SLC Agricola SA

BOVESPA:SLCE3

Earnings Call Analysis

SLC Agricola Q2 2024 Earnings Recap

SLC Agricola faced a mixed Q2 2024. The company reported net revenue of BRL 1.4 billion, affected by lower soybean prices and reduced sales volume, although current revenue increased by 73%. Adjusted EBITDA for the semester stood at BRL 962 million with a 29.1% margin. The issuance of CRA raised over BRL 1 billion, aimed at extending the company's debt profile. Land valuation showed a 6% increase to BRL 11.5 billion. For the 2024/25 season, the company secured key inputs and hedged 61.3% of estimated soybean production. However, negative cash flow of BRL 543 million primarily due to reduced soybean production payments remains a concern【6:0†source】【6:1†source】【6:2†source】【6:4†source】【6:8†source】.

Financial Highlights: A Mixed Quarter

In the first quarter, SLC Agricola reported net revenues of nearly BRL 1.4 billion, marking a decline attributed to lower prices and reduced soybean sales volume. However, current revenue experienced a remarkable 73% increase. The company's net income for the quarter reached BRL 321 million, contributing to a half-year total of BRL 550 million. Adjusted EBITDA for the semester stood at BRL 962 million, yielding a margin of 29.1%. Notably, cash flow for the quarter was negative BRL 543 million, primarily due to reduced soybean production payments for crop inputs.

Debt Management and Land Valuation

As of the end of the quarter, SLC Agricola's adjusted net debt was BRL 4.2 billion, reflecting a net debt to adjusted EBITDA ratio of 1.99x. With almost 100% of the costs for the 2023/24 season accounted for, the company has also conducted a land valuation, revealing that its holdings are worth BRL 11.5 billion—a 6% increase in the adjusted portfolio. The average value per hectare is now BRL 57,500.

Operational Performance and Crop Outlook

The 2023/24 season has been challenged by El Nino, significantly impacting soybean yields, which are down 17% compared to budget. The total soybean harvest was affected adversely, while cotton harvests exceeded expectations, with projections at 1,977 kilos per hectare. The company has hedged 69% of its soybean production and 59% of its cotton production for the season, making strategic progress despite market pressures.

Future Projections for 2024/25 Season

Looking ahead to the 2024/25 season, SLC Agricola has proactively secured 92% of its phosphate and 100% of its potash inputs. Presently, 61.3% of its estimated soybean production has been hedged, and 9.4% of production costs are locked in. With plans to increase planted areas by approximately 60,000 hectares, the company is making strategic investments in new leases and joint ventures, including an expansion with Agro Penido.

Market Conditions and Pricing Dynamics

The market has experienced a surplus in soybean production coupled with declining prices. Current soybean prices have remained stable in Brazil, sustaining between BRL 130 to BRL 140 per sack, despite a 15.3% drop in the CBOT prices. The Brazilian currency has depreciated by 10%, which has assisted in stabilizing prices domestically. Nonetheless, lower prices globally, especially for cotton, indicate challenging margins ahead for producers.

Strategic Opportunities Amidst Challenges

SLC Agricola is exploring lease opportunities actively, given the current low pricing environment. This strategy is expected to enable the company to generate cash flow effectively, which is essential for sustaining operations amidst tightening margins. The management indicated an optimistic outlook for yield growth, aiming for a 2% annual improvement supported by advancements in crop management and digital technologies.

Conclusion: Value Amidst Volatility

In summary, while facing a challenging market environment marked by fluctuating prices and adverse weather conditions, SLC Agricola is strategically positioned through its strong land valuation, proactive crop management, and a robust hedging strategy. The anticipated expansions and stable revenue prospects may provide significant opportunities for future growth, making SLC Agricola an intriguing consideration for investors, despite the current pressures experienced in the agricultural markets.

