Brasilagro Companhia Brasileira de Propriedades Agricolas

BOVESPA:AGRO3

Earnings Call Transcript 2019-Q3

[Operator]

Good afternoon. Welcome to the BrasilAgro's Third Quarter 2019 Results Conference Call. Today, we will have Mr. André Guillaumon, CEO; and Mr. Gustavo Lopez, Administrative Officer and Investor Relations Officer.

Today's live webcast and presentation may be accessed through BrasilAgro's website at www.brasil-agro.com. We would like to inform you that the event is being recorded. [Operator Instructions] You can also find the slides on PowerPoint.

Before proceeding, we would like to clarify that forward-looking statements are based on the beliefs and assumptions of BrasilAgro management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that conditions related to the macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now we would like to give the floor to Mr. André Guillaumon, Chief Executive Officer. Sir, you may proceed.

[André Guillaumon, executive]

[Interpreted] Good afternoon, everyone, once again for your participation. It's a pleasure to be sharing with you the results of the third quarter.

Undoubtedly, for -- the agro business has been quite busy and quite complicated with constant changes, which hasn't been different for our company. But I believe we have a well-seasoned team making the best efforts possible so that despite constant adversities that we had throughout the years, we can reach the results and figures that would meet the expectations of our shareholders and the Board of our company.

Undoubtedly, 2018, '19 have been challenging years considering climatic conditions and much more challenging considering macroeconomics regarding our internal environment in Brazil and also overseas. We're going to talk about our results. We undoubtedly have a hedging policy and for exchanging or protecting our revenues, and no doubt we have managed to protect most of our income since we are in the marginal region. We have confidence that we do not block all our harvest. And today -- and this can commit our production. Today, we're going to talk about what's been happening to the quarter and share with you the results of the company.

I'd like to move on to Page 2 where we have the highlights of the quarter, our third quarter. We have revenues, net revenue, of BRL 391.2 million; net income of BRL 141 million (sic) [ BRL 140.1 million ]; and adjusted EBITDA of BRL 181 million(sic) [ BRL 171.5 million ]. This undoubtedly when people compare the third quarter, it's important to see what we accrued and what's being delivered along the year. It's quite important despite quite an adverse year. Undoubtedly, this enables us to be a company with positive results being delivered. And undoubtedly, we're going to be a company that will pay major dividends to shareholders that follow us along the year and in our operations.

I believe a great highlight I'd like to give this quarter is the beginning of 2 major important coverages. We have been working constantly of delivering results in the company, and I believe the coverage work of Banco do Brasil and Crédit Suisse highlight the constant work of results increasingly more sounded, a couple of weeks Banco do Brasil started its coverage of our papers with a target of BRL 20 target and Credit Suisse with a BRL 22 target price, showing clearly that our shares are excellent investments to those who seek opportunity for investment in Brazilian Stock Exchange. Those are the highlights.

Moving on to Page 3. This is the environment scenario. Soybean has been filled with turmoil in the past few months. It started -- we highlight here at the start of the year. I mentioned in the other earnings call when we had the Board, we had a snapshot of 10, 20, and today, we see a decrease. It actually got below $8 per bushel. And that's because of various things: commercial war between U.S. and China considering -- because of subsidies, greater supply overall throughout Latin America. In other words, Brazil has delivered a bit less than what was expected. But quite important, Argentina was quite strong. Last year, we had 17 fewer tons in Argentina. Today, Argentina has a record 54, 55 tons. Paraguay, Uruguay, they have very strong harvest in South America.

And then on the demand side, we have been experiencing in the past few days a big number of news that are not very encouraging. We see a lot of issues hitting, the problems that have been affecting -- several problems in China. And it undoubtedly, we know that this is -- China is quite close. We don't know the impact -- the real impact with it. And we can actually find sort of a parallel of what they are consuming in terms of soybean. And that's what they are losing in terms of losses in their swine or they have first receiver. So they had an increase in the consumption today. We had an expectation of 95 million tons. And we should close at about 85 million tons.

So added to this, so you take 10 million tons from the market of demand that China fails to buy and add to get 24 million more in terms of supply, and you create 34 million disproportion in the world soybean supply. That's quite an imbalance. So we have been working margins in the company, assuming positions, taking on positions, well, since a long time ago. Since we have a large amount of land, well, there is volatility and we have to have a very austere management of risk selling the soybean. We cannot compromise selling the soybean, it has volatility in terms of production. We have a limit to sell and would sell until we grow 50%, and then we take positions. And we know that in a new area, we cannot assume very aggressive positions. Otherwise, we can compromise production.

