Brasilagro – Cia Bras (NYSE:LND) reported first-quarter financial results on Thursday. The transcript from the company’s first-quarter earnings call has been provided below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
View the webcast at https://mzgroup.zoom.us/webinar/register/WN_lv-7VKjQRFeuDq3Xmp4a1A#/registration
Summary
Brasilagro – Cia Bras reported a net income of 81 million reais for the first quarter of the harvest year 26/27, with an adjusted EBITDA of 95 million reais.
The company successfully sold a farm acquired in 2021, generating 51 million reais in net income with an IRR of 26%, and plans to continue active farm sales.
Brasilagro has already sold 57% of its future soy production, with significant progress in its plantation operations despite challenges like El Niño.
The company aims to reduce its short-term debt by 150 million reais in the next six to eight months using farm sale receivables.
Management highlighted advancements in operational efficiency through telematics, reducing diesel consumption and improving productivity.
Full Transcript
OPERATOR
Good afternoon everyone. Here we’re gathered for once again as we release our earnings at Brasilagro – Cia Bras. If you haven’t been participating in previous sessions, we’re disclosing the earnings for the first quarter of our harvest year, 26, 27, the beginning of our harvest period. And I’m here with Andre Guillaumon and Gustavo Lopez, our CFO and Investor Relations Director. And for those of you watching in English, we also have this presentation available on the website. And you can select the interpretation icon on Zoom as well. Thank you so much once again. And we’ll pass the floor on to Andre for the beginning of our conference.
Andre Guillaumon (Chief Executive Officer)
Thank you, Anna. Thank you, Daisy. Thank you Camila and everyone. This earnings call is a little different. I was remembering actually that it’s been 10 years of earnings calls and we always have a computer and a screen and our headset, right? So today is going to be a little different. Once again, thank you so much. I want to say that today we’ll take advantage of this moment with a call and talk about the first quarter of the company. It’s a single opportunity and it’s the first opportunity. And so. And so we. We had 20 years of a lot of stories. And so now we’re. It’s just banks and numbers, right? So let’s be rational. So in the first quarter we have 81 million of the net income.
So we were saying we’re going to sell the farms and we need to perform the sales. We consider that makes sense. And so this was a farm we bought. It came from back then when we had that merger with Agrifirma. And so we had about 102 sacks of soy. And so we’re not talking about 30 years here, we’re talking about almost five years actually, right. Since we sold about 400 sacks of soy. So I think this the capacity that Brasilagro – Cia Bras has. And we’re going to talk about this in our next sections, right?
How many transactions we’ve already performed. We have a very significant track record and this sale was very important. We’re not going to stop here. We’ll continue to be active. And I always mention that initially we diversified the company due to our productive risk and our reaping the fruits of the liquidity due to this risk diversification process. So no doubt in Mato Grosso it’s not been easy to sell area, but in Bahia, due to irrigation and a bunch of other factors, been monetizing a few transactions. Right. I think that was really important. And so we had about 95 million reais.
And I think a concern that’s very inherent to all of us as well as you investors that have been watching our work over the past quarter is that we can see the net debt to EBITDA ratio that with this sale we add on about over 90 million in receivables. And we’re going to show you this. And we bring the net debt to the company to 1.05 times, right. Net to tribute as a ratio. And so we have the muscles to go through difficult moments and also to maybe think about future mergers and opportunities because we have very low level of debt.
This sale. We consider a level of 626 million receivables for the sale of these farms, plus these amount. Now a photograph that we’re going to share now. Everyone wants to know how the first quarter is doing. And whenever I talk to the analysts and reporters, people ask about the El Niño phenomenon. But we have a harvest that so far has been very good. We’ve never had such an accelerated plantation process in Mato Grosso. Yesterday we had 93 or 94% of all of Mato Grosso already planted. We were actually missing a few plots of land where we. It was actually our own fault, right, because we moved some corn areas to soy back now.
And so we’re really advancing. And it’s not like the forces of nature helped us, right. When we started saying, what are you going to do for El Niño? We’re going to reduce the marginal error, we’re going to increase our operational capacity, our harvesting capacity, we’re going to switch materials that we can have a more defensive approach. And so we did all of this. And rain came a little earlier this year in September, right. So we started planting on the 15th and others on the 20th.
Now we’re finishing Mato Grosso and we should. And we already have significant progress in our plantation. And with this we were able to take on a higher portion of sales of soy. So we already have established plantation and we have 57% of our future soy already sold. So this is a number that we’re going to get into more details about. But we know that it was a year of a lot of volatility because of elections. And we’re going to show you our P&L now. So we’re going to tell you a little bit more about the sale of this farm. These are about 51 million of net income in this farm, an IRR in reais of 26%.
