Slc Agricola Sa S/Adr

Good morning, everyone. Welcome to the first quarter 2024 earnings video conference of SLC Agricola. My name is Alessandra Reis. I am the investor relations coordinator. Present here with me, we have our CEO, Mr. Aurélio Pavinado, and our CFO and IRO, Ivo Brum. It is a privilege to be with you this morning. We would like to inform you that this video conference is being recorded and will be available from the company's IR website, where you will also find the respective presentation. Please note that if you wish to listen to the simultaneous translation, we have this tool available on Zoom under the icon Interpretation, a globe located at the bottom of your screen. when selecting it choose your preferred language portuguese or english for those listening to the video conference in english there is the option to mute the original portuguese audio by clicking on mute original audio as for the q a session Please submit your questions using the Q&A icon at the bottom of your screen. Your names will be announced so that you can ask your question live. And at that moment, a prompt to activate your microphone and camera will appear on the screen. If you do not want to activate your microphone and camera, please write no microphone at the end of the question so that I can read it aloud. We emphasize that the information contained in this presentation and any statements that may be made during the conference regarding the business outlook, projections, and operational and financial goals of SLC Agricola constitute the beliefs and assumptions of the company's management and are based on information that is currently available. future considerations are not performance guarantees they involve risks uncertainties and assumptions as they refer to future events and, as such, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect the future performance of the company and lead to results that differ materially from those expressed in such future considerations. Now I would like to turn the floor over to our CEO, Mr. Aurelio Pavinato, to start the presentation. Pavinato, you may proceed. Good morning. We thank everyone for participating in the first Porter 2024 earnings video conference of SLC Agricola. Please, let's turn to slide four, where I would like to discuss the cotton market scenario. cotton has been backed by consistent data coming from the demand side such as the level of sales and clothing and textile accessories in the United States which in in 2023 exceeded I'm sorry I'm sorry I'm just checking on this number because I believe it's mistaken let me update it year to date in the first three years of the month of 2024 reached 66 billion dollars as compared to the previous year it was 64 billion so therefore demand is consistent in addition chinese cotton imports remains strong recording successive increases in import volumes at levels that surpass those recorded over the last five years, according to USDA data. Still on the cotton consumption side, the textile industry in Asia has been showing resilience. In March, higher than average rates were attained, according to CCF group data. The expected global cotton consumption according to USDA data is 112.9 million bales compared to a production scenario of 112.8 million bales resulting in almost zero balance for the 23-24 crop year. For the 24-25 crop year, the cotton area in the United States is expected to expand by four percent according to the planted acreage in the outlook report released in march 2024 by the usda please let's turn to slide five now to talk about soybeans in the united states the 23 24 crop season closed with a production of 113.3 million tons resulting in a net loss of approximately 9.4 million tons compared to the initially estimates, according to the USDA. In Brazil, less favorable weather, especially in Mato Grosso, caused CONAB to devise its production estimate by 9% from an original estimate of 160 million tons to the current 146 million tons. In Argentina, planting is going well and production is expected to reach 50 million tons according to the USDA. In summary, the 2023-2024 crop year should show production exceeding consumption by approximately 15.6 million tons. The initial acreage expectations for the 24-25 crop season in the United States points to an increase of 3% according to the outlook report released in March 2024 by the USDA. Moving on now to slide six, let's talk a little about corn. The global balance is expected to show production volume exceeding consumption by approximately 29.2 million tons. The 23-24 crop in the United States has already been completed. However, in Brazil, Conab estimates a total corn production of 113.2 million tons in comparison with the U.S. DA estimates of 124 million tons. In Argentina, according to estimates from the Buenos Aires Grain Exchange, corn production fell by approximately 18% compared to initial estimates due to pests in the crop, cicadela. The initial estimate was 56.5 million tons, and it's currently at 46. 6.5 million tons. This adjustment in the Argentina corn production is important for the global adjustment of exports, since Argentina is among the largest global producers of corn, standing only behind the United States and Brazil. Regarding the initial estimates of acreage for the 24-25 crop in the United States, according to the outlook report released in March 2024 by the USDA. The initial expectation is of a reduction of around 5% regarding the corn acreage in the country. Let's go now to slide eight to talk about our operational performance in the 23-24 crop year. This crop year was characterized by the El Niño phenomenon, which mainly hit the west of Mato Grosso region, where a significant reduction in rainfall was observed in October, November, and December last year, which harmed the yield potential of soybeans. This soybean crop was fully harvested. We've reached 3,276 kilos per hectare, 17% lower