This leads us to leave part of our soybean to be sold when we confirm the yield and especially at the time of harvest. And after harvest, all the snapshot I've given to you. So since decline in prices, that has strongly impacted the number of the companies that we're going to show you further on. Undoubtedly, I believe the company has been working on not being a soy-dependent company. It's a company that has huge efforts of having operating results along with property results. And that's our strategy. When we see operating results in our bucket, we have several culture.

Moving on to Page 4. We saw the value, the historical grain land farm amount, we saw the Brazilian prices. But we haven't seen a decline in the price of soybean. On the other hand, we see the price of soybean dropping and land prices being stable. So land is quite an interesting asset for us to take on positions. Undoubtedly, I believe that this price of soybean may generate opportunities to us and in some regions, some producers -- with some producers that may have cash issues considering the economic tightening that we have in agriculture.

Moving on to Page 5, 4 qualities. I'd just like to draw your attention to the estimates of the year. So what we have in terms of own land, and I think it's quite interesting for us to talk about what happened, talking about what happened in '18, '19. We had a major increase, and the increase comes from what we showed you. The new operations in Xingu, that brings to the company a mitigation of volatility. That is important.

In addition to that, new areas of the company. So this is well shown here what we can see, where we can be not only dependent on the soybean, we have 2.2 million tons of sugarcane, cotton crop coming on. And about a year ago, I mentioned to you that we would start cattle breeding. We have the greatest satisfaction of having here 22,500 animals in our portfolio as part of our strategy, our transformation. So we diversify the company, 23,636 heads of cattle. And this actually because the year has been quite diverse, we've managed to give quite solid, sound results. And in addition to this, challenge of China, the sales of soybean, we had an impact in terms of the freight prices. And in fact due to the transportation of our grains and also transportation of fertilizers, we had adversities. Considering production, great expectations. You may remember the ordinance that on the eve of our -- growing our crops, and we put everything on scale, our results are quite robust considering all the huge adversities we've been facing that enables us to say, well, you are saying that you have such a diverse sea you can still sail on. So when you have smooth seas, we are going to have even more optimistic outlook.

Moving on to the next page. I'd like to get to the numbers. On this page, we have to look to the left. We have a chart that well illustrates, I'd like to make an analysis with you, rainfall chart. I think that there is something important to show. We have a diversity of products, and sugarcane is one of them. In addition to bringing other -- diversity to us, it enables us to have areas of reform every year. So at first, we can start with soybean and secondly, when we harvest the soybean, we grow sugarcane. So all the renewals of areas of the company with sugarcane is with soybean. This has agronomical benefits. It generates nitrogen, several agronomic, agricultural benefits. So there is an improvement of the soil, production of nitrogen and also better control of weed. We have to have then a strategy in addition to that, that allows us to compromise main crop, which is sugarcane.

So we have to grow soybean that is the ideal type of soybean to that area. We have to grow this precocious soybean so that it can breathe the surface at the right change for the future, sugarcane plantation. The appropriate time is January, February when we start growing sugarcane in the company in the areas of sugarcane. So all of this and as is illustrated here we see the chart of the São José farm where we had the largest proportion of soybean crop in this proportion. Brazilian producers in the areas which are not under this regime. We grow 30% of precocious soybean where we have sugarcane, São José -- which is the case of São José, where we have 60% of precocious soybean, to have a crop of soybean at first to haul all the benefits I mentioned to you. And secondly, to start growing sugarcane.

For this year, we had an adversity as you can see in the chart below. When you grow precocious soybean, it has a much shorter cycle. So it is responsive but the cycle is short in November, December and January. We have in the region a very, very striking rainfall in February and March. We had an excess of this. And what happens when we grow a lot of precocious soybean to favor the crop of sugarcane, the soybean was very much impacted by what we had in terms of rain because it was actually doing reproductive science. So the late soybean that will grow at the same time, it was actually affected by hale, but not in the period when it's forming the grains, when it's growing. So the impacts are much smaller. So our units São José, that was important in terms of soybean was very much impacted because of the amount of precocious soybean. We should mention that if you -- everybody compares us, so it appears it's important to talk about this. So it's important to highlight this topic, too.