Earnings Call Transcript 2024-Q2

[Rodrigo Gelain, executive]

[Interpreted] Welcome to SLC Agricola Second Quarter 2024 Earnings Conference Call. My name is Rodrigo Gelain, I am the Financial and Investor Relations Manager. Joining me this morning, we have our CEO, Aurelio Pavinato and our CFO and IRO, Ivo Brum. It's a privilege to be with you this morning. Please note that this video conference is being recorded and will be available on the company's IR website, together with the presentation. I'd like to point out that simultaneous translation is available for those who need it. You can access this too on zoom, by clicking on the Globe icon, [ Lake Boat ] interpretation. One, select it. Two, is your preferred language, Portuguese or English. For those listening in English, there is an option to mute the original Portuguese audio by clicking new original audio. For the Q&A session, we encourage you to send your questions using the Q&A icon at the bottom of your screen.

As usual, your names will be announced so that you can ask your questions live. At that point, a prompt will appear on your screen asking you to activate your microphone and camera. If you prefer not to open your microphone and camera live, please write, no mic, at the end of your question, and I will read it aloud. Please note that the information provided in this presentation and any forward-looking statements made during the video conference regarding SLC Agricola's business prospects, projections and operating and financial targets are based on the company's current beliefs and assumptions as well as information available at this time. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they pertain to future events, and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect SLC Agricola’s future performance, leading to results that differ materially from those expressed in such forward-looking statements.

Now, I would like to hand over to our CEO, Aurelio Pavinato to begin our presentation.

[Aurelio Pavinato, executive]

[Interpreted] Good morning. Thank you very much for participating in our second quarter 2024 earnings conference call. Let's move please to Slide 4, where we'll discuss the evolution of the Brazilian cotton market. To begin, we highlight a historic milestone reached by Brazil in the '22/23 season, becoming the world's leading cotton exporter, surpassing the United States. Brazil produced 3.2 million tons and exported 2.7 million tons by July. Our primary markets are in Asia with exports going to countries such as Vietnam, China, Bangladesh and Indonesia. From where textile products are distributed worldwide. This positions Brazil as a strategic supplier of cotton globally with a sustainable, increasingly modern and efficient production process.

Now moving on to Slide 5. Let's say a few words about market scenario and cotton prices. During the quarter, international cotton prices declined due to global production, outpacing consumption. However, demand for clothing and textiles remains strong. According to Bloomberg and U.S. Census Bureau data as of June 2024, U.S. clothing and textile accessory sales reached $143 billion, a 3% increase compared to the same period in 2023. China, a key cotton consumer continues to import volumes exceeding those of the past 5 years according to Chinese trade balance data. On the consumption side, Asia’s textile industry has remained resilient and steady with production rates holding at consistent levels in recent months according to private market surveys.

The USDA estimates global cotton production at 113.6 million bales with consumption projected at 112.4 million bales, leading to a surplus of 1.2 million bales for the ‘23/24 season. We believe that the spinning industry is operating strategically caring raw material and finished product investors below the historical average, thereby reducing future market liquidity and putting downward pressure on prices. For the ‘23/24 season, U.S. cotton production is at its lowest in 14 years, reaching around 12.1 million bales according to the USDA. Looking ahead to the ‘24/25 season, the USA projects global cotton consumption at 116.2 million bales, up by 3.9 million bales from the previous season. Production is expected to reach 117.6 million bales resulting in a global supply/demand surplus of 1.4 million bales.

Now let's move to Slide 6 to discuss soybeans. In the United States, the 2023/24 season ended with a production of 113 million tons, which is about 9.4 million tons less than the USDA's initial estimates. In Brazil, the impact of the El Nino prompted CONAB to revise its production estimate downward by 8% from an initial estimate of 160 million tons to the current 147.3 million tons. Brazilian soybeans continue to be highly competitive, leading to record exports of 75.4 million tons by July 2024, with 55.5 million tons shipped to China, highlighting the sustained and robust demand from the Asian nation. Argentina's soybean harvest is estimated at 50.5 million tons, 500,000 tons less than previously forecast according to the Buenos Aires Grain Exchange. Despite successive downward production revisions in major producing countries, the 23/24 season is expected to produce a surplus of approximately 12.1 million tons over consumption.