than budget and 1% higher than the national average. The cotton crop and second crop cotton and also corn double crop show promising yield potential, providing excellent conditions for our forecast to be met. On slide nine, we demonstrate soybean costs and hedging. The budgeted costs per hectare for the 23-24 crop show an average reduction in BRL of 10% compared to the budgeted crop year of 22-23. This reduction mainly reflects the decrease in prices of our main inputs. We have advanced to the 23-24 hedging position in soybeans, adding up the commitments. We have locked 75% of the production. In corn, we are at 38% of production locked. In cotton, we have reached 51% in currency protection. I now turn the floor over to my colleague, Ivo Broom, to comment on our financial performance. Ivo, please proceed. Ivo, I think you're on mute. Would you please unmute yourself? Okay, very well. Let me do it again. You know, this is very common. Okay, thank you very much, Papina. So can we please go to slide 11, where I would like to discuss some highlights in our income statements. In the impacts of El Nino in the 23-24 crop season affecting mainly soybeans are reflected in our income statement. Our net revenue ended the first quarter at almost 2 billion BRL. Net income of almost 229 million BRL was unfortunately 60% lower than 1Q23 and adjusted EBITDA reached 700 million BRL with an adjusted EBITDA margin of 36%. Let's go now to slide 12 to talk about cash generation. Cash generation in the quarter was negative 196 million BRL. Soybean revenue was lower owing to volume and prices, and also because the crop inputs were being paid. Now let's go to slide 13, where we showed the company's debt. Adjusted net debt ended the quarter at 2.4 billion BRL. Despite the negative cash generation, the net debt adjusted a bit of ratio and the period at 1.31 times. now let's move to slide 14 to talk about the distribution of the parent company's net income our ordinary and extraordinary general meeting were held on april 29 2024. their shareholders approved the distribution of three hundred and eighty nine million BRL representing fifty percent of the adjusted net income of the parent company. Twenty four million as interest on equity paid in January twenty twenty four and three hundred and sixty five million as dividends, which will be paid out on May fifteen twenty twenty four. Based on the closing of twenty twenty three, The dividend yield reached 4.7%. I turn the floor back to Favinato, who will talk about the industry and prospects for the 2024-2025 crop year. Thank you very much, Ivo. Can we please move to slide 16, where we present the prospects for the 2024-2025 crop year? As disclosed in a relevant fact released on April 29, we expanded our joint venture with AgroPenido, the pioneer farm, adding 18,700 physical hectares with planting potential, considering the double crop of 30,734 hectares. The current agreement with the Pioneer Farm has a validity until 2728 crop. But with the expansion of the joint venture, the term of the two combined areas will be extended until the 4344 crop season. With the expansion of the partnership, the new potential acreage of pioneer farm becomes 64 000 hectares including the two crops now let's please go to slide 17 where i would like to discuss the purchasing of inputs inputs for the 24 25 crop year for the 24 25 crop whose planting will begin in september 2024 we continue purchasing inputs we acquired 91 of phosphated fertilizers 75 of potassium chloride and 53 of our nitrogenated inputs together with 18 of prop protection inputs we have taken advantages of opportunities that emerged in the market We can now move to slide 14, where we present the current charging position that has been fixed by the company. We started selling soybean for the 24-25 crop year. Once we add up the commitments, we've reached almost 40% of the estimated production. For the other crops, we have not yet made any fixations. Additionally, we took advantage of peak moments in Forex to start fixing the exchange rate of our crops. Now, moving to slide 20, we will comment on our new sales senior executive. As communicated on May 8, 2024, at the board of directors meeting held on the same date, The following were appointed as statutory director, Mr. Álvaro Luiz Dili Gonçalves, Head of Human Resources, Sustainability and IT. Mr. Gonçalves has been working for SLC Agricola for 37 years and as Head of Sales and New Business, Mr. Roberto Acauã Jr. that up to then had been the legal and compliance manager. Mr. Akawa has worked for SLC Agricola for 15 years. Now, to conclude, please let's move to slide 21, in which we would like to express our deep solidarity with the citizens affected by the floods that have been plaguing Rio Grande do Sul State since last year. we have established a crisis committee focusing on assistance to our employees their families and their communities the slc institute has been making donations and encouraging support to the state food bank for all of those who wish to contribute we are convinced that it's the union of all that will make it possible to rebuild the state the state that we are so proud of belonging to thank you very much and now let's open the q a session now we'll start the q a Please kindly ask your questions in writing all at once and wait for the company's reply. Remember that to ask questions, you have to use the Q&A icon that you'll find at the bottom of your screen. Your names will be announced so that you can ask your questions live. And at that moment, prompt to activate your microphone and camera. will appear on the screen if you prefer not to use your microphone or camera please write without microphone no camera at the end of the question and then i'll read it aloud our first question comes from mr matheus the analyst at UBS. Mateus, you can use your microphone and activate your camera to ask a question. Please go ahead, sir.