Looking at the chart on the side, we see what was our -- what our crops were. So we had a production estimated at 156,000. We should close at about 150,000 tons, 3.9 below estimated. The numbers are actually -- corn is grown in October, November. So you actually get the critical time, and it was struck by the rainfall in December and January that had low rainfall. So the corn was very much impacted. Second crop, we have a few corrections to make the second crop, but part of most of it was within the Xingu area. Some few things, smaller areas in São José. Most of it is in the Xingu area. We have a reduction of second crop. Basically, we have the volume. And because of this area reduction and productivity, I think it's still within the expected levels.

But I think it's worthwhile highlighting because since it's a new operation, we are quite conservative and not being too aggressive in the areas in terms of the crop and the second crop. Cotton, we have quite a good estimate. It was in final stage. We should start the harvest in early June with the expectation that are quite positive. Cotton is located in the Chaparral Farm. Those are the figures and a review of our harvest.

Moving on to Page 7. Here, we have a snapshot of cattle raising. Cattle raising is a tool for transformation, value generation, in which we can generate value in the areas without having operating -- or operational volatility in the company. We must be flexible in cattle breeding. Why do I say that? Since we're seeing this year, we've seen the results that were quite robust, considering the sales of Jatobá Farm, we saw quite interesting liquidity there. We had a large surface that we gear to cattle raising. And we saw this property potential being very much explored in this unit. We've noticed or we thought that, well, that's a unit we should speed up in terms of the pace of development.

Take those areas that were in cattle breeding and have agricultural production, seeking real stage gain. What did we do to get that? We started cattle breeding. We transformed them for agriculture. So we stopped buying cattle in January, February and March. For those of you that follow cattle breeding, they are the months of greater weight gain. When we do not buy cattle because part of those patches would be geared to agricultural activity, you have an impact in terms of weight gain as a unit. This is basically the explanation of why we are not reaching total production of beef. It's worthwhile mentioning that this is an activity towards a tool of transformation, value generation by mitigating operational volatility.

Another important I'd like to highlight is that 1.5 years ago we said this would be important for us to build stock at the time. Beef was very cheap. We got stock at interesting prices then. And today, the company being diversified has the burden and the bonus. Everything that we are impacted perhaps due to African fever in China. And with the soy here, we're being benefited by the increase in beef prices. So we have a quite important increase or surplus with the stock that had in price information. That was quite interesting in the past.

Today, we have BRL 37 million in terms of beef stock, quite interesting. Beef is a stock that is totally tangible. So if we need to monetize it, it's quite easy to do it within a week, just like soybean. So it is worthwhile highlighting this point and stressing it. The company was quite capable in acquiring or buying meat when it was cheap. And now when we need to transform this area, turn it back to agriculture, we're leaving at a time when the stock is more appreciated because of economic situation in China because of the swine fever and the swine prices in China. So having a diversified company leads us to those benefits.

On Page 8. So we have a hedge positioning of the company with all the adversities that we mentioned to you, we've been addressing them, talking about that. We have the number so that we can answer a few questions. So as we always talk about, we don’t look at the days in snapshot. We look at margins. We are taking on positions for '19, '20. We sold the biggest soybean. We are selling soybean, sell in dollars, working on this positioning. It's quite a challenging year, '19, '20, too. So this is the snapshot of '19, '20 and a bit of what we've been through '18, '19. So '18, '19, we have 80% of it already marketed or commercialized in physical. So we are reaping the receivables. We have an important stock to receive further on. So those were the things that I wanted to share with you.

I'd like to give the floor to Gustavo to share our results with you. Thank you very much.

[Gustavo Lopez, executive]

[Interpreted] Thank you to all of you taking part.

We're going to continue with EBITDA and adjusted EBITDA. So we have excellent cash to show you how we try to improve things. It doesn't make sense to us to look at the quarter because the quarter in our company where we have sugarcane and we sold all the stock of the previous crops. And now we are starting to harvest the new crop. So we'd like to look ahead. And the other important point is what we do in terms of adjustment to EBITDA. We have several situations, and it gives us the results as to -- recommended to accounting rules. And sometimes it doesn't make sense to the company. So we have a new company. So we have 50% of market share. And we should have that mark to market.