For the ‘24/25 season in the United States, weather conditions have been favorable with current expectations of 125 million tons, a 10% increase over the previous year's production. Moving to Slide 7, please. Prices for Brazilian soybeans at the Paranagua base have remained steady between giving support between BRL 130 to BRL 140 per sec from May to August 2024. This stability persisted despite a drop in the CBOT amounting to almost 15.3%. The decline was largely offset, but by a rise in premiums at Paranagua, which increased by over $1.2 per bushel and a 10% depreciation in the Brazilian BRL with the exchange rate moving from BRL 5.10 to BRL 5.50. We're helping to maintain soybean prices in Brazil.

Now let's talk about corn. For the ‘23/24 season, global production is expected to surpass consumption by about 18 million tons. The 2023/24 season in the United States has ended. In Brazil, CONAB forecast total corn production at 115.6 million tons. In Argentina, the Buenos Aires Grain Exchange estimates that corn production has been cut by around 18% from initial forecast, due to pest. The original estimate of 56.5 million tons has been revised down to 46.5 million tons. The revision in Argentina's corn production affects the global export balance given that Argentina ranks among the top corn suppliers worldwide alongside Brazil, the United States and Ukraine. In the United States, the ‘24/25 corn planting area totaled 90.7 million acres, down 4% from the previous season.

Currently the global supply and demand balance for the '24/25 season is projected to show a production surplus of around 7.3 million tons over consumption, a significant drop from the previous season. Now let's move to Slide 10 to discuss our operational performance in the '23/24 season. The '23/24 season was characterized by the El Nino, which primarily impacted Western Mato Grosso, a region that experienced a significant reduction in rainfall during October, November and December. This affected soybean yield potential. The harvest has been completed, reaching 17% down in relation to budget and still above 17% --- cotton is 57.6% harvested, and our forecast is to reach 1,977 kilos per hectare of lint, 1.1% of projections and 5.7% above the national average.

Second, popcorn has been harvested almost completely, and our current estimate is 7,046 kilos per hectare, 7% below the initial project and 26.5% above the national average. The growing period was marked by irregular rainfall distribution and heat waves, which affected crop development, particularly in the state of Maranhão. On Slide 11, we present the cost and hedging position of the company per hectare cost for the '23/24 season were 10% lower than the '22/23 season, even with investments in fertilizers back to normal. Regarding hedging, we've advanced our '23/24 position in soybean, if we add all commitments production has been hedged and on 69%. And in cotton, 59% has been hedged.

I'll now hand it over to my colleague, Ivo Brum, to comment on our financial performance.

[Ivo Brum, executive]

[Interpreted] Thank you very much, Pavinato. Good morning. Please advance to Slide 13 to discuss our financial results. Net revenue for the first quarter ended at nearly BRL 1.4 billion, reflecting a decrease due to lower prices and reduced soybean sales volume during the period. Conversely, there was a 73% increase in current revenue. Net income was also affected by soybean results. We reached BRL 321 million and BRL 550 million for the half year. Adjusted EBITDA for the semester was BRL 962 million with a margin of 29.1%. Cash flow for the quarter was negative BRL 543 million, mainly due to reduced soybean production payments for crop inputs and also the machinery and other implements payments.

Now let's move to Slide 14, where we show the company's debt position. Adjusted net debt ended the quarter at BRL 4.2 billion with a net debt over adjusted EBITDA ratio of 1.99x. We have almost 100% of the costs for the '23/24 season paid off in all the corn from the season are yet to be built. Next, on Slide 15, we summarize the issuance of CRA. On July, we executed the fourth CRA issuance agribusiness receivable certificate. We raised just over BRL 1 billion through 3 series with maturities of up to 7 years. The main goal of this operation was to extend the company's debt profile. On the next slide, we present the land valuation. In June, we conducted a valuation of the company's land carried out by Deloitte. The land was valued at BRL 11.5 billion, reflecting a 6% increase in the adjusted portfolio. The current average value per hectare is BRL 57,500.