And it’s worth mentioning this is a farm that was acquired back in the operation in 2021, this is where we had the sale just now, right? And there’s very limited investment. So a little bit of what we’ve been looking at is the opportunities for business in financial stress. So there was a very high level of debt in dollars. There wasn’t much of a cash flow generation. And when combined with our company, as we have more structure and muscles, we were able to achieve a very interesting transaction. And who was left in the shareholder base, which were the pension funds left in this position, were also really satisfied as they were able to have a percentage of the company and received shares in the company as well.
So it’s a transaction that definitely will be an important example for the future. And we’re going to talk about. There’s no sale-leaseback structure here. All we have here is there was an area that was already leased. This area was already leased out to a third farmer and we were able to honor this contract, right? So it was only going to be free in 2030, but the landlord bought this site and there’s still a part of land that he’s going to receive at the end of 2030, only due to the fact that it was already previously leased out to a third party that would be a possible buyer.
So there’s no disguised operation, right. It’s just an area that we are able to deliver partially now and the other part up ahead. And there’s one part that’s interesting, right? We don’t want to grow as much in this area on the same year. So from the 1900, we are printing this amount and we sell and receive. And the third part that we’re going to deliver at the end of the lease to the third person in 2030. So it’s a transaction where the cash is already available.
And what I always say is that it’s difficult, right? We’ve seen a few transactions, right, but not really at interesting price ranges, right? So that places us in a very interesting scenario, right, with the possibility of us searching for these business opportunities. Right? So just to show you a little bit of the graph of how this has been advancing, our soy was low and it reacted significantly. And in the last few months, right, we didn’t believe in this.
We thought it was around 11, 11.50, but there was an interesting trend and actually went up now. And now it’s actually accommodated a bit. But we’ve seen the currency, considering everything that’s been going on with all of the different factors and we saw currency go up and it’s been working on a significant composition. Right. For. Right. So for corn we were having some variations. The last drop, since we were able to plant very well at Brasilagro, Mato Grosso was also planting pretty well.
So we have soy in a very ideal window to have like an off season harvest in normal conditions of pressure and temperature that are even better actually. So we’re actually 15 days beforehand or early compared to last year. And the state is also really advanced compared to last year’s results. Right. So this reflex here of the corn is a bit of the expectation that we have. Even with the weakening of El Niño, then we have a strong La Niña and people are starting to foresee some things in the sense then for corn, we’ve seen it advance quite a bit there.
We took on a lot of positions as well. And today we’ve already reached 410 for cattle. And I think Edwyr will get into more details about this. We don’t have a lot of cattle. We have. But we really like it when it skyrockets. Right. Because that creates like an umbrella for all of the other types of beef and like pork and chicken and other animal proteins. Right. So we are really satisfied with this recent achievement. The market’s really unserviced and especially recently when you look at the US they’ve slaughtered all of the cattle.
So there’s not available cattle, me and Gustavo there in the beginning of the year. And if we don’t have cattle available, we’ve seen that even Eduardo selling cattle a lot more expensive in Paraguay than it is in Brazil. So we’ve seen there’s a big part or portion where we have maybe two or three years that are very positive in cattle raising. But let’s try to be very responsible and focused on this. So our health agencies can really take care of all of this.
So we don’t have any kind of crises. Right. So after we’ll also. Well, we also sell cattle. And the fazenda perfect was also interesting. Right. We had. Well, it’s our bazaar day, but we can go over a little bit. But anyways, what happens is we always like selling the farm at the currency of the farmer. And this is the most intelligent way to reduce the liquidity risks. Right. And so they don’t have this position of like having a hedge or locking in the forward with the banks that are with us, with Itaú and everyone else that performs forwards with us as well.
And so the farmers don’t really have this dynamic, what is this kind of informal head. They have like a barter and guarantee the cost of production. And then they also have to have like a head with heading, which is where they buy the farm with the soy sacks. Right. We like it, right. Because we get into the liquidity, we take on the operation into our P&L. And then with this we reduce the volatility with any delinquency risks. Right. So we’re gonna lock this in.
If it’s 200, they’ll deliver this at 200. If it’s 100, I’ll receive it at 100. And we’ll have to have the virtue sell the soy and sell the soy even better than those 100 or better than the 200. Right. So that’s something we always kind of provoke. But when it comes to preference and why I’ve been looking at cattle a lot is that the only farm we sold as according to the value of the cattle? Right. In the past they would talk about this a lot, right. As a type of currency. Right. But we set a base value where we have a minimum, which at that time was 309. And we didn’t lock in the ceiling value. Right. So if the cattle goes to 250, they have to still pay the 309. If it goes to 450, then that’s the screen value or screen price of the day.