When we have results, when we count -- calculate from net income and actually deducting interest, depreciation, amortization, we have a situation that sometimes it's not considered. So what we do is to extract this number. And last year, we have BRL 74 million of adjusted EBITDA, and this year, we have BRL 171 million. And so we have equity breakup. We have certain gains with beef and grains and transforming the prices. So we excluded the results of derivatives that are linked to the crops or the grains that have been sold. So what we see is that we have -- in 2019, we have EBITDA adjusted of BRL 171 million. And last year, we had BRL 70 million. And the difference comes mainly due to the sales of part of the Jatobá Farm, the rate is 106 million in result. So 2019, we sold 50 million tons of soybean, getting prices of [ BRL 38.80 ] per bushel, and we mentioned before we had a commercial war with Argentina. So we managed to get certainties in prices.

Moving on to financial statement or income statement. We see net revenue is BRL 140 million. Last year, we had BRL 85 million for the same period, 31st of March, 2018, 2019. When we move on to gross profit , we have BRL 194 million and BRL 94 million last year.

Again, the recognition of the farm part of the Jatobá Farm that generates this difference and Alto Taquari. It's important to mention that for 2 years what we are pursuing is to have an operating flow in the company that you got independently from the sale of the farm, and we are consolidating from what we had last year and then operations of this year. We can show that the company is able to generate [ BRL 70 million, BRL 90 million ] in terms of EBITDA considering grains, sugarcane, cattle. And the company gives us possibility we can sell the farm and we can have positive results. And we can pay our dividend. That's one of the main goals that we have. What we see is that expense with sales growth. And we have this equity equivalent, gives us an impact. We had it last year. This year, we have the behavior that we expect with great relevance. Financial results, we have BRL 1.8 million negative we have interest and capital cost, BRL 301 million of debt, and we have BRL 14 million of financial expenses. And we also have positive/negative results in terms of dollars, commodities that we managed to get. And this has generated a result -- a financial result, minus [ 1 -- 200 reais ]. So we take the -- we had BRL 214 million.

On the next page, we have our statement in here, in the property portfolio where the company closes total assets BRL 1 billion (sic) [ BRL 1.3 billion ], BRL 130 million more than last year. And our liabilities, at the same level as next -- last year. The variation of the assets is basically considering increase in stock, and we can say that the net equity of the company is BRL 888 million.

On the next page, the indebtedness of the company is BRL 300 million as I had mentioned. If we adjust to the cash, we get to BRL 246 million. During this period, we paid principal and interest, and we received certain financing here and the values are equivalent. And we have also some type of rentals. So we have -- we're going to present a separate line. So we have certain finance, this is related to sugarcane plantation that we have in São José that we have to deliver in 15 years, receivables BRL 118 million that we have recorded. Indebtedness level is 110%. I said it in percent. And what's important, to show that we don't have debt in dollars neither in Paraguay nor in Brazil.

The next page. We see our net value. We have -- the price of the share is quite cheap as it is being traded. So if we take net equity and if we add market value in reais and we reduce the cost value, we see that the value we get to is 1.5 -- almost BRL 1.6 billion, and that's 7.83% (sic) [ BRL 27.83 per share ]. We understand that we can get credits. And Banco do Brasil started operations, and we could get -- we have the possibility of having an appreciation of the papers.

So on the last page, we have share performance. So on the 9th of May, we had BRL 15.65, quite similar to what we had traded. We had price the market, you see a chart showing the performance of our shares of AGRO3 and Ibovespa. We see the variation is about 25%, 26% getting to reach -- exceeding 30%. And we see an increase in the farm average value of traded shares. And we would like to invite and restate that you can trust the value of our shares because we have a company that is on the right track, and we're going to be able to attain consistent operating results and that we're going to reinforce our commitment to continue to capturing profits that are significant that enables us to pay out dividend.

So thank you very much. We can move on to Q&A.

[Operator]

[Operator Instructions] Our first question comes from Pedro Soares from BTG Pactual.

[Pedro Soares, analyst]

[Interpreted] I'd like to ask 2 questions very briefly, André. More in a broader macroeconomic sense. As you've mentioned, many variables impacting the industry. We mentioned considering commercial war. Now the swine fever. And I'd like to understand what you see in terms of dynamics for offer and grain prices. [ SCI ] has actually disclosed a report regarding crops at high levels. But the agency had quite high estimates for -- in terms of demand for the future crops. We thought it was going to drop regarding the current crop which seem to be quite optimistic. So I'd like to say I would be grateful if you could share your view, if you're not being too conservative or not. And another question regarding more macro view, where we have a drop of world GDP. I'd like to know whether this drop would not be offset by incentive of U.S. credits to Brazil. If you would not, in the medium term, relatively good for the country. I think this is it.

