Agro Hedge

“Brazil is agro”. This has been the official propaganda. In some sense that is true, the Brazilian economy is quite dependent on agribusiness (and on mineral commodities). But is it good or bad to be so dependent on commodities?

Commodity prices generally fluctuate, over the long run, around their average cost of production (a commodity is cheap or dear in relation to its cost of production). As technology improves, the cost of production always drops. The quantity of soybeans that can be grown per hectare has been increasing consistently with improvements in technology and so on.

So, from a long-term point of view, commodities have been and remain a bad buy-and-hold proposition. But within the long-term downtrend, there have been periods when they explode on the upside — mainly because of government actions, including wars. As a result, commodities are highly cyclical and can be highly volatile (which creates great speculative opportunities).

For instance, let’s look at the soybeans (Brazil’s largest agricultural export) price per bushel evolution since 1970 (in constant US$ 2022 value), as depicted in the figure above:

* 2022 price: $15.50

* Highest price: $45.99 (1973) – 3x the present price

* Lowest price: $7.64 (2001) – half the present price

* Average price: $17.12

Conclusion

Commodities are the raw materials of civilization, and the public has been propagandized into thinking that humanity is going to run out of commodities.

However, technology has always stepped up to reduce the production costs of all commodities, and this trend is accelerating drastically. When genetic engineering and nanotechnology are perfected (no, it is not science fiction, just check DeepMind’s AlphaFold proteins modeling), commodities will become super abundant and super cheap.

Thus, hedge yourself from a commodity-based society by investing in Fabrica Ventures tech fund II.