So it’s good for us, good for them. And we’ve been operating a lot of cattle derivatives due to this. It was 154 million, but this year we sold cattle at 309, and we now paid it off at 353. So you won’t see we’re not going to correct the farm IRR. But it did come in as financial results, right. 309 to 1053. Well, I kind of skipped ethanol, but we’ll talk about the bad news later on. Anyways, so now what we want to show you is we’re always worried about locking in the contribution margin.
So in this graph here, we’re going to explore this a little more. But it’s a lot of volatility. And in agriculture and I’ve worked in the fertilizer sector and now I’m going to complete 20 years. And Brasilagro – Cia Bras. I don’t remember this much volatility in two or three years for fertilizers. Never in my life have I ever seen this. And we’ve already had like the war in Iraq and other conflicts, but we’ve never seen what we’ve seen now recently.
So this graph on the top shows you a little bit about this with the little red dots, you can see how we manage risks. And so first graph, that’s the agriculture. And that was MAP at 710. Take a look at the curve. And KCl, we also bought at 354 and now they got a little more cash from Gustavo when they bought that from the previous harvest. And we went back to buying 350 at this level. Right. So companies that are capitalized with risk management can do this.
The middle of the midterm is what happened with KCl. But we were able to, we said originally we’re not going to be fertilizing sugarcane with urea 350. So then we started fertilizing the first sugarcane that had humidity in the soil. And this would really lead to effects and make the sugarcane grow. But from May, June or July, when there’s no more humidity in the soil, we would wait on the fertilizing for soil. coverage. And we were kind of buying in some more time. And we didn’t need to buy that much, right? Because, first of all, Sao Paulo started raining and we already had to fertilize. It rained in Maranhao. We had to fertilize again. And thankfully the time that was going to be four months became two months and we were able to take on urea positions and do some good business. So my point is agricultural activities have become a real fine line, right?
It’s not about, like, if you take on a decision to buy urea at the bottom or at the peak, and KCL is here and you’re still leveraged. There’s no magic trick, right? There’s not much of a logic here. A little bit lower, we can show you this exchange ratio. I always talk about this and I tell them, tell Duadi, that when we’re in a very volatile reality in the market, we have to go back to ancient Greece and see what’s the best exchange ratio and think about other forms of currency.
So this year we lost a bunch of our references frequently, right? Multiple times. And this is the graph we consider a lot when we consider the exchange ratios. And so what we did with KCL as well, we don’t know if it’s going to go up or down, but we think that the exchange ratio is very favorable. And so that’s why we took on this position. So it’s a little bit of how we manage our cost matrix in the company. And so I’ve talked about the revenue matrix a bit. And here you have the cost matrix and then how sugarcane’s been behaving. We have very good news for sugarcane. Some news, it’s not that good. And I’ll tell you a little bit about production. It’s been growing significantly. We have harvested area that’s really advanced compared to last year, and DCH is a little better. But what do we consider as uncertainties? Well, a little bit of the sugarcane in the state of Sao Paulo.
So as you know, we have the sugarcane in Cozan, in Bratas, and we never had a July with 200 millimeters of rain. And Alencar knows what’s going on in the entire sector. The numbers already consider that there should be 200 billion in tons. And we’re going to also have an impact in sugarcane in the state of Sao Paulo. So I was discussing this with the company in the executive committee, and we think we can deliver in the same agricultural farming year.
So next year we’re going to really speed up in March. And our luck is that in this unit we have a production ramp up, right? So if you have a plant at the moment, when you have the sugarcane, one year will harvest more and the next you’re going to harvest less. Right? That’s a kind of a rule. But, on the other hand, we also kind of balance out the company’s revenue. And in my view, we can see a bit of the flow in a little bit better. We consider our GMV as well as a lot better than projected. So Eduardo sold his bad farms and I just kept the good pastures. And so he needs to deliver more beef. Right? So here’s a bit of our breakdown. From 165 hectares of farmable land, where is this position? Soy, sugarcane, corn, small pasture areas, and other crops, beans, etc. And the status of the plantation. So 68, which I mentioned about this, is the number for Mato Grosso, our five operational units in Mato Grosso.
And 68 is a number that considers Mato Grosso, Maneo, Piaui, Bahia, and even Sao Paulo. And we consider all of the regions. Now we reached 68% advances and it seems very interesting, right? So when we talked about Mato Grosso advancing, we can see that in Bahia, due to a fear of El Nino, we advanced really well. We’ve been also advancing significantly in the plantations in Chapahau Hoa. Ginho’s also been wrapping up on Wednesday. What’s a little bit later or delayed in regards to other regions is Maranhao.