[André Guillaumon, executive]

[Interpreted] Pedro, as usual, you bring intelligent questions that is food for thought, let me try to share our vision with you. Undoubtedly, they bring with conservative report, just to make a parallel on the side of supply. Well, if we talk about expecting, and it's something we should expect, that if we look at the snapshot today, we have a major delay of growth of crops in U.S. and we see the floods, snowfall, et cetera, it's quite delayed corn. So when that happens there, farmers have to migrate, and they migrate to soybean. On the side of supply, we see -- we can see there may be an increase in the supply of soybean because there's a corn reduction. That's why the U.S. government has actually started a subsidy. It's not actually a subsidy of agricultural insurance actually recommending farmers not to start growing so quickly. That's the side of supply.

So on demand side, they are usually very conservative. You cannot measure how much that generates in terms of speculation, how much they should put in this basket of subsidies of insurance if they do not -- there is no increase in demand, so what would come on the other hand on the side of demand. I think the side of demand may be caused by the side of the increased imports of beef. That undoubtedly, both there and here, we see an increase in beef import that may lead to a major increase in consumption in the country. So on the side of soybean, I would say that regarding the USDA report. Well, the commercial war. So we're seeing that we saw several things noting. We could not get beyond the margin of 30 points. We see getting out to 18 points.

In the short period of time, this war may happen again, yes. What happened last year? Last year, when they had all that miss, soybean amounted for 8.90 in Chicago, and we saw soybean in the company with gains of 270 points. Never in my life have I seen that in history. I don't think it should be like that though considering Chicago. Now we've seen in the past 2 weeks major strengthening was in Brazil. Chinese will have to be here and buy. In the past, when we see 270 points, there's no seeder there. On the side of demand there, so there's much smaller pressure. So we had to tell how much of it should be included. 270 here from almost everything some, find there, it should not reach. So we have to strengthen the space here.

So if we combine both things, so we have to pay attention to that. Today, we are actually focusing on soybean and some specific segments, and we have seen some movement of -- not movement but actually detachment of Chicago with the internal market. We're selling soybean internally, if you look at screen, Chicago. So there's nothing given for nothing. So specifically Maranhão, not Maranhão -- we managed to sell soybean at quite interesting prices if you see. [ Green ] prices -- we sold 15% above what would be Chicago. The space, the property that we sold there is mismatch.

So answering your second question, the commercial war may again bring the benefit that we've experienced in the second term last year. But I don't believe it's so potential as it was last year because of the swine fever that have reduced the demand quite significantly. I would like to add, considering the price of soybean and that is present with us. As we've seen that, you're following the margin in soybean. And with current prices, we understand that we have bad news that the market will receive, so that's evaluated. So everything is embedded in those prices. And when we do the math of margin, you see what we have in Mato Grosso, et cetera. And there are many areas that will not be grown. So the price of soybean has to recover. Otherwise, it's an important region that is soybean exportation or export will not be able to supply to the market.

[Operator]

Our next question is from Luciana de Carvalho, Banco do Brasil.

[Luciana de Carvalho, analyst]

[Interpreted] I have 2 questions. My first question is the lease area, 47% of production in lease area. Do you have any target by year-end? How much do you think about the increase in margin? And the second is dividend and CapEx. You paid BRL 41 million in dividend. If you could make a follow-up in terms of the dividends for the company, what do you expect in terms of investment from now, that would be grateful.

[André Guillaumon, executive]

[Interpreted] Wonderful question to everybody listening to your question. Yes. I think investors and individuals probably like your question. It's a quite interesting question. The first question -- I'm going to start with the first question, lease areas. Two things to mention here. We have a mix of lease areas. We have quite a few lease areas with sugarcane. And I can share the data more precisely giving you the breakdown. 50% of our lease areas were the sugarcane and the other, grains, a bit more. 55% grains and 45% sugarcane.

When you look on the side of revenue and EBITDA, I'd say leasing has a greater weight on sugarcane than grains. So I dare say that the portfolio of lease areas of the company is also diversified. We try to diversify products and also in the leasing activity. When you ask me about a target, I'd say that what we see the most banging on the assets in the market and have here in the part of leasing. We don't believe very much in this business model. We believe in the combination of 2 models. I would say that if we could keep on growing year-after-year as we've grown this year from 30% grown areas, we can increase our own area and the lease area, it would be a win-win situation. That is quite advantageous. We would not give up the real estate. That's important, which will bring the important results.