Good morning, people of Pabinapo and Ali are taking my question. I would like to discuss CAPEX for the year that's a little below last year, perhaps.

I would like to know whether CAPEX will be lower this year, or if it's just a quarterly issue, and if we should consider recurring CAPEX similar to last year, including, of course, land purchases. And also growth expected for 2024 and 2025.

My second question is... is on the risk of the cotton and corn crops. And two weeks ago, we were looking at an upside productivity in cotton with the initial development of the crop going very well two weeks ago. But what is your perception now with drier weather in the Brazilian Midwest?

Are we going to reach the yields that are planned or are we going to be a little low? Thank you very much, Matheus, for the question. I'll answer the second question about the yield potential.

and then even answer about well the climate in January February and March was very good very good so the corn and cotton crops uh had very good yield potential in April it was excess rain so this was not as positive for the cotton crop

But at the same time, it created good conditions. A double crop cotton is now showing great potential, fabulous potential. The April rains were excellent.

And if it doesn't rain now in May, Matheus,

Maybe a little slice of the upside will be eliminated, but in our vision today, even if there's no more rain from now on, we'll be able to reach our yield targets. So in short, we no longer depend on rainfall to reach the objectives we are seeking. So if it rains in March, probably double crop cotton will reach record breaking

And our project is just slightly below last year, which we produced 138 lint per hectare.

And our target this year is 130. So our sentiment is that 130 is already in-house and will depend only on the climate

to get outside or not. And as for corn in the Midwest, why is it that it's going very well?

Because we planted earlier than usual.

So that's why The crop is now more developed than in the previous year and we are not as dependent in the March range. And it's the same rationale for corn in Mato Grosso do Sul and the Midwest. Development is very positive of the crop.

And we have also Maranhão corn that was planted a little later because it was lagging behind the soybeans, so it's a little more exposed. But even though if it doesn't rain more, we'll harvest less than our project in Maranhão.

But one thing will offset the other and we'll be able to reach our targets in corn.

This is the climate Although the excessive heat that we've been getting has an effect on plants that sometimes it's very hard to age and it's only when you start harvesting

that you see whether there's, you know, it's heavier or not, because maybe because there was not enough water, but at the same time, you know, the temperature comes in. So heat, excessive heat is not good, but this is a phase of the crop in which we are transferring the photo effect of the leaves We're no longer developing the plant itself. It's our photosynthesis, participated of photo products.

This is our perspectives for corn and cotton.

Ivo, can you answer about CAPEX? Thank you very much, Matheus, for the question. Okay. We had... But a good share of that was land.

Not including land, we were at around 350 to 360.

So you see that our background is around 700, 600 million. So it's not going to change much. When you consider the quarter then really lower and you have to include the land bank, but then there's a difference of 100 million in that case. But this is really a temporary situation, but now with the pioneer

farm expansion will probably step up investment along the year also because we are going to convert some pasture in the pioneer farm so we're going to invest more in soil condition and property plant and equipment thank you very much Our next question is from Mr. Guilherme Palhares, an analyst at Southside Santander. Palhares, Southside analyst at Santander. Palhares, please just ask a question by activating your microphone.

Good morning, everyone. Can you hear me okay?

Hello, can you hear me?

Can you hear me fine? Okay. Well, first of all, I would like to thank SLC for all the effort that you have been making to rebuild the state with the floods.

You know, it really makes a difference in the life of people to have a company like SLC engaged Okay, I would like to talk about lease agreements. We've seen some new expansion in looking to 24, 25 and what you're planning in terms of purchases of inputs. If there is an additional land, do you think it's possible that you would have

to buy more inputs looking at 24-25 or is this the plan for that crop year? And could you also talk a little bit about your hedging not too many I think it's interesting to start looking at this market in the future.