Right. So we started planting about a week ago, and that’s where we’re a little bit delayed in our plantations. Here you can see a little bit of what we’ve showed. And if you see in the rear, Mayor, you can see the past showing us a lot. And so 25 was challenging. We approved the budget with the board at 6 reais a dollar. We finished with 5.25, 5.10 as a currency exchange rate. And so we had soy that was about 10.75, which was our budgeted price. And then what we saw happen with soy, right. So we finished with 25, 26, considering $11 bushel. Cotton was 70.4, 3.4.
Sorry. And receivables for farms are very similar. Right. So before it’s kind of separate, you would sell production and not receivables. But in the past few years we’ve been advancing in a very similar manner. Right. So that’s what we can expect. And what you can see on the bottom is we start off with six, we finished at five as currency. And this is what we’re able to achieve. So with soy we had an average soy 5.50. For cotton it was 6.65. And here we have one point, which is the reduction of the areas. Had a sold position. And then you have a risk crop, cost of capital, etc. So let’s reduce cotton. And when we reduced our cotton, we had a lot of volatility, volatility that was intrinsic. So we considered an average price of the dollar for the cotton. And actually normally we already demand a bit more because the forward is like four or five months more. So four or five cents more would have to be a little more.
But anyways, we sold before, so we’re able to have an average price that was better. And then for farm receivables, $5.58. So what have we been achieving for this harvest with 95% already planted in amounts of growth of 68% coming in in the company. Well, 57% soy has already been sold at $12.26. So it’s worth mentioning that you saw those moments where we bought fertilizers back then. And we have 12.26. We have soy that sold at 11, 11.50, 11.30. The price we’ve been locking in is 12.26.
Considering a dollar combination of 5.50 up until two weeks ago was really a good deal. But now 5.50 is not that good. Right. If the earnings call was just two weeks ago, everyone would think it was a genius. Now it doesn’t seem like it so much. Right. With the current events, but for budget purposes, we had achieved a $5.30. That was our budget this year for this harvest that we’re planting. So we’re already 4 or 5% above budget, but we’re taking advantage of this.
After the week, with all of the confusions going on, Gustavo and the team were able to sell at 5.70. There wasn’t that much liquidity, but we were able to sell part. Now, for cotton, we have a significant part already locked in. We’re considering a lot of cotton irrigated areas with 57. So it’s spectacular margins. And so when you consider $1.05, 74 cents for cotton, now we’re considering a pivot productivity above 350 for the irrigated aroma in these areas where the average was way above average.
And so how’s it going, Mr. Norio? So the prices were really, really good. So farm receivables, we’ve had a significant amount, 65% locked in on a currency of 5.48 back then. Now, Gustavo, you have to explain what went on with all these numbers. That’s your fault.
Gustavo Lopez (Chief Financial Officer)
Well, now. Hi, guys. Good afternoon, everyone. Thank you for watching us online as well. But here we’re going to share the first three months. And I reminded you all that this is the period from the 1st of July to the 30th of June. And here we’re reporting our profits of 81 million reais and adjusted EBITDA of 95 million reais. And our objective is always to consider operational results at about 150 million reais and these farm sales at about 150 million reais or so.
So this is like the base zero budget that we normally try to follow. And then what we consider as a positive expectation here is through the sale of the farm farms, we can start unleashing a bit of the real estate aspect of the business. And we know the relevance of the real estate business in the company’s earnings. And that’s what makes a big difference always. And here we’re also presenting the 50 million realized here. That was the sale that I was just talking about and explaining in detail.
The other line I think is important to mention is that during this quarter we had a very relevant effect for the company’s balance sheet, which was the price rally of soy prices with a real that was really appreciated and valued up until the 30th of June. And for us, it’s really important to keep up and watch the effects of this from the financial results perspective. Right. So we are going to start understanding that within the financial results in the quarter, 37 million reais positive. There’s an effect where it is due to the updates of amounts receivable, right, and that I was mentioning. So we have some liabilities that we’re going to show you later on. About 1 million reais that considers an adjustment, a correction that is especially according to CDI. So it’s about below 92% CDI. And there’s another part of this debt which we kind of left as dollars.
But when we consider our net debt and we include the receivables for the farm sales, what’s really important is when we face this kind of price rally, we need to try to find opportunities for derivatives. Right. So most of these earnings or results that were extremely positive financially can be explained mainly by the fact that we take advantage of these opportunities and try to lock in the receivables from farm sales. And that will help guarantee that these receivables can cover part of the debts we have in the future.