And then I'm going to answer your second question. We want to pay aggressive dividend to our investors, and we balance generation of cash generation. So -- because when you bring -- so you have important real estate investments in regions of transformation. So you may have operating volatility. So what we believe is the combination of the 2 models. And we believe this is the combination that is winning over, that can lead us to success. Our strength is trying to grow the company the way it is with the target it has today. Can you do this every year? Of course not. There will be a year in which we're going to grow a bit more in leasing, and next year, we're going to try to correct. Some years, we're going to have leasing a bit behind, and then we're going to correct the following year. But to answer your question, I think this is a number we should actually use to continue with the company, we're going to capture property gains, and we're going to have quite interesting cash flow generation.

To answer your second question on the side of dividends, we have in the past, cumulative profit of BRL 140 million. Our policy, we have no policy designed for dividend. We are listed in the Novo Mercado. We have to pay 25% of net income in dividend. This enables us to stay working where we have 3 more months to work on the property side of the company to happen. This enables us to say that if nothing happened, if today we have basically, we're going to go through the fourth year-end. The BRL 140 million that we have today, if I do the simple math here, I would have the result of the year of BRL 140 million I have, I would have compulsory dividend of BRL 35 million, very close to the dividends paid out last year, which were BRL 41 million. So shows constant delivery of the results of the company and the confident payout of dividends. That's what we seek. When we see a constant in terms of delivery results is to seek to increase value for shareholders and our deliveries. This is combination that we have in terms of the strong points for the company.

So the CapEx of the company, answering your third question, is yes, actually you -- actually sort of tease me in several ways to date. So we've been quite aggressive. We spent a lot of CapEx in the past 18 months because the company also incorporated an asset that is generating a lot of results, which is the São José Farm and depends a lot considering our sugarcane plantation, and we've had great impact, if we break down the CapEx of the company. And I will actually be able to provide you with that. A great part of our CapEx in the past 18 to 24 months has been made up by very productive CapEx production sugarcane. And we have that in the future of sugarcane plantation. We invested in transformation. If I break it down, what do you have in there in terms of machine? Nothing. What do you have in terms of infrastructure? Very little, almost nothing. What do you have in terms of vehicles? Nothing.

What do you have in there, other things that are not related, that are not actually going to bring very robust effect in production and gains in activity? Practically nothing. CapEx is very heavy because of the incorporation of the asset in São José. That led us to accelerate the production of the sugarcane plantation that had low yield. And we had to have stuff -- we had to rescue it with irrigation. We're actually implementing other methods of irrigation in the area. So that will require about BRL 8 million to BRL 10 million in terms of CapEx. Basically, all the CapEx of the company will be reverted very quickly and return in productivity in the sugarcane. I hope I have answered your questions.

[Gustavo Lopez, executive]

[Interpreted] Luciana, it's important -- so we talked about investment. So what's our goal? The company in the developed areas of 30%. So we have a land bank that can maintain the sustainability of the company. And what we understand from now on is that we would have some 20% to 30% of cash generation that we get we would reinvest that. To say -- so we have to pay taxes, etc. We have certain amount that were accumulated. And we're moving into a regime that generates results that can actually help us in the demand of -- help us in the payment of taxes. So we have stabilized between 20%, 30% of value that we capture. And we are striving to grow the company to increase turnover, and that would help us pay dividends, taxes and also seek savings so that we can seek new opportunities, acquisitions.

[Operator]

Our next question is from Victor Saragiotto of Credit Suisse.

[Victor Saragiotto, analyst]

[Interpreted] Congratulation on your results. I'd like to follow up the question of my colleagues, BTG, the scenario and the swine flu in China so -- and the outlook for next year. We've seen trade increase in the market many times. And we had times that we're a bit more volatile in soybean considering freight, prices, et cetera. And my question is related to the relationship to -- with trading for next year. What are they seeking? Are they having more demand -- more reactive demand? Can you give us an idea of how much is the price that you've calculated for the next crop? How much has it varied considering the current crop? That would help a lot.

