Current Liquidity Ratio: Financial indicator measuring a company’s ability to pay its debts due in the next 12 months using its own resources—without relying on loans or financing.

Crop Break: Difference between estimated soybean volume during planting versus final production obtained.

Crushing: Industrial processing of soybeans to produce bran and oil.

 

D

Debt/Equity: Key indicator of business’s financial risk, balancing relationships between the company’s debts with banks and other financial institutions and funds invested by investors.

Default: Failure to comply with a contract or other obligation.

Demurrage: Overstay in port; For FOB operations, a penalty determined in the contract to be paid by the shipper when it takes longer than agreed to load the cargo on a ship; In CIF transactions, the fine is charged to the buyer.

DERAL: Department of Rural Economy of Paraná; Entity responsible for monitoring agricultural data and formulating agricultural policies in Brazil’s Paraná state.

Derivatives: Contracts that derive most of their value from underlying assets, reference rates, or indices.

Dispatch: For FOB operations, the penalty determined in the contract to be paid by the ship’s charterer to the shipper, for loading it in less time than guaranteed in the contract; In CIF operations, the fine is charged to the shipper.

Draft: Distance between the surface of the water and the lowest part of the boat or ship.

Drying: Operation consisting of removing moisture from the grain, such as soy or corn, to avoid fermentation and consequent loss of raw material quality.

Dry Liquidity Ratio: Ratio that measures a company’s ability to pay its debts due over the next 12 months using its own resources, without relying on loans or financing, and without having to sell its inventory for such payments to happen; In this case, the company manages to pay its debts and still keep its inventories.

Dovish: Financial market expression coming from the bird “dove”, referring to scenarios, postures, and positions of lower interest rates, more accommodating monetary policy, more financial stimuli, and less austerity.

 

E

EBIT: [EBIT = EBITDA – Depreciation]; Profit companies achieve in a given period of time (usually a year) before deducting financial expenses (for example, interest owed to banks and financial institutions) and income tax; a Business result that will be available to financial institutions, the government, and business owners.

EBITDA: Profit that companies achieve in a given period of time (usually a year) before deducting financial expenses (for example, interest owed to banks and financial institutions), income tax, and depreciation (for instance, the use of machines in the processing of products); a Business result that will be available for companies to buy new fixed assets (equipment, machinery, manufacturing plants, etc.), “share” with financial institutions as a result of loans obtained, and with the government through income tax.

El Niño: Weather effect caused by rising Pacific Ocean temperatures; The strongest El Niño occurred in 1982/1983, when water temperatures in the Pacific reached seven degrees above normal, triggering floods in Brazil’s southern states and drought in the country’s northeast.

Electronic Auction: Session where trading takes place on the Exchange between brokerage house operators using a specific system.

EVA: Increase, in percentage terms and values, in a company’s wealth, represented by its assets and rights; This indicator shows if the company has the capacity to attract investors willing to continue its job-generation and income-distribution activities.

Export Parity: Internalization of the prices of products intended for export, equating international quotations to Brazil’s producing regions; Thus, the cost of exporting from a given region is calculated using the price of the futures contract (multiplied by the exchange rate) and the costs of internal outflow (port expenses, taxes, freight, etc.).

 

F

FDA: The Food and Drug Administration (FDA) is the US government agency responsible for protecting public health in the country.

FED: Federal Reserve (Central Bank) of the United States; Responsible for operating the national payments system, distributing US currency, and supervising and regulating the banking system.

Fee: Variables already predefined within a frame, understood as the cost of the frame.

Fixation: Fixing is setting a price for a contract.

Fixed Purchase: When buying soybeans, the buyer and seller agree only on the volume to be delivered, thus leaving the price open to be fixed in the future.

Fiscal Year: Period from January to December, during which companies calculate their accounting results.

Fixed Price: Price fixing for a contract that establishes the delivery period, the product, and the quantity (soybeans or corn).

Flat Price: Expression used in commodity markets referring to the price at the port calculated by adding the soybean contract price on the CBOT + port premium + port spread.

FOB: Free on Board; Original term refers to the buyer’s responsibility to move the product to the ship, assuming all risks and costs for the transport of the goods.

Fob Market: Reference market for goods in ports.

Fobbing: Operational cost of transshipment from the port warehouse to the ship.

FOMC: The Federal Open Market Committee (FOMC), also known as the Federal Open Market Committee; Arm of the US Federal Reserve which determines US monetary policies.

Forward Contract: Used when parties assume a commitment to purchase and sell a commodity with predetermined quantity, quality, price, and terms.

Frame: Skeleton of purchase and sale operation, including the obligations of both parties (buyer and seller) defining certain variables (such as volume and settlement month), while others stay open for future agreement (such as the price).

Funding: Source of resources; Companies convert short-term debt into long-term debt by issuing new bonds, or vice versa.

Futures Contract: Similar to forward contracts, futures contracts are traded on Futures Exchanges, the main difference being the settlement of its commitments; In the forward market, disbursements occur only when the contract expires, while in the futures market, commitments are adjusted daily; Refers to each contract by month, with each month having a reference letter.