So explaining this, the 50 million reais positive per farm sales and the 37 million reais positive that come from the financial aspect. What’s missing to explain here is the operational aspect. Right. We can move on maybe to the next point. Yeah. So what we can see here is during the first quarter, what we’ve seen is the entire stock that is loaded and we really understand there are positive sales opportunities. And soy, we’ve already sold 54,000 tons.
We still have about 25,000 tons to perform these sales during the quarter. Now for corn, we have 70,000 tons sold. Corn is something we always talk about as places we plant in. Normally are regions like Mato Grosso, where we have the obligation to consider the coverage of this area. So we already know we have this opportunity cost. And we plant with the expectation of understanding how this market behaves and from then on understanding if we can have a good business opportunity or not.
So last year we were monitoring price productivity. This year, as we don’t have this area to store this product, we have to ramp it up in the harvest period. And at this moment we weren’t able to achieve such positive results as we had in the previous year. But even so, we still have practically 50,000 tons still for sale. And we expect to see some good moments in this sale. We’re close to industries, ethanol, and all of this will give us a chance to still have very positive results.
And sugarcane is another pillar of ours for EBITDA generation in the company. And we’ve suffered quite a bit during this period with ATR prices that were way below while we were practicing then in June and May and July, we basically had prices that varied where the margins were very tight in regards to what we would normally consider would have to happen, right? So now, if we have positive news, then this year we would probably not have any issues with fires, with ice, icing.
And this generated significant productivity. Our expectation is that prices will also have significant recovery in the price increments that will adjust the entire harvest. And it’s a crop, we have an expectation for that up until the 30th of March. We should be presenting very positive margins, right? So the 150 million reais we talked about with EBITDA generation from an operational perspective, then sugarcane, soy, cotton, which I’m going to explain later on as well, I believe we’re on the right path so that all of this can happen.
Right now for cotton. If you’ve seen our results in the previous year, you probably saw that the company suffered a lot, right? We were hindered a lot because of productivity levels we had achieved in August, September 2025. But now this year we had a harvest with a lower surface, but it was very positive from a quality productivity perspective. But we still haven’t begun to commercialize these products. But we expect that will have very positive margins due to the derivatives that we’ve been able to lock in.
So cotton is going to be a crop that we consider in the next quarters will also contribute in a very positive way to our operational earnings and results. And then here, Andre, I was talking about the importance of having this control for all of the financials in the company and the company’s debt of 1 billion reais. So especially when we consider this from a long-term perspective, these are projects that we’ve been in the process of execution still, such as the irrigation in Bahia, the transformation and development of almost all of the areas that the company still had to transform. And so we’re still missing a few surfaces within Paraguay.
And we’re already looking into how we can fund this to finish the development of this surface. But we consider that all of the projects and investments in the long term, we’ve already initiated the returns of these cash flows for all of these operations, right? And we’re not concerned with the long term. In the short term, we decided about in the past two years, especially when we had interest rates that were way below like 6, 7%. We had understood that we wanted to have 1 billion reais of our working capital cost. We prefer to use third-party capital.
We understood that was a good structure. Nowadays we don’t believe in this anymore with the interest rate expectations still being really high than what the business could handle. So our biggest expectation for the next six or seven or eight months is to reduce the short term by 150 million reais. And we’re going to be using part of the receivables of the farm sales in the cash flow, perform the payment and we’ll reduce a bit of the debt level in the company. But we still constantly monitor the whole set of factors, right? How much of this debt, 1 billion reais, and what we consider as cash position as we understand that there are also almost all of the purchases of inputs performed.
And so 621 million reais is partially incremented by the new farm that’s coming in. But also the other part is due to the rally of the soy prices that we’re able to lock in partially. And when we see this debt, the EBITDA debt, we’re talking about like one time as a comfortable level, right? But the cost of debt, as you mentioned, we understand is very competitive for the sector that’s really hindered. And the biggest objectives here are I’m looking at charging now because he’s seeing we have to pay off 150 million reais and we’re going to try to extend this long term a little more to maybe three, four or five years. So that would be the company’s challenge.
But we’re super comfortable with the debt level in the company. Thanks, guys.
Andre Guillaumon (Chief Executive Officer)
Next. And then here, just to remind you all this year was really challenging. Normally we’ve been using significant amounts of our receivables from farm sales to perform investments and the payment of dividends. But this year we understood that it would be more important to reduce the debt level in the company and redistribute a bit of our priorities. But we didn’t want to stop performing the payout of dividends because I think that’s our commitment to shareholders.
And so we’ll always be paying our dividends and we’ll be paying this on the 16th of November. Actually that I believe this is a small contribution, but just to demonstrate our commitment to all of you. All right, so Q&A now.