Good morning, Guilherme.

Perfect.

Thank you very much, Guilherme.

Thank you very much for these questions. Well, about expansion and leases in the current moment with lower prices and tighter margins, more opportunities of leases are emerging. So we announced the expansion of the AgroPenido partnership and we are expecting new projects.

Our focus right now is on mature land

that we can start planting right on the first year.

And in projects that demand conversion of pastures, here we're running out of time in the case of Pioneira, we have pasture land that's already being converted so that we can start planting next year.

But in other projects, then we need more, you know, more intensive posture conversion.

But to take areas that are already mature, this is something that

that we can say up to the half of the year, we would be able to close deals and incorporate mature areas.

So we are thinking of, you know, probably we'll get some additional growth.

Now, about hedging in soybeans, I think that we're doing very well, including the last week, we reduced fixation a little more because of the flooding in the south and cotton and corn well we have different scenarios in corn prices were under a lot of pressure especially in domestic market and but also internationally the scenario for corn with a crop in Argentina that will be lower than USDA estimates and by a large share it's going to be 46 47 million. This is what has been indicated in terms of projections, a very significant reduction. And this volume will no longer reach the export market.

And the Brazilian production, even with the favorable weather in the Midwest, it's not as favorable in Paraná state. Rio Grande, Jesusville,

is underwater and from Santa Catarina North to the other states, it's hot and dry.

So maybe the Brazilian crop will be closer to the CONAP numbers, that's 113, than the numbers estimated by the USDA at 124.

So we have

Some of the crops should be accounted for in Brazil and Argentina.

The Argentinians, because of the large losses caused by Chikadela, which is the pest they're not familiar with, and they don't have chemicals to control it.

So probably next year, they will plant less corn, just like the United States, because they

because they had this issue of high costs in the united states so we envision a more favorable scenario for corn in the coming months and the domestic market and even in spot prices prices are better than future prices so there is a a very significant logistics discount, and that is embedded in the prices. That's why we decided to postpone sales of corn. We are now at 38%, so maybe we should have been at 50%, 60% at least. In the case of cotton, cotton is now facing a doubtful market.

The market is not really steady or sure about what will happen.

And in a case like this, of course,

The question mark is price, and the future prices go down. So that's why in the quarter market, there is a reverse of the present prices are higher than future prices.

Two months ago, cotton reached $1 per pound in spot prices, and the price in December, 24, never went any higher than 83, 84 cents. Now, when you think of the future crop, 24-25, well, we took the opportunity in the 24th crop year to progress in sales, and we reached 51% of sales of the crop to be harvested. in roads and the fixation of the crop that will be harvested along this year.

As for the future crop here, it never reached 80, the 24, 25 crop will be harvested in 25, so prices between 18 and 85 is adequate in terms of What about the international scenario?

Well, there are questions about consumption, about the American GDP, the European GDP, the slowing down of demand.

And those are the expectations of the market.

However, consumption has been consistent in the United States and in Europe. And actually, with consumption records all time highs, In consumption in retail, the textile industry in China that experienced a more sluggish moment last year is now at higher than average levels in terms of industrial capacity. So demand is really far. with firm demand, with firm industry, it's expected the demand for cotton will remain for coming years, and if there is a very small increase in acreage in the United States, 4% is very low. So the cotton prices are not really pushing for an increase of acreage in the United States. Of course, we'll have to see the data coming from India and China, but low prices are not really a motivation for planting cotton, because in cotton, both the spot prices and the future prices are low. And for us, this has strengthened demand. When prices fell, the demand for our cotton reappears. And that's why our expectation is that we'll have Some rebounding of cotton prices because production cost in the United States, I'm talking about cash cost, not total cost, is now 84 cents per pound. Nobody is really being encouraged to plant cotton in comparison to a spot price of 79, 78 cents. So that's why the prices are low and they do not stimulate farmers to plant.

So thinking of the current crop year, I think that we're well positioned.

We still have 50% to be sold in one year. And thinking of the 2025, we're still following our policy which is to start selling in this quarter and we are waiting for some prices to move to start selling so this is the scenario for corn and cotton in terms of prospects and also hedging in cotton we have an inverted curve, so we are fixating closer in date.