I will now turn it over to Pavinato, who will present information on the outlook for the 24/25 drop.

[Aurelio Pavinato, executive]

[Interpreted] Please let's move to Slide 18, where we present the outlook for the '24/25 crop season, and we begin with an update on input purchases. For the '24/25 season that will start in September 2024, we have continued to purchase inputs. We have acquired 92% of phosphates, 100% of the potash, 97% of the nitrogen and 85% of the pesticides, taking advantage of market opportunities. Let's proceed now to Slide 19, where we show the current hedging position for the 24/25 crop. We have continued to sell and hedge soybeans, reaching 61.3% of hedging of the estimated production. We have hedged 9.4% of the cost in production, but we have not yet progressed with corn hedging. Additionally, we have locked in currency rates for our crops during periods of favorable dollar rates.

Now let's move to Slide 20. As announced on April 29, we have expanded our joint venture with Agro Penido, Fazenda Pioneira, by adding 1,700 hectares with a planting potential of 30,734 hectares, including second crops. On Slide 25, we provide a summary of the new joint venture. The company has entered into a partnership agreement with Agropecuaria, part of the [indiscernible] Group to create a joint venture named Fazenda Preciosa Implementos Agricolas. This venture aims to jointly develop agricultural production in the state of Mato Grosso, with SLC Agricola holding a 55% stake in Agropecuaria IKA holding 45%. The joint venture will manage 11,282 hectares with a total potential of 21,000 hectares considering second crop planting. This new joint venture will begin operations in the '24/25 season and is located in Querência, Mato Grosso. We will produce soybean second crop, corn and plan to produce cotton in the future as the farm is mature and the soil highly fertile.

Now we'll move to Slide 22, where we will discuss the recent relevant fact regarding a new area leased. The new lease covers a total of 14,572 hectares that are cultivar located in the state of PiauÃ. Due to its proximity, this area will integrate Fazenda Parnagua. The new area will be starting in ‘24/25 season, and we'll produce first crop soybeans and cotton. The area is mature. The soil is fertile and the lease contract is for 15 years. To conclude this session, we can move to Slide 24. Combining the 3 operations, we are increasing our planted area potential by approximately 60,000 hectares for the '24/25 season.

Thank you very much. And now we will open the floor for questions and answers.

[Operator]

[Operator Instructions] Our first question is from Gabriel Barra, Citigroup.

[Gabriel Coelho Barra, analyst]

[Interpreted] I think that both Pavinato and Ivo have commented on the outlook, and I would like to talk about capital allocation and production. I think that in terms of costs, the package has already been defined. You gave us an update on input purchases. And I would like to understand what we can expect in relation to the evolution of costs per hectare for the next season. Also breaking down this in the production and the mix, should we expect a mix of crop similar to last season with the current balance of cotton? Or should we expect an increase in the planted area of cotton? And what is the impact of that considering costs? Also, Pavinato has talked about the JVs that we have been expecting eagerly for over 2 years, and I think that this capital allocation happened at just the right time. Firstly, I would like to ask if there is any space left for this crop or if the window for ‘24/25 has ended. And should we expect this to continue in 25/26 with an expansion of your land?

[Aurelio Pavinato, executive]

[Interpreted] Thank you very much, Barra, for the question. Well, cost ‘24/25. Yesterday, we had a Board meeting in which we discussed our budget. But since we made new leases recently, we had, of course, to redo our planning and also consider our machinery requirements. And of course, first of all, we have to analyze the soil of this land to see whether we can plant cotton on the first crop. So, we have to wait for at least 30 days so that we conclude the soil analysis and the agriculture planning to define the mix and as a result, also to define the cost per hectare. So, I'll have to ask you to please hold on that, and we'll give you an answer in September. In relation to our expansion, we are now in August, 1 month before planting. So, the lease window is now closing for the current season. We have to start thinking, however, of the next crop season. And in this market of lower prices, there are more lease opportunities emerging.