Futures Markets: Organized for the trading of contracts (futures and options) where a commitment is established between the buyer and the seller (sale or purchase) on a future date for a certain asset (e.g., the commodity and foreign currency) at a predefined price; For example: B3 in Brazil, and CBOT in Chicago, USA.

 

G

Grain Purchase Price: Price calculated by the Risk Management area considering the following: The Chicago quotation, dollar, premium, port spread, logistical costs (road, rail, and fobbing freight), storage, and breakage, among others, as well as delivery/payment dates. 

Gross Margin: Indicator signaling a business’s profitability, calculating the profit percentage in relation to sales.

 

H

Hawkish: Opposite of “dovish”; Financial expression that comes from hawk when referring to high interest rates, more austerity, and monetary tightening.

Hedge: Operation used to protect against price fluctuations; Can be done by trading agricultural and/or financial derivatives on futures markets, or physical trading exchanges.

Hopper: Area or set of equipment where soy is unloaded from trucks.

 

I

Incoterms: From “International Commercial Terms”; Refers to the relative terms of sales and purchase contracts in international trade (export and import); The modalities FOB and CIF are both examples of Incoterms.

Inflation: Persistent and general increase in price levels; That is, the average price growth of a set of goods and services in a given period.

Internal Basis: Formed by costs such as breakage, fobbing, financial, and margin as the product flows from the interior to the settlement port.

Inverted Market: When the spot price of a given commodity is higher than the futures price.

Invoice: Collection of an international transaction, containing operation and price details.

 

L

La Niña: Meteorological phenomenon characterized by being the opposite of El Niño; Cooling of the Equatorial Pacific Ocean waters.

Liabilities: Term used to signal when a company has some pending financial item with another institution.

Line-up: Line of ships, informing the position of ships in ports, in addition to giving information such as volume, destination, shipper, date of arrival, and departure.

Live Voice Trading: Face-to-face session where trading takes place in the exchange between brokerage house operators on the floor (in “the pit”).

Loading Conveyor: Equipment on which the products (soybean, corn, etc.) are transported for storage in silos or ship loadings.

Loading Guarantee: Minimum volume guarantee for a certain time in loading from the ship’s arrival at the port; When exceeded, it generates costs and fines (demurrage), but when done faster than the minimum, it generates economic benefits.

Logistics Breakdown: Volume losses in transport between origin and destination.  

Logistic Cost: Cost to transport products between origin and destination using different modes during shipping routes (i.e.-railway, road, and waterway).

Long: A long position in anticipation of a price increase for subsequent sale.

 

K

Kosher Certification: Document issued to attest that products manufactured by a given company comply with the specific rules controlling the Orthodox Jewish diet; A rabbi visits all factory facilities, assessing if the way the product is made meets the requirements of the culture; Once approved, the certificate is valid for one year, and then renewed after another visit by the rabbi.

 

M

Mark-to-Market (MTM): Marking inventory at market prices.

MINAGRI: Argentina’s Ministry of Agriculture, Livestock, and Fisheries

MTM: Abbreviation for Million Tons.

 

N

NOPAT: Profit that companies achieve in a certain period of time (usually a year) before deducting financial expenses (for example, interest owed to banks and financial institutions) after deducting income tax; The business result that will be available to financial institutions and business owners

 

O

Off-Season: Period between one crop’s harvest and the next’s planting.

Oil Share: % share of soy oil revenue compared to the total crushing revenue (bran + oil).

OPEC: Organization of Petroleum Exporting Countries; International organization created by the member countries—Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela—in 1960 at the Baghdad Conference

Origination: Algar Agro’s comercial area, responsible for the grain purchase; Also the physical operation of buying grain.        ​​

Over-The-Counter Purchase: Price fixation of soy or corn already delivered to the company that before had no contract.

 

P

 

P&L: Profit and loss result calculation.

Paper Market: Paranaguá market used for soy hedging

Paper: Refers to the standard contract (ANEC) for trading in Paranaguá (reference port for Brazil’s soy market).

PDD: Losses from bad debts; More specifically, PECLD: Estimated losses from bad debts; Amount in terms of accounts receivable, arising from a company’s billing which generate doubts about receipt.

Performance: Ability to carry out/execute. How companies/associates perform their functions while seeking high performance (“more with less”).

Physical Soy Coverage: Given the soy consumption program for a certain period, while considering the soy volume already contracted (fixed and to be fixed), the date is established up to the point when there’ll be enough soy to meet the use requirement.

PGUA: Market acronym for Paranaguá Port, pronounced “Pagua”.

Planting: Phase in which a certain crop’s activites in the field begin.

Plugged: Term used when the port, terminal, or factory has reached its maximum storage capacity for a product.

Port Spread: Competitive differential between ports, with Paranaguá in Paraná state as a beacon.

PPE: Used in two different contexts (below):

PPE in Strategic Planning: Prioritization of Strategic Projects; Method to evaluate, prioritize and approve each company’s new investments.

PPE in Treasury: Export Prepayment; Method to contract resources from financial institutions linked to export commitment; Exporting companies anticipate resources to finance the entire cycle related to the export of their goods (including production, storage, and commercialization, for example), always before shipment.