We are not really being able to use long-term fixation, and this is the effect that we observe in the market. Even though now there's been some realignment, and spot prices and futures are now more in alignment.

Thank you very much. Thank you very much, and I hope that you're all safe.

uh we have a catastrophe of unprecedented dimensions Our next question is from City Bank. City Bank, you can open your microphone and you may proceed with your question.

Hello, can you hear me? Yes, we can hear you. I would like just to echo what Guilherme said. We hope that you're safe and sound at this moment. Well, a lot has been said already about the increase in acreage, for example, I think that this is your first move in that direction. And, you know, it was kind of like an anticipated move based on what the company has been saying. And I would like to understand your long-term view for the company. I think that Stefano said this, you know, that we see that there are some movements in the leading group of the company, and could this perhaps lead to the joining of two companies, either via land or another type of... How do you view this long-term relationship with the group?

Are you in negotiations?

Are you in talks? Of course, this could be very important for the company, or maybe something as sizable as Terra Santa. Something else that I read in the release that I would like to ask about is about trading. You're lagging behind, especially in corn, and based on what Aurelio said, profitability is really very low.

So forgive me, or at the risk of sounding repetitive, I would like to know more about your strategy for this crop year. Are you going to

to hold on to your corn inventory until things get better? Because this is something we have seen in other ag groups that I would like to understand the company's strategy in more detail. And also, if you could share a little bit about the seed business, we know that the company is focusing on seeds, and I think that margins are a little squeezed for this year, and I'm not really sure what you're expecting for this business in the medium and long term. Are you going to continue pursuing this business in SLC, or is it better to make it a spin-off that is separate from the system?

Is this the design that is going to be used for the long term?

Thank you very much, Gabriel.

Thank you very much for your question.

I think that the first question, the investment that Schaefer made on SLC Agricola, it was a sign of trust that they have purchased this stake in the company. We have a very good relationship.

They are our neighbors, they are our friends, and that's it.

I can say about the relationship between Schaefer and SOC. They admire us and we admire And they also have large acreage. About corn, it's just, as I noted before, we have a farm that has been fixated. Now we have a balance.

We have also storage capacity to store the corn.

And in the coming months, we'll see

higher liquidity for corn with spot prices that outstrip future prices. Because, just to give an example, freight costs in Brazil are now lower than corn.

Three months ago, if you were selling corn to deliver on July, buyers had to pay very high freight costs for the corn. So in the settlement, prices ended up being lower. And now, more spot prices will have better settlements than futures, owing to the conditions in the market.

And in corn, freight is a very important variable.

You know, corn in Mato Grosso is worth 40 real, but if you buy, they have to pay five more in freight. It's 35 and another 5, 30.

Another variable that has changed in our favor is the forex.

outlook the brl was appreciating and now this trend has been reverted and we believe that the brl will be more depreciated with probably

you know even diving a little deeper and because in porn the forex interferes greatly especially in porn you know of course but in porn it's a very substantial influence you could be spending less if the BRL depreciates.

So it's a double effect, the grain at the farm and also at the port. So when the BRL is worth less, it's positive for corn. Because, of course, our cost is now formed in VRL in the case of the corn that's going to be harvested. So if we can sell closer to the prices we were selling before, the future prices today are lower than the prices we have already reached.

So that's why we're being so cautious in the delivery of corn. And in this scenario, I was talking about, you know, we have lower production in Brazil and Argentina, smaller acreage in the United States. Now, the fact that we have spot prices of 4.560 and the future price is 5.

So... you know, something that has already been predicted is not as lose the difference between demand and supply and with soybean beans, you know, the prices in there were so low that farmers seem to refuse to sell. And in corn, cream is always positive. So there is this dispute between farms and the price that they will accept.

And when prices are too low, they just refuse to sell.

And this creates resilience. Just like in the case of soybeans, when it was lower than 100 PRL per bag, there was resistance among farmers.

They didn't want to sell because otherwise they would be taking a loss at under 100 PRL per bag. This is the same thing that we envisioned for corn.

In relation to our seed business, this is part of our strategies at SLC Agricola. We want to maintain it, maintain this strategy because it creates synergies with our a company, so we are not really planning to make it a spin-off. But, of course, we will continue to grow this business.

Our installed capacity is for 2 billion bags in soybeans. We are going to reach 1,250,000 for soybeans and 140,000 bags and so it's something that's you know it's very uh prone to creating just a little bit about the margin so we expect lower margins in seats Our next question is from Mr. Leonardo Alencar. Leonardo, you may proceed with your question. Leonardo, if you prefer, you can activate your camera and microphone as well.