Obviously, we are delivering growth this year within the targets. Last year, we weren't unable to grow. And this year, we are delivering the 60,000, 70,000 hectares. So now we feel comfortable that we are delivering on our promises and following a strategy of closing deals at the right time with the right pricing and all of this will give support to our growth.

[Gabriel Coelho Barra, analyst]

[Interpreted] Well, going back to the first question, if possible, if you can help me in terms of cost, could we think of a decline in trend in cost per hectare in the comparison with the previous year. So, should we continue to believe that the cost per hectare will continue to decline?

[Aurelio Pavinato, executive]

[Interpreted] Yes, of course, because the margins are being adjusted throughout the chain and consequently, input prices and even service prices are dropping. As I said, it's very difficult to give you a number we have because we have to conduct evaluations of the new areas, and we're talking about 11,000 hectares in Mato Grosso and 14,000 hectares in PiauÃ. And 30 days ago, those were lands that were in a radar, but we were not really going to market for the purchase. So, I have absolutely no question in my mind that the cost will go down, but I cannot give you a percentage at this point.

[Operator]

Next question coming from Matheus Enfeldt with UBS.

[Matheus Enfeldt, analyst]

[Interpreted] I would like to speak about soybean margins. I just want to confirm this is what happened. Perhaps there was a concentration of sales in farms that had suffered more with yields. So, is that what's putting pressure on margins? Or was there a specific factor that put pressure on soybean margins. Another question on growth. And in the hindsight, what can you say about the negotiations to expand land in '24/25. Where did you see more opportunities in terms of the negotiations and considering the size of the company? Is the company now struggling to find other farms that they want to add to their land portfolio. So, what can we think about the possible potential difficulties for next year?

[Ivo Brum, executive]

[Interpreted] Thank you, Matheus. In fact, this quarter, soybeans suffered with the carryover from -- since corn is now being harvested, we have to release our warehouses, and this was the area that suffered the most with prime. So, productivity in Mato Grosso was lower. And what I recommend is that you look at the year-to-date figures. Gross profit is around BRL 400 per ton. And in the quarter, just 52, but this 52 is, of course, the consequence of Mato Grosso with lower production. So that's why I suggest that you look at the accumulated figures for the half year.

[Aurelio Pavinato, executive]

[Interpreted] Matheus on addition of new land and negotiations, each deal is a different deal. And it really depends on the scenario. When we think of the evolution of agribusiness in the last year and the outlook for next year, this year, we saw margins being squeezed. Some producers were in tight spots. And the question that remains is what to expect for next year? Is it going to be more favorable or more unfavorable? And everything indicates that with soybeans being traded at low prices as now. Today, the premium now offsets the drop in soybean prices, we'll see some hardship in this crop. So as a result, lease opportunities will continue to appear. And it's really on a case-by-case basis, a negotiation sometimes takes a whole year to be signed and others just 3 months. And obviously, the industry as a whole will see rearrangements now in this commodity downward cycle. And obviously, we have to analyze and take the deals that are convenient for us.

[Operator]

A question from Bruno [indiscernible] to Itaú.

[Unknown Analyst]

[Interpreted] I would like to go back to the dynamic -- there are new discussions because of climate and government, also export duties in Argentina. So, what are the risks that you envisage for the market?

[Aurelio Pavinato, executive]

[Interpreted] Well, Argentina is now back into the market with the new government. We can summarize it like this. Argentina is very competitive internationally. There is a land expansion potential in Argentina as well. And they cannot give up on the retenciones. Otherwise, the governmental accounts will be in trouble. But I think that in Argentina this year, even in spite of El Nino, which is near for a full harvest in Argentina, that was not the case. In fact, the corn harvest was very bad. They have a problem with the Chica De La Peste in Argentina, and they're losing a lot. So, they are planting less corn than this year because they don't know how to manage corn pest as well. So, in soybean, yes, they have planted even more, and this is also putting pressure on soybean prices because there will be more soybean available in international markets. But Argentina, obviously, has limited space, but at the same time, this is a strong player that's very competitive in the soybean and corn markets.