Pre-Fixed Purchase: Purchase of soybeans or corn made with volume and price defined in advance, with a future delivery date.

Pre-Fixing: Price fixing in a contract with no price (to be fixed), or when the producer chooses to fix only some price components, such as CBOT and Premium, leaving the others for another time.

Price to be Fixed: Contract establishing the term, the product, and the quantity, but not the price.

Price Rally: Sudden increase in the price of a financial asset or commodity in a given period.

Prize/Basis (also known as Basis): Difference between the price of the commodity quoted on the reference exchange and the price at the port; This amount can be positive (premium) or negative (discount), depending on supply and demand, exchange rates, and other factors.

Production Cost: Considers operating, input, plus administrative and post-harvest costs of growing a given crop

Purchase Available: Purchase of soybeans already harvested and available on the market.

Purchase Region: Each branch’s area of operation for the origination of grains.

Productivity: Volume produced per hectare (kgs or bags).

PUT: Private Use Terminal; Undertakings in which port activities take place under the regime of private initiative.

 

R

Rating: Classification made by specialized agencies to determine the degree of investment risk in a given country or company.

Recession: Term used to signify the economic contraction of a country for a specific period of time. Usually, a country is considered in recession when the GDP remains negative for two straight quarters.

Retail mid and small: Segmentation in this business sector can be done by marketed volume, revenue, or even number of check-outs (or payments).

Retrofit: Modernization process for some equipment or structure considered outdated or sub-standard.

Road Freight: Price paid for the use of road transport; Varies according to the cargo, volume, distance, and conditions of the route traveled.

ROIC: Index to calculate the percent of return on invested capital.

 

S

S&OP: “Sales and Operations Planning”; Process to deal with integrated planning between different company areas, always trying to align commercial, logistical, and industrial plans, through periodic meetings among the areas involved.

SELIC: Rate (Special System for Liquidation and Custody) related to the average interest the Brazilian Government pays for loans taken by banks; The indicator is an inflation-control instrument; When SELIC increases, the credit banks offer consumers becomes more expensive, and less money circulates in the market, reducing the pressure on inflation

Ship loader: Equipment to load soybeans in bulk in a ship’s hold.

Shipper. Company responsible for loading the goods on a ship.

Ship’s Hold: Compartment meant for the transport of bulk cargo.

Short: A short position in expectation of falling prices for later repurchase.

Soy Complex: Set of products composed of soybeans, bran, and oil.

Soy Coverage: Set of indicators that allow the volumetric follow-up of a company’s plan, measuring up to which month there’s enough soy volume for the factory to process, for example.

Soybean Carrying Cost: Cost of carrying soybean inventory from one month to the next.

Storage Cost: Fixed and variable costs to operate grain warehouses (soy, corn, sorghum, etc.).

Stock Exchange (Shares): Organized market where securities and real estate securities are bought and sold transparently, in a free and open way, supervised by the Securities and Exchange Commission.

Spot: Position with the closest expiry date being traded (exchange, premium, etc.); In the case of the dollar, it means spot trading.

S&D: Supply and Demand; Refers to the balance between availability (initial stock + production + imports) and use (domestic consumption + exports).

Swap: Agreement by two parties to exchange the risk of an active (creditor) or passive (debtor) position, at a future date, according to pre-established criteria; Common with positions involving interest rates, currencies, and commodities.

 

T

Take or Pay: Contract clause requiring payment of the entire contract, if not fulfilled; In the case of Agro, this modality is common in contracting railway quotas, and even storage; If the total volume is not achieved, the contract requires full payment even without using the service.

Top-Off: Term used when the same ship makes shipments to different locations and shippers.

Trade Desk: Area responsible for protecting the price paid for the grain, and the sale of bran and oil on the Chicago Stock Exchange (hedging), managing the export program (soybean and bran ships), and operating in the Premium Market (also known as the paper market).

Treasuries: Securities from the United States federal government.

 

U

USD: The U.S. Dollar; North American currency.

USDA (WASDE): U.S. Department of Agriculture.

 

V

Volume of Soy Received After Discounts: When a batch of soy is received, it’s evaluated and fits into the ANEC classification standard (14|1|8), with 14% moisture, 1% impurities; and 8% damage. Whatever’s different from these limits is deducted from the gross volume, according to a table established by the company, reaching the “Volume After Discounts”.

 

W

WACC: Average cost in resource (money) percent that a company uses to finance its assets and rights.

Washout: Repurchase of a position in order to liquidate the operation.

Weather Market: Period in which the weather can have a strong influence on agricultural production, bringing volatility to Chicago prices.

Winter Crop: Second yearly corn crop in Brazil, planted after the harvest of the summer crop; Currently, other cultures have adopted this practice too.

 

Z

ZBB: Zero-Based Budgeting; Strategic tool used by companies in budget planning preparation for a given period, aiming at better distribution of expenditures and expenses; During its review process, assumptions related to the function of each revenue, expense, cost, and investment are analyzed, considering the company’s strategic plans and needs.

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