Good morning, Pavinato and Ivo.

Well, I have a follow up in relation to the previous point.

Pavinato, you were talking about seeds, that there will be tighter margins in the future.

But do you believe that considering the crop failures we have, especially in the Mato Grosso region, and considering the total availability of seeds 24, 25, whether it will be lower, maybe there will be a decrease in the supply of seeds. And this could, of course, create an impact in the seed market. And also thinking of margins, lower margins, some of the input prices have dropped, for example, trade costs.

So if you could talk a little bit about chemicals and other areas of inputs where you believe that prices could fall further. And also we see some delay.

But at the same time, the export outlook for corn, considering the parity we're talking about, is something that's less favorable, and we're thinking of carry over higher carry over stocks in corn and soybean for the next crop season so i would like to learn from you what do you expect you're talking about brazil only in the last part of your question yes that's it

OK, seed volumes. In soybean seeds, some varieties were affected.

In Mato Grosso, the early varieties, because of the drought, some yields were hurt.

And that's why we have some shortage. but overall no we don't have no we don't have any scarcity we always use exceeding stocks and the other regions were able to harvest and in bahia we also harvested the volumes we had been expecting for seeds and considering our neighbors as well so there will be no shortage of seeds in the market they bounce back to historical levels in terms of prices. And there have been some oscillations. Potassium, for example, decreased. We have phosphorus with the super simple, which is, you know, a product that went back to historical levels and then returned and you know nitrogen has all been adjusted with so it depends on the demand in the northern hemisphere but they're still in historical level fertilizers so that's why you need to catch at a lower cost. So when we compare fertilizer prices with commodity prices, commodities are also back to the historical levels, considering the adjustment for inflation. Cotton, for example, is being traded as a historical level, but let's take the example of the United States. where the numbers are really uh calculated correctly you know cash costs were 72 cents per pound and last year it was 82 and then it's now 84. so there has been an increase in cost and the historical prices of cotton do not

remunerates the international export markets adequately. So in the case of soybean, 12, once and a half, this is perhaps the new price, because at 10, it's just not worthwhile anymore.

So the future price of historical prices will probably not be 10, because we have to account for inflation. So probably in the next decade, it will be between 11 and a half and 12. Especially when you consider the exchange ratio in terms of fertilizer, in terms of fertilizer, for example, where you see great oscillations, the ratio is quite adequate. corn follows another logic corn we always had tight margins in corn and then there was a boom with very positive margins and now we are just planting corn going back to planting corn to generate contribution margins and this is probably the scenario in Brazil where the logistics costs are high in the international markets corn is similar to soybean, but in Brazil, corn, especially the corn that is far away from the port, we're not talking about Paraná state because this is another type of calculation, it's much closer to the port.

Now sales as compared to stocks, this year Brazil had lower soybean production than in previous crop years, especially in the Midwest. So the carryover stock for the current crop year is going to be much lower than last year.

That's why the logistics have improved and...

and the assets became positive only in August because there's an expectation of better premiums in the second half and more liquidity in soybeans in terms of the balance to be sold. Now, if we start discussing the next crop year, then we need to consider the installed capacity in the world. How much can we produce? you know because a long time we have losses

losses caused by climate events.

If we have a year with perfect climate in all locations, we're going to have excess supply because the installed capacity is higher than consumption and then prices will fall. But what we have observed recently is that the intensity of climate events is picking up and the damage is greater. So we need to be prepared for higher volatility in commodity prices. So if you run a simulation, if you consider the capacity of Brazil, Argentina and the United States producing soy beans,

Then you see that there are lower prices, but along the way, you know that there are some climate events that can lead to crop failures.

So that's why the variation in supplies is what leads to price volatility and also opportunities if you have some stock.

So that's why selling too cheap too early this is not the best decision just in the case of of porn you shouldn't give your porn away because along the way there will be some climate events that could create price oscillations that can benefit you because to sell porn uh you know in mato So, this is the scenario. So, 2024-2025, if there's a lot of sulfur in all countries, there's pressure on prices, there's pressure on logistics in Brazil, there's no doubt about it. Now, this will happen. What's the climate scenario?

Let's talk about the climate scenario. La Niña, historically, sulfur from the south of Argentina.