OPERATOR
Thank you, Andre. Thank you, Gustavo. Now we’ll move on to Q&A. But anyways, before that maybe we can have a quick incentive. People are going to receive dividends and shares for Brasilagro – Cia Bras on Black Friday. So it’s great investment, guys. Oh, and now I’m going to pass the phone to the Linkara XP.
Andre Guillaumon (Chief Executive Officer)
Well, that’s a very good, challenging and intelligent question. But I think the sale is something that depends on us, that we can control. When we see there are opportunities and we make and it makes sense, then we just achieve that. Right now the purchase depends on what we’re going to bring into the portfolio. So prices dropped. And it’s not that land hasn’t dropped in prices. Right. It used to be negotiated at a thousand sacks of soy. Now the same land is worth maybe 120 sacks.
But when you consider a sack that’s worth 120. It’s not that we’re not reaching the business opportunity. We don’t have new opportunities coming up. They appear all the time. I was just in Mato Grosso last week with a bank looking at land, but we still have internal return on investment rates that are like four, four and a half percent. It doesn’t make sense to fund with shareholders with an actual interest rate of 10 and profit by that four and a half.
What do you think will happen in the mid to long term? Well, I think we’re going to have to look at the stress. Right. And that’s something we have done already in the past. Right. Which was in financial stress. More was also financial stress and Taquari as well. So I think what you mentioned is very wise. With the judicial recovery processes going on, people postponed this a bit, but we’ve also seen a very different approach. You’re all in banks and you know how many judicial recoveries have been going on every day and in the first semester this year, we had a significant reduction, actually.
So who is requesting or filing in judicial recovery from now on is going to be fair. I think in the past there’s a lot that was not fair, but from now on, it really seems like the right instrument and the law allows you to. Right. So from now on, I think these are getting a little more organized, right, as we see what comes in as a judicial recovery. And I was a little more concerned actually about this, right. Because interest rates were dropping then. I didn’t buy before and I’m not gonna buy. Right? Then everything came in again, all over again. And what’s changing the liquidity is. And what’s hindering farmers is not the soy at 12, it’s the interest rate, right. Whose leverage won’t be able to leave that condition. Right. So with all them, we actually gained an important sustaining in the interest curve that was already headed towards 11, 11 and a half and went back to being about 15%.
But I think that’s where we joke about the fact that things are gonna get a little tighter, right? Because you don’t see much of a positive perspective. It’s not about producing or selling well. It’s the interest rate that hinders you. A company like us, with a balanced debt, cheap debt, we go crazy when we have to pay 80 or 90 million of interest per year, right? Because that’s capital. And so, yes, we’re going to get into a cycle of purchases, but it’s going to be very carefully looked down. I don’t think we’ll have big, huge assets. We’re going to have to buy smaller assets. Now, I was talking to Rafael about this. We had a filter of 5 or 6,000 hectares. Now we’re looking at farms that are just 2 or 3 hectares.
We know how to set up a small structure. We operate by a third party. Then we have another contract to be able to sell later on. So we’re looking at different formats. And what’s most challenging is selling in this scenario. But after, we’ll talk about this up ahead. Now, and I think, I don’t want to boast here, but we had 47 transactions already. So we didn’t set up a fund and just sell. We didn’t sell like two farms, right? We created, we already performed 47 transactions. So we’re always looking for the best moment. So we’re not going to just throw this at shareholders like, oh, you have to buy. You have to buy. No, only if it makes sense, right? If the return rates goes to about 7 or 8%. Great, then we’ll buy.
If not, we won’t. Right. Or we need to find or look for an asset with this kind of discount.
OPERATOR
Thank you, Andre. I’m going to pass the floor on to G from BTG.
Andre Guillaumon (Chief Executive Officer)
Well, the first question, I’ll give you a spoiler in the next Brasilagro day, but let’s start off with your second question first about sugarcane and then we’ll talk about productivity. So in sugarcane, let’s be tactical. We have 2 million to harvest. We have maybe 1.2 million at Sao Jose. And Mario Mario in October was the biggest, biggest all-time high. We never harvested that much sugarcane. We overcame 210,000 tons in this operation in the month of October.
So Marian did really well in Mato Grosso. We finished our harvest already. Harvesting period, probably around the 14th or 15th of October. We finished and that’s done. And now we are in Sao Paulo with about 400,000 tons and we’re still missing about 160, 170 to be harvested. And so in Maranhão, as we’ve been performing, we’re harvesting about 7,500, 7,600 tons per day. And in Sao Paulo we have about 3,500. Now we have another harvest initiative. 3, 3,300, 3,500. And that’s where we’re focused. So the guidance for harvest, I think in Maranhão, we’re going to finish that in our production plant. We’re going to extend a bit of the period for the processing. We should finish. We were planning to finish by the end of November, but I think it’s going to go on till about the 15th.