Along the last years, Argentina --well, the climate has not been on their side. There was a reduction in rainfall this year with El Nino. They had a reasonable level of production. But next year, we're going to get a weak La Niña. So maybe the effect will be not as much. But this probably will be a critical factor that will also add volatility to the market. We always have an estimate for the harvest, and if we don't get to the full projected figure, then supply will be less. So definitely, Argentina is back to the game and the government will try to keep this strategy of reducing retentions. That's for sure.

[Operator]

Our next question is from Julia Rizzo of Morgan Stanley.

[Julia Rizzo, analyst]

[Interpreted] I have 2 questions, in fact. Firstly, I would like to follow up. Well, we're about to start the new soybean season. And from the area that is known, the SLC before, the new leases and expressions, what have you prepared in terms of cost per hectare? And what can we expect in the normalized numbers? And also considering the new leases that are great for growth, what can you tell us about the lease market for these areas. How will it work in case of the JV and the other deal? How can you compare this to what you already have? Tell us about the negotiations? Just for us to get a feeling, a few of the market, please.

[Aurelio Pavinato, executive]

[Interpreted] Julie about the cost per hectare. We are now finalizing our budget, considering the land expansion and our production costs in U.S. dollars will go down. We don't know what the adjustment in BRL will be because we'll see a decrease in production costs in dollars with the depreciated exchange rate. This is favorable to us. Even though sometimes the decrease of cost in BRL was mitigated by the FX. But when we consider our business, we sell in dollars. So, the fact that the exchange rate is depreciated is positive to us. Leases, we have announced the lease of the Piauà farm and how much we'll pay in bags per hectare. Each region practices, different prices, and it depends also on the crops. If it's a farm where you can plant corn and soybean, that's one price. Or another one that where you can plant cotton and corn, is another price. So, the different regions have fair prices that you can accept in leases.

In the case of PiauÃ, we announced that we're paying 10 bags per hectare in the lease and after the third year when we'll have cotton, and the first year probably will have only soybean being planted. So those are prices that are payable and that can generate positive returns.

[Julia Rizzo, analyst]

[Interpreted] But what about the JV? I don't know what to expect in relation to the…

[Aurelio Pavinato, executive]

[Interpreted] It follows the same logic. The owner gets the lease, and it's the JV that pays for the lease. And in the case, the JV, we are partners in this business. So, we have a stake also, and we received dividends. This is the difference between the JV and the lease. We are partners in the business. Obviously, with the JV, you won't make JVs with just anybody only strategic purpose with growth potential. That's why we don't have that many JV.

[Julia Rizzo, analyst]

[Interpreted] And so, what was the cost of the lease?

[Aurelio Pavinato, executive]

[Interpreted] Yes, we didn't disclose that one. This is not public knowledge in the market unfortunately. But market prices it's an area with potential for cotton in the Araguaia region that's where it's located. And this is a long-term agreement as well. And there are different phases and with different prices.

[Operator]

Our next question is from Matheus Silva.

[Matheus Silva, analyst]

[Interpreted] How do you interpret the relation between the company's market cap and your land valuation?

[Ivo Brum, executive]

[Interpreted] Matheus well, we are a little bit frustrated to tell you the truth because since our assets are -- our land only is worth BRL 11.5 billion, and our market cap is around BRL 8.5 billion. Well, there is a lag there. But if we operate it only with our own land and at a discount, I would understand that. But since we are using 65% of leased land. So there is cash generation that, in our view, is not being taken into consideration. But of course, we want to clarify this point and show our numbers so that we -- the share price is more adequate in our understanding and views. We are certain that in the future, we'll be able to make this distinction because for us, the share price is just too low. There's too much of a lag.