And Argentina harvests are bad. And in La Niña, the current cotton crop in the United States, there's abandonment of planted areas in Texas that are higher than usual. So that's why there could be some opportunities in cotton.

in the coming months because of the weather market in the United States.

And historically, Laninha years are years in which crop abandonments and crop failures in cotton are higher in the United States.

So this is the scenario that we're facing.

It's the old story. Maximum competitiveness in commodities.

You have to know the comparison. For example, the price of soybean is going to go to $10, $3.5, or $17 for cotton. So the egg production all over the world will be destroyed. Because the solution for low prices is low prices.

Just like the solution for high prices is high prices. You know, it's either one. If it's high prices, you know, the solution is, you know, with low prices, you regulate supply, people stop planting, and this regulates supply. Now, Brazil, thinking of carryover stocks and infrastructure,

we have just shipped, you know, a record-breaking crop last year, 222 million tons. So, we're going to have lower than 300 now.

So, several investments in infrastructure are being made in Brazil with ports being refurbished and also highways getting gradually better so we have the conditions to always export the volumes that are being produced Brazil always finds a way of course paying an additional price for that so in fact we are offering products at a lower price for the chinese buyers because it's actually the end consumer that benefits when prices are being traded at very low levels

Thank you very much. Thank you for the explanation. Our next question is from Lucas Pereira, self-side analyst, JP Morgan. You may proceed, Lucas.

Put the camera. Oi, me escutam? Sim, estamos te escutando este evento. Bom dia, Ali, Pavinato, Ivo. Hello, Pavinato, Ivo.

Pavinato? Just to summarize, what are your expectations in terms of the trading ratio?

I know that you just started locking out the crop for next year, but when you think of the fertilizer,

one third of the soybean

farmers in Brazil did not profit and ended up with losses.

So this transition for Laninha, will this bring better climate?

Is it enough for farmers to grow, to expand their land and acreage? Can you give us some visibility

about this exchange ratio in 2024 and 2025 and considering the uncertainty in cotton, do you think that you will be having more cotton to sell in 2025 like it happened this year? Do you think this is a likely scenario?

Thank you very much.

Lucas, okay.

This year, margins of soybeans, for example, they were affected by yield. They wanted to maintain margins at historical levels. But the outlook for this 24-25 crop season, you know of course considering the trending yields and considering inputs at current levels and soybean prices also at current levels and cotton a little higher a little higher than 80. Margin's going back to historical levels in the 24-25 from here.

Of course, always working very hard and improving production costs.

We are doing this internally so that we can make the necessary adjustments. So this is the scenario that we are envisioning, a proper year 24-25 with margins at historical levels. Now, the... you know the fact that there were losses this year this has to do with crop failure if you harvested you know as usual you know in terms of volume you shouldn't have well it really depends on at what price they traded and uh

So if average prices, farmers shouldn't have incurred their losses. Our growth and our strategy is really based on long term.

So in a year like this where margins are tighter, this is a year for seizing opportunities.

We're not going to stop leasing if there

or good opportunities, we want to make the most of lower margin years because this is the years when we see more growth opportunities emerging and this helps us grow the company.

in relation to shipping of cotton last year the logistic products were huge last year there was a lot of rain during the harvest season for cotton so we had some quality issues In fact, cotton has two qualities. The fiber, how thick, how resistant, and how long.

And also visual quality. Is it white? Is it brown or gray? And last year, with a lot of rain, even in Bahia, which is something we've never seen,

So we had issues to be able to meet the demands with all the lots that we had sold.

So there were some delays because there was not enough available cotton, so logistics, and also because there weren't enough ships.

And these bottlenecks created the carryover bottoms that we have.

So this year, we are planning to harvest cotton sooner because we started planting before.

We have now a production strategy in terms of quality variety per farm. We have already sold all the volume.

We're going to start delivering this year.

I think that they delivered 120,000 tons of cotton last year in the new crop until December. And our target for this year is to deliver at least 160 along this year.

and we are already uh we sold that those volumes and we expect that the ships if the ships are not late we'll be able to ship a higher volume of the new But our strategy as a cotton exporter, because our volume is very large, and in this case, the Gargalo Logístico is larger than that of Grãos, because it is a port only that exports. It is now leaving a little by Bahia. So, our strategy is the last strategy in Brazil.

the crop, which is granules, and a little bit by year.

