Frederico Humberg is the CEO of Agribrasil, a São Paulo-based grain origination and export company with a focus on soybeans and corn sourced from Brazilian farmers for sale worldwide.
During his 30-year career in Latin America, Humberg held senior positions at Glencore and Bunge before becoming an entrepreneur and investing in 22 grain export-related companies, including Terlogs, a port terminal in southern Brazil.
More recently, Humberg sold Agriservice to Gavilon, which was the start of Gavilon do Brasil where he served as CEO for five years and successfully hired 150 people. In 2016, he left to form Agribrasil, which is fast becoming one of the biggest Brazilian grain export companies.
HC: You have over 30 years’ experience in the Brazilian grains market. What have been the biggest changes during this time, both good and bad?
FH: I have participated in an enormous crop increase over the course of my career. When I started, Brazil was a net exporter of corn and a shy exporter of soybeans. Since then, crops have gradually moved north and now the north produces more than the south. The country has made great investments in logistics, with the railway concession and port privatisation. It is still primarily truck logistics, but the railways and waterways are taking a bigger chunk of the total.
Over the last 10 years, Brazil has seen a big shift in logistics to the north – we went from a country that was short on logistics to one with idle capacity. And we are beating export records; April 2020 was the biggest export month ever seen in Brazil’s history, so it is a very good time for us at the moment.
HC: You’ve witnessed different crises over the years – what is Covid-19’s immediate impact on the agriculture sector and how do you see it changing the landscape long term?
FH: Paradoxically, we are having a great moment in grain exports, where everything has so far been very positive for us. The Chicago Board of Trade, which moves prices worldwide, is currently down 20 percent and international freight costs are down 60 percent, so for the consumer grain prices are down about 30 percent. That means there is really strong demand for stockbuilding in different regions, while there is also strong demand from China in particular following its swine fever outbreak last year.
Meanwhile, the devaluation of the Brazilian currency by about 40 percent means that even though international prices are lower, the farmer here is getting 25 percent more value in local currency, which means there are absolutely record levels of selling. Farmers are very motivated to sell, consumer demand is strong, logistics have not been interrupted and so the current conditions are almost ideal for grain exporters.
Following the outbreak of the virus, we had some concerns about logistics that did not materialise, so we now expect this situation to continue for the next few months and into next year. These foreign exchange movements have made a lot of farmers sell next year’s crops, which means 30 percent of next year’s crop is already committed, and we now see people selling into 2022.
When Gavilon bought out my company in 2011 I felt there was a space for a more nimble trading company working closer to the demand and to the farmer, and acting more like a service provider.
HC: Why the decision to create Agribrasil and what is the story behind the business? What advantage do you have over majors in a fiercely competitive market?
FH: I have been 30 years in this business, with the first 15 spent working for multinationals including Glencore and Bunge and then 15 years spent as an entrepreneur, building companies and investing in businesses like freight and logistics. My last company, Agriservice, was sold to Gavilon Group to build their business in Brazil, and that was very successful. I spent five years with Gavilon building a sizeable operation here.
With this experience I decided to form my own company, Agribrasil. We saw there was a lack of local players in the export market in Brazil, which is heavily dominated by the ABCDs and the large international traders like Glencore and others. When Gavilon bought out my company in 2011 I felt there was a space for a more nimble trading company working closer to the demand and to the farmer, and acting more like a service provider.
We work on tailor-made solutions for our clients. We have a client base made up of international end-users that want an option to buy in Brazil but away from the big traders, sometimes because of conflicts of interest. We try to accommodate that and pay close attention to their demands, normally tapping into niche markets, like the smaller-sized vessels or non-GMO, for example. We stay away from the obvious markets where there are typically smaller margins.
This business requires a lot of capital investment, which is our biggest hurdle. We are now in our fourth year and last year we grew by 200 percent. This year we expect to grow another 100 percent. It is hard to keep up the pace, but it was important to reach a certain economic level where we are now, which allows us to tap into better clients and access different bank lines.
Although we are now a medium-sized company, we take risk controls very seriously and understand ourselves as a logistics company really, because logistics costs are sometimes more than the costs of the corn. We are looking to continue improving our governance, and will soon be looking to raise capital for investment in port terminals and eventually processing facilities.
HC: The Asian export market for Brazil is quite developed. What new expansion markets are you looking into?
FH: There is no doubt that China is a monster, but we don’t have the size to go into China as yet although we know we can’t avoid having a strong presence there in future.
Corn is our main product, although we operate different markets such as the Caribbean, Middle East and North Africa, and Asia is very important. Japan was the number one corn importer from Brazil last year, and typically Vietnam and South Korea are top five destinations.
Farmers are very motivated to sell, consumer demand is strong, logistics have not been interrupted and so the current conditions are almost ideal for grain exporters.
HC: Food security is a constant theme for nations and perhaps the reason why soft commodities are maintaining such a strong demand globally. Do you agree? How do you see Brazil competing against other nations for agriculture exports going forward?
FH: Brazil has done a great job competing for agricultural exports and that is down to both the farmers and the investment in logistics. The government has done a good job of not interfering; that has been its main job so far. The government is shaky in many ways, but the Ministry of Infrastructure is very good and has facilitated privatisations and investment.
Now, Brazil is maybe the best grain export market globally – the US, Argentina and Ukraine are our three biggest competitors. Brazil currently produces the same amount of soy as the US, 120 million tonnes, while Brazil produces only 100 million tonnes of corn and the US produces 330 million tonnes. So, there is space for a lot more growth in Brazil, particularly in corn.
HC: Do you expect more foreign direct investment into this area in the near term? If so, what opportunities do you believe exist in this space in Brazil?
FH: We have seen a lot of investment in Brazil over the last 10 years especially by Asian countries, mainly Japan and China. Unfortunately, most of them have not been very successful. It requires a great experienced local team with a lot of authority to take daily decisions and protect margins.
At the moment, I would say there is a great opportunity to invest in Brazil, mainly because our currency has devalued by 40 percent. Brazil is for free!
However, with the crisis, I don’t know if we are going to see much FDI for the moment. Investors are going to be more conservative overall so it may be a while before we see international investment strengthening. But the opportunity is significant, so it is probably only a matter of time.