[Operator]

Next, we have a question from Leonardo [undiscernible] Francisco, an investor.

[Unknown Analyst]

[Interpreted] Can you give us more information about the [ Rescar ] JV. We answered that already, and I will focus on the second part. How is SLC dealing with extreme climate events. Will you have to change the mix of crops this season?

[Aurelio Pavinato, executive]

[Interpreted] Thank you very much, Leonardo. Well, extreme climate events are going to become more frequent in our view. They may affect our business, but they affect not only Brazilian ag projection, but the whole world. So, when both the world and Brazil are impacted, the result is price increases. This is the positive effect of negative extreme climate events because our production may also be affected. So, we have to be able to manage higher volatility than in the past. Our system has been very well decided. In Mato Grosso, we plant in Mato Grosso do Sul soybean, corn, and first crop corn in the Bahia, cotton, and then Espirito Santo. So, considering this model, we try to maximize agricultural efficiency and economic efficiency. There's not much room for major changes.

And from our crops, we know that cotton is the most resilient to drought. And soybean is in between, and corn suffers the most with droughts, especially during the flowering stage. So, if you look at our history and background, we sometimes make slight changes, but not too much. We always break down or decide the mix by farm. We think, okay, where we're going to get the best contribution margin on that farm. This is how we make the decision on crops, and this is how we calculate our projections today with corn prices being traded so low, corn today has the lowest margin. So, it's planted as a second crop because there are no other alternatives to corn as second crop because the cotton window has ended, so the best alternative we have is corn, but it's not such a profitable crop anymore.

And soybeans as the first crop is the best option, even in Mato Grosso, we have soybean first and then cotton. It's the most efficient mix, and we're trying to maximize second crop, corn, cotton, as much as possible in all farms, especially in regions where we have just one crop such as Bahia, it's either one soybean or cotton. But we have used crop rotation half and half. And it's very efficient when you plant soybean after cotton. So, when we consider the mix of the 2 crops, it's always the most efficient one. So we don't anticipate major changes in the mix. In Maranhão, it's very similar to Mato Grosso do Sul, soybean and corn, and cotton first crop in 2 farms. And in 1 or 2 farms, we are able to plant second crop cotton. This is how we decide the different crops to be planted. Maybe we can talk more about the market. So, let's see if there are more questions in a little bit. I think we have an additional question, don’t we?

[Ivo Brum, executive]

[Interpreted] Yes, with this answer to Lenardo Francisco, I think that we also covered Sydney Nascimento question that was very similar. Okay, continuing, let's answer Jose’s question on investor. The price of soybean is below production cost in the United States. How do you interpret the USDA announcements recently and the prospects for supply and demand? What's the current phase of the cycle we are in.

[Aurelio Pavinato, executive]

[Interpreted] Well, the international outlook of soybean and corn. The northern atmosphere in the United States, they plant in April. That's when they plant soybean, April and May, beginning of May. So now soybean September, they will start the harvest. So, the agricultural year, what they call the ‘24/25 season, they planned in '24 and when they harvest in ‘25 they're having a very good season of soybean and corn, in cotton, not so well. The USDA announced a decline in the projections and the climate has not been good in the past 2 weeks. It hasn't been raining. So, in August, we see the confirmation of the projections of drought in the United States in the cotton areas. So that's why the USDA has revised down cotton estimates because climate is not favorable in the United States for the past 2 years, there was no rain, and there are no expectations for rainfall.

Now soybean, they planted more soybean this year than in the previous one. Why? Because the margins were higher than corn. There has been a significant decrease in corn. Corn has higher cost because it uses nitrogen and other inputs. So American farmers decided to plant soybean. And this is also another reason why we have pressure on soybean prices. This is the scenario in the United States. In corn, well, Europe produces corn, the Ukraine as well and the climate in the northern hemisphere. Today, they have the crops on the field and the climate is not favorable. We see a reduction from 66 million tons to less than 60 million tons in Europe.