But our strategy is to ship out cotton 12 months a year.

We're going to do this, and then we're going to find out how much we are shipping out every month once we divide it by 12. So we start with all and we'll have September, October, November and December to ship out larger volumes of the new crop year so that we can reach at least 50% of our production still this year. Thank you very much. Our last question is from Tiago Duarte. Tiago, you can go on. Hello, good morning, Vinato, Ivo. Elisambra, I'm going to talk to you.

I wanted to take the risk of being a little repetitive. A lot has already been discussed, but two things. First, when we talked at the end of last year, At the end of last year and early this year, we felt a lot of optimism coming from you in relation to opportunities and land. expansion, so that we have more than 135,000 hectares in expansion, and we have just announced this partnership with Pernido. But what about this year? This could be a very promising year for expansion. So could you please elaborate on that? Where are the opportunities? How are they evolving? And the second question perhaps addressed to Pavinato and going back to price scenario analysis and, you know, floor prices and ceiling prices, Brazil, Argentina, and the United States. What's your interpretation, Pavinato, of Argentina now changing gears in terms of government, in terms of

export taxes because Brazil really enjoyed a lot of growth in production, land, exports, etc. Brazil benefited from the fact that Argentina was stagnant

So, what is the risk for Brazil, what is the priority for SLC?

What is the risk that Argentina is now going back to the market with lower imports, import duties, etc., and with more freedom to grow?

thank you very much well if you want to hear optimism coming from us yes we're still excited we're not saying that um that all deals will be closed this year.

Sometimes you start discussing a deal and you only close the agreement in the following year. But we want to continue growing, especially in this cycle, which will be

a bearish cycle.

Now, in relation to Argentina, it will be a more intensive production incentive policy.

It will be a stronger competitor for Brazil.

The production cost in Argentina in the four regions is lower.

So they are more competitive than Brazil.

And considering that the government will reduce

the retention, because they're not very competitive, but their expansion, they're expanding into regions with more volatile climate.

And this fact alone, when you look at the soybean averages in Argentina in the last five years, it's way below the Brazilian average.

We are at 57, 68, The fix in Argentina is that 14, and considering their competitiveness is not very high, they are planting in the best areas. So whatever expansion that they will engage in will be into areas with more weather limitations.

And the output will be even more volatile because of

Obviously, it would be very harmful for Brazilian production for Argentina to zero its import duties. Because in this case, even marginal regions in Argentina would become extremely competitive.

But I don't think this will be the case because the Argentinian government and depends on the taxes that are collected, the duties collected to pay its bills.

So there will be striking a balance between duties reduction and the fiscal...

adjustment but with a stronger agricultural sector in argentina and we have to face this but when we look at the macro economic scenario considering the evolution Brazil has made great strides in the past 20 to 25 years but we you know we shouldn't rest on our laurels we have a lot to a lot to grow in terms of technology investing in digital agriculture and

A localized application of crop protection and biologicals, we are very efficient. Our system is very efficient, but we have to have tighter control of pests. So biologicals is one of the best that will lead to lower use of inputs And this will be closer to the temperature regions in terms of the use of inputs. And the fact that we can have two crops in Brazil is a huge benefit, a huge edge. And then, of course, we have to make the necessary adjustments so that we can maintain our competitiveness in the next 10 years. We need to have

the extension of the Ferro Norte, the extension of the Ferro Norte Railway, the North-South section has already been completed with P.O. and Ferrogrão. to completely overhaul our logistics in Brazil.

And another important factor is the use of grains as energy.

The ethanol industry is now becoming stronger with corn.

And this will increase domestic liquidity. The growth of beef in Brazil, with lower grain prices, this is very beneficial for the meatpacking industry. This also strengthens the consumption potential in Mexico. And all of this boost liquidity leads to better crop prices at the crops. So we have really made a lot of progress in the last few decades. But we shouldn't stop in our tracks because we have to continue growing and boosting our efficiencies. But we can compete with Argentina and with the Americans The Americans are now really, they don't have that much room to grow.

So it's really down to technology in the end so that we can continue to be a benchmark in agricultural production around the world. Thank you very much. Great comments, Pabinato. Thank you. If there are no further questions, the video conference call on the first quarter of 2024 is now closed. The Investor Relations Department will be happy to take any of your questions in common. Thank you very much to all participants and have a great day. Thank you. Thank you very much.