And we’re already considering the efficiency adjustments of 30 days of harvesting in September in Mariam. But 30 days of harvesting in November is completely different. Right. So when we talk about all this, we’re already adjusting the efficiency for November to about 70%. When we consider September’s efficiency, it’s like 95. Right. So we already adjusted all that. And I don’t think we’re gonna have any issues. Then in Sao Paulo. There’s no way out. We’re going to have to operate. It’s hard to say this. If November helps, then it’s going to be lower. The plant we delivered when we spoke with Cosan and Raízen. Sorry, sorry, Cosan. We’ve already aligned with them. At the end of the harvest, should be the 20th of December. The plant also has a lot of sugarcane that was delayed. Everyone’s kind of in the same boat, but we should have a little bit of sugarcane left behind.
And we’ll try to accelerate and harvest in the beginning of our night of our harvest period. The first question is, we’re going to tell you just a little spoiler of what we’ve been doing and you’ve been hearing us talk about. But I always say that things are becoming more disruptive. So we experienced major revolutions in agriculture, right? We had the green nitrogen fertilizing. Then we had hybrid materials. The world didn’t really have hybrids. Corn and wheat was all. None of it was hybrid. Then we had a leap of productivity with GMOs, biologicals, with chemicals intensifying the chemical molecules and all of these helped productivity.
But now we have the IoT, right, the Internet of things in the production units. Now we’re going to show you a bit of the level we have achieved in our units. And we have. It’s Not a very complex challenge, right? Because in the past we reached 81% already of all of our operations that were mapped out with telematics. So we reached 81% of everything. And I’m talking about about 1 million, 1.1 million hectares monitored. We don’t plant 1 million 150 tons, but you plan and you have the sum of all of this with 1.1 million. And then 81% of operations are monitored by telematics. And now we have an objective of reaching 90%.
And I believe we’ll achieve this. And why are we telling you this? Because we start seeing things we never imagined we would be able to. Look at what Mbappo was saying: you had 10% potential to increase your agricultural GDP with these tools. I thought about this and I believed in it, but not that much. Right, but we’re seeing this in practical terms, right? It’s a reality now. So we used to spend about 0.9 liters of diesel to be able to operate a hectare of land with telematics. We monitored idle capacity, transportation capacity. That dropped to 0.55, almost 35% savings in diesel. Does anyone… This is 35 in an operation that doesn’t spend much. Right. For plantation, we would historically spend about 12 liters of diesel oil. Now we spent 9 liters of diesel per hectare in the plantation. For harvesting, 14 liters of diesel per hectare.
Now we’re spending about 10 liters per hectare. Why? What are you doing? Well, it’s just about getting to you and saying, look, you’re going to operate with your car, but you’re not going to go over 2,500 rotations. We limit the guy’s machine and that generates a warning, that generates speed warnings. And so there’s a lot of cash just with managing these kind of operations with telematics. And actually we were just talking about the application of variable rates with KCL. And we have a potential to capture another 8 million with the application of the variable sodium chloride. Sorry. And potassium chloride. So when we consider this, what changed? Well, up until then we only talked about costs. But what changed in productivity? Well, what changed was that humans, unfortunately, that’s how we are, they need to see, they have to feel like they’re constantly monitored.
I’m monitored by the board, by SOX, by CVM, by everyone. And the driver wasn’t monitored by anyone because the guy would just send him there. He would come back at the end of the day and that’s it. Now what happens is we’re having like full-time Big Brother session, right? Like, hey, you’re rushing too much. Stop. Take your foot off the accelerator. Look, you’re missing this line or you missed that. So I’ll give you an example: look, tractor such and such, stop that. Because they have a monitor there. And the system was saying, look, line 37 is not… seeds are not dropping there, right? So you go back and you can operate with the root cause and that, no doubt, and the choice of things and the way we’re doing things. After, we’ll share a bit of this and whoever wants to look at this in more details, you can go and visit us and we’ll schedule a session and you can look at all of the tools, you can find the…
So all of the information we’re generating is going to be important to help artificial intelligence. And so this productivity has been coming very quickly and the association of biological controls and all of this has lowered at very cheap prices. So it’s really an important reason to have both associated. And I always believe that that would bring in fruits in the mid to long term and then you have the molecule lasting longer. So the chemical industry develops this molecule and then after two years it doesn’t control this anymore. So now the company spends the $6 billion and then after a certain period of years, the patents are going to expire and then they’ll move on to the market in a much cheaper way. And so that’s an important gain. Right. So I think there’s a lot going on and you’ll see a bit of this in the next event.