[André Guillaumon, executive]

[Interpreted] Victor, well, no doubt what have we been doing, well, we managed to capture that. We managed to capture something via the market small. We captured a few things in the past considering the strategy of derivatives that we have. That is, I think, on Page 8 or 9, about what we quote 10- and 21-unit size, and that was an interesting strategy. Today, we have no longer this price on the screen. We managed to close interesting prices. Today, what we've been are doing and thought is quite different from that. We haven't been able to get that. The trading are out of the market. I actually share this information with you, 20 days ago to now the market was -- there's a period we've been working so that this can happen. We're going to start looking at if actually the trade remains and is back, we'll start actually closing things. I think the price of our soybean is a combination of 3 drivers, a, Chicago.

We have a hedge company, the risk policy that I cannot block one and mismatch with the other one. But possibly if we start in Chicago being at the levels we are, the base is being moved. We have to have a bit more base, block the base and release Chicago. So if Chicago is blocked, we're trying to release the other one. So we blocked Chicago, but not [ fully ]. So we're going to have a combination of things. So we have to actually try to strike a balance there. So you see, and you're better than us, we follow on with policies of foreign exchange market is quite uncertain, too.

So we're looking at that with great apprehension and also the social security reform so we're very much in tune with the Risk Committee in the company, with social security reform. There's a risk of having a weakening of the foreign exchange, and perhaps we should more -- we should be perhaps better sowed and perhaps be a bit sure. So we have to analyze the scenario. We have to have date, Chicago and the other, I think prices from the past 20 days. We did manage to get. We've got 10, 20 in the strategy of our derivative.

[Victor Saragiotto, analyst]

[Interpreted] Okay, André. When we look at the Xingu region, it's a new region you moved to. It's young in grain production, and we see the market see that quite skeptically. And there is a learning curve depending on the region where you are. My question is how did your actual behave considering the estimates you had? And if you were interested in more opportunities in the Xingu region?

[André Guillaumon, executive]

[Interpreted] Thank you. First, I have to promise, and I actually promised to show you the region, and that's something I disclosed to everyone. The invitation is also reinstated. I think we had great challenges there in terms of operations, where we need to crop the group controlled by [ LPL ]. We took the operations on the 11th of September and started planting or growing on the 1st of October. So it was war operation. I was there a while ago. And I was talking to Gustavo when they put everything on scale, so we have a positive.

The first year of operations is positive, we closed in the first year with soybean at a number that is quite positive, about 57 bushels started growing without knowing the area. Without knowing anything about those areas and with the set of operations by machine to a third-party, the company that was there then, and transferring to our operators, I see that with very positive eyes. We managed to have 57 bushels in the first year of operations. I think we are able to deliver much more. We still have a lot of challenges ahead we have to work with. On corn, I think the corn does not reflect the corn that is present in the region. We have to improve as the corn producers in the region maybe were too conservative and the corn package, we haven't been so aggressive in corn package. And the corn in the region has more potential than that, and we're going to replan our estimates with that. And I see the region that is quite promising, we're looking at new operations there. And I think that one of the goals of being in the region is precisely that. That the opportunities.

For us to be there, we're looking at 3, 4 new operations for acquisition and leasing. We have a team looking at 2, 3 operations for acquisitions in the region. One is more advanced in terms of negotiation, and two operations leasing in the region. So I see our move to the Xingu region quite positively. It's quite a promising region and has been delivering quite a lot, and cotton is arriving there. I had at the time, we had -- we talk to people. Well, the region will be consolidated as a cotton-producing hub, and this will generate important value to the company. And I believe that despite the altitude of being a gap that is impacting compared to others, Mato Grosso, it has now a slow advantage regarding others. In Mato Grosso, the logistics of the region, I think -- I see more optimistically than other areas of Mato Grosso. The gains may actually lead to appreciation to the region.

[Victor Saragiotto, analyst]

[Interpreted] Well, congratulations on the results to you and the team.

[Operator]

Our next question is from [ Amir Miguel ] from [indiscernible] Capital.

[Unknown Analyst]

[Interpreted] The first question is regarding irrigated area of the company. What is the area in grains and sugarcane? And what's the outlook for growth? How do you see irrigation in the business? The second question is regarding what do you think about the change in the -- about the BNDES interest policy change. How is this going to impact the company in the short- to medium-term?

