Latin America’s treasurers shift gears in the face of persistent volatility
Latin America’s treasurers are adopting flexible, practical strategies to manage FX and commodity risk amid inflation, volatility, and trade shifts.
Foreign exchange and commodity risk management in Latin America requires more than theoretical models or strict policies. For companies operating in volatile economies—with inflation, changing trade flows and structural inefficiencies—risk management must rely on operational understanding, flexibility and ongoing reassessment. At EuroFinance’s International Treasury & Cash Management Summit in Miami, treasury professionals explored commodity hedging strategies, discussing the application of forwards, futures, options, and swaps to manage price volatility in critical commodities for both US and Latin American buyers and suppliers.
For Leandro Wendt, CFO of Agrícola Alvorada, an agricultural company based in Brazil, the key is to question assumptions regularly. “Treasurers tend to forget or forgo hedging costs,” he said, pointing to experiences in Argentina. “You generalise, and in doing so, forget the outliers. That’s dangerous when volatility becomes structural.”
Wendt oversees a formal financial risk management policy that includes scheduled reviews, but in practice, assessments are far more frequent. “We adjust our limits not just for volume, but also for inflation, for value-at-risk, or any impact that emerges. If your company is growing or operating in an economy with high inflation like Brazil, a rigid framework doesn’t hold.”
One example he highlighted is the firm’s investment in a corn-based ethanol facility in Brazil. “Statistically, corn doesn’t really correlate with ethanol prices. So how do you hedge it?” he explained. “We had to take a decision to assure the facility will not miss the inputs, such as building a structural short. These are practical decisions, not academic exercises.”
Bruno Nespoli Damasceno, Leader of treasury and risk committee – IBEF, the Brazilian Institute of Finance Executives, believes the same. “It’s not about writing a policy and ticking boxes. If the policy is disconnected from the real economy, it serves no purpose,” he said. “Brazil is now one of the top producers of oil and soybeans globally, but many tools are still designed with assumptions from the past, based on the United States.”
He added, “Most treasurers track commodity prices daily. But how many check the water levels of the Paraná River? It’s our main export route. If river levels fall, logistics collapse, and suddenly your market exposure changes. Risk management must be linked to those physical realities.”
Defining an effective hedge
Profit alone is not a valid metric for hedging success. Both Wendt and Damasceno made this distinction clear.
“We’re constantly caught between ‘to hedge or not to hedge’,” said Damasceno. “But a profitable hedge isn’t necessarily a good one. If volatility is reduced at a reasonable cost, that’s a success.”
Wendt agreed: “We try to get our farmers to hedge their margins, not prices. If your mark-to-market results are aligned with when you realise revenues, and you’re operating within the margins defined in your business plan, then the hedge is doing its job. Otherwise, it’s speculation.”
He noted that tools like value-at-risk (VaR) provide a useful benchmark, but only in the right context. “You need to measure and reassess. But you cannot define success by whether your hedge was profitable. That’s not hedging—that’s proprietary trading.”
Building governance that doesn’t get in the way
Latin American markets shift quickly. Delays in decision-making can be costly. While risk committees are essential, they must also be nimble.
“We report weekly to our committee,” Wendt explained. “We operate across 13 sites and 19 warehouses in Mato Grosso, and every position is shared transparently. Our physical and flat limits are fixed—100,000 tonnes and around 30–40 thousand tonnes respectively—but we are allowed to arbitrage between locations. The total net exposure must remain within policy.”
The governance structure is flexible. “If a limit is breached, we have 72 hours to bring it back in line,” he said. “If that’s not possible, the commercial owner must explain the rationale to the committee. It may be approved or rejected. If rejected, the position is unwound. It works well because of strong internal alignment with the commercial team and the CEO.”
Damasceno warned against bureaucratic processes. “In Argentina, new bonds were issued without warning. If your committee can’t meet or respond quickly, you’re already behind. The process must allow operational flexibility.”
Guarding against speculation
As cryptocurrency and other speculative markets gain attention, Wendt highlighted the need for clear boundaries within treasury functions.
“In real life, I get asked constantly to increase trading limits or take arbitrage positions,” he said. “The question I always ask is: what risk are we removing from the table? If we don’t know, then it’s not a hedge.”
He stressed that internal controls and a clear culture are vital. “This can’t be handled manually. You need systems. And often, the person making the request doesn’t understand the full risk either. The Treasury needs to ask the right questions and stay aligned with business objectives.”
Also read: From internal controls to external regulations: the compliance battle in Brazil
Adapting to inflation and mismatched costs
Inflation adds further complexity, particularly in economies like Brazil or Argentina.
“In inflationary environments, you can be mismatched either in revenue or in costs,” said Wendt. “If your revenue is increasing, you need higher position limits. If your input costs are inflating faster, you need lower ones. We work with ranges—physical and statistical—to allow for that adjustment.”
He recommended building flexibility into the policy itself. “Using fixed limits is not realistic. Incorporate ranges, monitor frequently, and revisit assumptions as conditions change.”
Also read: Navigating trapped cash: treasury tactics for unlocking funds in complex markets
Risk expertise must go beyond financial metrics
Understanding how business cycles, geography, and logistics interact with pricing is essential for any treasurer managing commodity risk.
“In agriculture, there’s a seasonal pattern to pricing,” Wendt noted. “But events like the U.S.–China tariff changes can distort that. One year, China redirected 130% of its soybean demand to Brazil. That shifted prices in unexpected ways.”
He added: “If you understand when the crushing season begins or where export ports are operating, you can hedge more effectively. Sometimes, your assumptions are just as important as your execution.”
Damasceno concluded “It’s not enough to check market prices on your phone. You need to understand what’s behind them. Logistics, climate, policy—all of it. That’s how you build a treasury strategy that actually works.”
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