And when you look at Argentina, as I said before, there was last projection. They announced probably that there were -- So, when we look at the consolidated figures in the world, the supply and demand are aligned. There is a prediction of BRL 7 million, and with the adjustments in Argentina, probably in corn, the balance of supply and demand will be flat. So, there's not much of a surplus in corn, but not in soybean, but you asked about consumption. Corn consumption is on the rise, but production did not grow this year, so that's why it's flat. In the case of soybean, consumption is growing in the season that ended the new season shows an increase in consumption of 400 million tons, but protection will be at 426 million tons. So, we'll have inventories of soybean being built. So, the hot topic today is in relation to soybean inventories.

Wheat production and wheat consumption is flat as well. That's the forecast for the next season. So, from the 4 major crops in the world, 3 of them, the largest one, corn, wheat and rice, well, we see that consumption and production are flat. We see an expressive surplus of BRL 12 million this year, and we see this BRL 12 million is also expected of surplus. So, it depends on the production. In the northern hemisphere, the production has been set. And in South America, we depend on climate during the next cycle. So, soybean consumption and corn consumption in the world continue to grow consistently. This is the positive factor in the world scenario, the global scenario. And production that owing to large planting of soybean in Argentina, Brazil and the United States. We have surplus soybeans, and that's why inventory levels are high, and we see a decrease in prices.

This is the scenario we see with lower prices margins for American farmers, are breaking even or negative depending on how you analyze the costs and expenses, margins can go negative. So, it's a scenario of tight margins in international markets. And this will put pressure towards the reduction of planted area in the United States. They have what they call the CRPs, which are preserved areas. So, when prices are low and margins are bad, they don't plant and then they get revenue from the government, so that they don't plan. So, everything indicates that if prices continue to be low, we'll have an adjustment of planted area globally to make this adjustment in supply and to rebalance margins and supply in the international markets.

[Operator]

A question from Matheus Paiva Oliveira.

[Matheus Paiva Oliveira, analyst]

[Interpreted] First of all, congratulations on the results. Are you thinking of a new share buyback program considering your land evaluation?

[Aurelio Pavinato, executive]

[Interpreted] Thank you, Matheus, for the question. As I said before, we're feeling frustrated with the share price. We have some ongoing share buyback programs. This is the moment of the year in which our leverage reaches the highest points, and we were going through a silent period because we had several negotiations underway as well. But the idea is to keep up with our share buyback because share price is below our expectations, as we have said before.

And we have an additional question from Joao, Buy Side analyst.

[Joao Ricardo Santos, analyst]

[Interpreted] What do you expect in yields for the land under your management? And what is the -- what are the implications for the paid leases?

[Aurelio Pavinato, executive]

[Interpreted] Thank you, Joao, for this question. Productivity or yield. Yield will continue to increase a long time. Globally, we see 1.5% increase in yields in all crops globally. In Brazil, we grew 2%, 2.5% in yields in recent years, and we'll continue growing our yields because of all the improvements in our crop management. Now we have digital crop management, which makes our yields better with spot application of inputs. So, this is what will enable us to continue making progress and improving our yields. Now leases. Leases are not a consequence of yield. It's a consequence of cash generation. So, depending on how margins evolve and costs evolve. In recent years, we saw leases increasing because we have a very profitable operation with a lot of cash flow. So now we'll see some downward adjustments in leases because margins have contracted. And along the next few years, we expect yields to continue improving. We have to keep an eye on cost.

The most important thing is not yields, but rather the choice of crops. Is it corn and cotton? is it soybean and cotton? How much value does this crop combination, and how much can be paid in leases? So, the market self-regulates following this logic. But in the next 2 years in this cycle, we'll see adjustments in leases, depending on the crops and regions. We expect lease costs to remain flat or to have a downward adjustment. Okay, we are now closing the earnings conference call on the second quarter 2024 of SLC Agricola. The Investor Relations department is at your service to answer any questions and clarify any questions. Thank you very much, and have a great day, everyone.