Everyone’s closely watching in real time and managers are receiving reports that are a lot more detailed at all times in real time on their apps and WhatsApp groups with information about how each of the machines are operating. So it’s a real intense management. So successful companies have robust processes, clear strategy and trained people. So with this process monitoring everyone, we’re training people so that we can have closer focus and control.
And I think that’s going to be an important effect in our productivity.
OPERATOR
Thank you, Andrea. Now I’m going to pass the floor on to Bruno Tomaszeto, Itaú BBA. Hi guys. Good afternoon. Thanks for the questions.
Bruno Tomaszeto (Analyst at Itaú BBA)
Andrea. I wanted to explore a little bit about how the operational margins will be for grains this year, as I think we’re going to see this harvest with a lot of volatility in the margins, a peak in the currency, commodity prices going up with a lot of volatility in costs as well for fertilizers. And I think on this side we lost a little bit of this track up until where the farmers can see operational margins a little better or where we could see worse margins than what we’ve seen last year.
And I’m trying to focus on the operational margins because I understand that when you look at the last line and you include interest, it’s kind of a sad story to tell, right? But when you see that from the 100 potential levels that you had in the past, I only have 30. So we’re going to focus a little more on the 30 with a leaner structure and a more solid balance sheet to understand the financial health of this guy.
Andre Guillaumon (Chief Executive Officer)
Well, what I would tell you on this question here is that farmers don’t have the bank sophistication or big company sophistication to have a risk analysis as we do. But the way they can balance this out is with the exchange operations and transactions. But there’s an interesting point, which is we saw a significant reduction in the margins last year because most of our costs have a dollarized structure, right? So when farmers last year were setting up their production costs, they had a six as currency, then they came back and they would sell it with 5.20.
And so Brazilian farmers are genius. They know how to operate, but don’t make them operate derivatives that are not going to work. Right? Because you had this crocodile mouth that was inverted, right? But now what we see is this expectation for the next harvest. We see the opposite, right? Farmers formed their production costs in the plantations here. Well, the dollar kind of skyrocketed at 5.40 now, right. But the dollar was like 5.59, 5.80. So the next harvest, my expectation is that you’ll have a cost that’s a lot cheaper.
And in normal pressure and temperature costs, I think there’s going to be a cheaper cost with a revenue that has a more expensive dollar. Right? So if they don’t do anything, there’s still a win. Right? So when you look at this, last year we had a dollar at six and now 5.10, 5.20. So it depends on the month you cut off at. Right. But I do believe there’s margin of recovery, right? And that’s of course, when we look at the gross margin, right. And how that’s funded.
But when we see the gross margin, we see the recovery. And I’ll give an example of our business, right. Last year we operated with a cost of about 390. Now we’re going to operate with about 4,000. 4,000, right. We’re kind of at the same cost, but last year we had an expectation for price about 116. That’s the average in the company, right. You have Soy, Matogross and Mariel, about 116 or so. And this year we’re already seeing an actual of 124, 125. And it could go up a bit more. So I see a margin recovery, but in my understanding this is not sufficient, right.
To be able to balance out the… It’s very simple, right? When we look at this and you can see there’s not a significant change in the cost matrix, right? You had a change of 4 or 5% in the revenue curve, but maybe 4 or 5 basis points. So one thing kind of balances out the other. Right? But if you look at this before, then we see a margin recovery. And so who’s the buyer of the Brissago farm? Well, that’s why I’m an optimist. Right. The guy that’s kind of stuck on you is the bank. And so I want the guy that has the liquidity, the guy that’s asking you for your blessing. I want distance from this guy. Right. I want to sell to the guy that you’re fighting over how to get their CDI. Right. So that happens all the time, right. When you have these asymmetric scenarios in the market, richer guys concentrate more and more riches and the…
And so the smaller farmers are still going to have the interest subsidized. The medium sized ones are the ones that most suffer. Right. And so you have the big guys that are decapitalized. Right. So I see this recovery in the margins, and so we start seeing the recovery of other crops as well. And so we have, you can see this basket that’s a lot better. And so we can see this recovery for those that don’t have this leverage. Right. And so it’s not sufficient margin.
Right. To cover the spread. Right. Okay. Thank you. Well, I want to thank you all once again for watching us during our earnings call. For those of you that have been watching us from home, the live transmission is going to wrap up now and we’ll continue because everything will also be recorded and provided on YouTube if you’re not in person with us. But thank you so much and we’ll see you next quarter. Bye, guys. Thanks.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
Recent Comments