Wood chips are piled high for processing at the Fibria plant, formerly known as Aracruz, in Aracruz, Brazil on Tuesday, July 26, 2011.
The world’s biggest eucalyptus-pulp maker found itself cleaning up a sticky mess after busted foreign exchange trades in late 2008 led to a loss of $2.5 billion. The trouble began when Aracruz bet big on another boom year for their currency, the Brazilian real. It was a fair hedge – after all, the currency had beat the U.S. dollar each of the previous four years. So the company loaded their money into foreign exchange options just as the real started to slump. And slump some more. In eight weeks, Brazil’s currency lost 24% of its value, Bloomberg noted. And Aracruz lost a huge fortune.
Aracruz stock plummeted to its lowest point in 14 years and led to the resignation of six board members in the wake of the embarrassing losses. The company was forced to cut investments and expansion plans to recoup their funds.