[André Guillaumon, executive]

[Interpreted] [ Amir ], thank you very much for your question. Let me try to answer your questions in a very transparent way. Irrigated area of the company, we have a large irrigation project that is operating in the São José unit. It's a project that is the sugarcane crop. We have 2 modules. One of phasing or rescue irrigation with a pilot -- well, I'll try not to be too technical, but we have a linear pivot. They are linear, so they have sort of a salvation thing. And then we have the 6 pivot, that's the second project, I just mentioned to Luciana, in the sugarcane crop.

Overall, our equipment is able to irrigate an area of 18,000 hectares, the linear pivot has great mobility. So each type of size is operated for 700, 800 hectares because it has blades for each area, and you just move it to the whole area as the crew and you go and suction the area of the channels or ditches and then you manage to irrigate it. The irrigated area of the company today is 18,000 hectares.

We have a project that we have an installation happening in West Paraná. That is an irrigation project that is being implemented. We've recently had a license from the water utility company. Now we are actually demanding electricity from COELBA Bahia. So this is a smaller project. It's about 2,000 hectares. So the company has its 2 irrigation projects underway currently.

As to capital cost structure, undoubtedly it took a while for BNDES to make this change. Undoubtedly, it's an industry that brings -- has got positive results for quite some time. The government going through all these problems of tax adjustment, and we should only expect to have those changes. We foresee the possible changes of BNDES. Well, in the past, we had the issue of debt with more interest in cost of capital. Well, we saw this sort of drawing or growing difficulty of investment and also financing. We have BNDES and other fostering banks, and we see the financing lines are increasingly being limited.

And if you follow and look and we see the issue of CRA and debt and other types of debt in the agribusiness. In the past 6 months, we have been increasingly bigger every term because of the cost of capital. The debt existing was low. Capital cost is limited and does not reach the demand that we have. So I believe that companies overall will not fail to resort to subsidized financing lines, but companies have to resort to other types of debt for investment. The sugar alcohol industry is very much that so we have a lot of investment in crop, and our peers have done that. And I believe this is recurrent in this industry precisely an emptying of the credit line, and the government has been reducing certain financing lines. So we're going to have several things. And in Mato Grosso, you have rates that are representing 115%, 120% and can get actually different overall. And the credit lines are going to be increasingly more scarce, and the public sector will have to move independently.

[Unknown Analyst]

[Interpreted] Great. Just an additional question regarding irrigation, especially in the year, well, you have this project of 2,000 hectares. Why is it not extended? Do you think strategically this is not interesting? Or are there structural limitations of availability of water and energy because we know in those regions it's critical? Is it a matter of strategy or the cost of irrigation? Or is it a structural thing that limits it?

[André Guillaumon, executive]

[Interpreted] Well, first, off the cuff, the limitation is energy. I met the Chairman of COELBA last week and we farmers have been fighting for an increase in the energy supply in the region. The transmission lines were actually auctioned and actually to a company that went bankrupt. So there is a great demand and lack of supply. So off the cuff, the answer to your question is that the lack of energy in the region is huge.

The projects are feasible, that makes sense in order to have enough energy but something we should look at. I understand that you understand about irrigation or you know about it. And basically, what we should do and what has been happening is that we have a new table of price list of tariffs of what we call the green flag of irrigation. And possibly when you connect to it, it won't make so much sense to have a pivot on the soybean and corn. We should seek more value-added crop. If we take the incentive of the soybean, and corn won't be so productive. So without the green tariff and the policy of this new decree that was passed, this will reduce the green flag of energy in next 5 years.

[Operator]

[Operator Instructions] If there are no more questions, we would like to give the floor to Mr. André Guillaumon for the final remarks.

[André Guillaumon, executive]

[Interpreted] Thank you all very much to have stayed with us for 1 hour and 15 minutes. Thank you once again for the opportunity. Let us follow the efforts and drive of this team, providing us here, the management of growth and a constant search for better results, a combination of property results, operating results is what strengthens our company. Trust the work of our team, the work of our company. As Gustavo said, we have great opportunity for investment banks giving us major support, Banco do Brasil, BTG has been doing a lot of work. And Credit Suisse has just started and has been doing. So they have been actually -- they have been generating a lot of value, and we are going to close the gap. Undoubtedly, the effort has been smaller for this, and I believe the results are here. We'll keep on delivering results of that. And this is important to know and for you to know. And I wish you all a good evening and good work. Thank you very much.

[Operator]

The BrasilAgro teleconference is closed. Thank you all very much for your participation, and we wish you all a good afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]