Sao Martinho SA
BOVESPA:SMTO3
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Sao Martinho SA
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Good afternoon, ladies and gentlemen, and thank you for waiting. At this time, I would like to welcome everybody to São Martinho S.A. First Quarter Earnings Conference Call for the '21/'22 Harvest. Today, with us, we have Mr. Felipe Vicchiato, CFO and Investor Relations Officer; and Mrs. Aline Reigada, São Martinho's Investor Relations Manager. The audio and the slide presentation of this conference will be broadcast simultaneously on the Internet at saomartinho.com.br/investorrelations.
[Operator Instructions] We would like to inform that some remarks made during this call may constitute forward-looking statements about future expectations of the company and such statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ materially from those expressed in these forward-looking statements.
Now we would like to turn the floor over to Mr. Felipe Vicchiato, who will start the presentation. Thank you.
Good afternoon, everybody. Thank you for participating in São Martinho's call about the first call of the '21/'22 crop year.
Let's start by Page #4 with the operating highlights of the quarter. The sugarcane and production of sugar and ethanol in this quarter, we crushed 8.7 million tons, 12.9% less than in the previous period, due mainly to the lower productivity in our channels because of the very dry weather that we have been having since last year, and that had a direct impact on the growth of the plantation. Average TRS, 2.9% higher than the previous quarter, partially offsetting the loss of yield. With that, we see a reduction in the sugar production of 8.6% quarter-on-quarter and 11.9% in ethanol, 358 million liters, that is to say, in the first quarter.
I would like to remind you that the beginning of the crop year, we decided to make more sugar in order to cater to some contracts. But over the next few quarters, we will be migrating our production towards ethanol according to the material information that we published. If we were to break down into hydrous and anhydrous, we are producing more anhydrous to cater to the market. And like the whole sector, we have the UNICA report about the production of sugar and ethanol, and we see that, comparing 2021 and '21/'22, we have 24.6% more anhydrous in order to meet the needs of the market and therefore better prices for this product. So in the first quarter, we had anhydrous sugar and, lastly, hydrous.
On the next slide, we see the financial highlights of the quarter. 28.8% increase in net revenue, reaching BRL 1.3 billion, in spite of the drop of 14.4% drop in TRS equivalent and 14.7% here volume of sugar sold, 14.1% the volume of ethanol sold. And the reason why we sell less sugar: because of the lower production; and secondly, because the prices of sugar and ethanol will be better in the next 2 quarters. The margin of the company EBITDA 52%. Nominal growth of the EBITDA of 40%, BRL 491 million to BRL 688 million. And the EBIT margin was 27.8%. EBIT almost 100% higher quarter-on-quarter, which is BRL 17 million of net. Cash net income, BRL 238 million, 61% higher than the previous quarter.
In spite of the fact that we have a very high volume of exchange rate variations that were there in the hedge accounting and there's -- we anticipated the payment of some debt in dollar by the head accountant, we take this from the shareholders' equity, and we placed this in our result. If it were not for this experience, with no cash effect and on the current, once it was there waiting for the export of the sugar, the cash of the company would have been even better.
The improvement in the results was basically because of the improvement in prices as we can see here on the slide. Sugar, 28% higher, going to BRL 1,696 (sic) [ BRL 1,656 ]. Most of this sugar was already hedged. So it was posted by a result on the hedge that we had way back then and the price was lower than the market price. And this is the reason why the margin of sugar is a little bit worse than ethanol. But definitely, the average price 84.7% increased, BRL 2,916 for the cubic meters. And this helped. It was the main catalyst for the improvement of the EBITDA, et cetera. The cogeneration growing 24.9%. We had part of this quarter that was spot. So we took advantage of the better spot price because of the scarcity of water and the volume was worse because of the lower crushing in the period, as I said in the previous slide.
Let's go to the next slide where we have the cash cost for the company. Including the maintenance CapEx and the maintenance and planting and only the cash COGS. So let's start on the left going to the right. On the left, you have the cash COGS in the first quarter, BRL 431 million, going to BRL 504 million 1Q '22 and a 16.8% increase in spite the volume that was lower. You have the price of Consecana. That had a big impact. That went up about 63 -- 67%. In the release, you have all the details of the price of Consecana. And when we exclude the price of Consecana and we look at the unit cost per volume sold, we see an increase of 5.9% quarter-on-quarter. And this increase is due to the higher cost of diesel in the period.
The cost of diesel was -- well, we had a very low-price oil last year, and there is a price -- there is here the impact of the price of fertilizers. And when we include the total cash cost, which is planting, treatment in the intercrop period, we have the margin of sugar going down by 2.6 percentage points as the price of sugar sold went up less than the cost. And I would like to remind you that this cash cost of sugar contained Consecana, which has always an impact on the price of ethanol. And in the case of ethanol, we see an improvement in the margin. As you can see here, as the cost went up 45%, the average price going up 84.9% -- 84.7%. And we expect the margin of ethanol to remain healthy in the next 2 quarters and the lower margin for sugar milling in the second and the third quarters because there is still a large volume of hedge that was done in the past, and that will be posted to the result. But in the fourth quarter, we always have a higher volume of sugar to be hedged. So in March, we expect the margin to be more or less the same as the ethanol margin in the last 2 quarters.
On the next slide, we see a summary of our indebtedness. The company had a drop in the net debt comparing March '21 to June '21. And usually, this goes up because of the working capital that is used in the period. The reason why we had this reduction was that we have the main items here, BRL 406 million here. Our EBITDA -- the CapEx, exchange rate variation, positive, reducing debt to BRL 214 million; investment in CapEx, expansion and improvement and working capital, all the figures are here.
So you can see the drop of 10% because of all these facts. And when the dollar is BRL 5.20, BRL 5.10, we chose to, in order to pay -- we chose to pay some debt in dollar and swap some debt in dollar to real. And currently, our debt position in real and dollar is 79% in real and 31% in -- 69% in real, 31% in dollars until we hedge sugar. So we have a very comfortable situation here. As you can see at the close of June, at the close of June, we already had BRL 3 million. And despite of that, we have about 3 years of debt here. All the investments that will be made in the corn plant and the thermal power plant will be by means of the figures that have already been approved.
Now we have the sugar and ethanol market here. We have a very positive situation for sugar result from the Center-South of Brazil crop mainly. Today, more current figure for UNICA shows that there will be an important drop in the production of sugar in the Center-South. And our estimate is that crushing will be between 15 million to 20 million tons maximum. And as you can see, we have 75 tons per hectare in yield, the São Martinho Group, which is not acceptable. And we had, in July and August, we had the impact of the frost. And you have the figures of UNICA in the last report. So we will see the impact on the next report of UNICA. We do not have it yet. We do not have the impact of frost yet.
And you can see that it's a very constructive scenario. In the near future, part of sugar will be turned to ethanol, and then we will be able to decrease the speed of hedging for sugar. And it is practically the same volume that we had in the beginning of March, and we understand that this could be for the next 18 months, we will be very positive in the case of ethanol. Ethanol improved a lot in prices in the last few months together with the price of gasoline with a better level here. Petrobrás is following the international prices of gasoline and so giving us the possibility of making investments in the project that makes sense. In the last UNICA report, we see a higher reduction -- higher consumption of anhydrous. And we are prepared to supply the market with anhydrous, and we understand that the healthy price around BRL 3,003 per cubic meter on average of hydrous will remain until the end of this crop year, assuming that the price of oil remains stable as it is now. So these were my initial remarks. And we would like to open for questions now.
Our first question is from Isabella Simonato from Bank of America.
I have 2 questions. The first is about cost, cost for this crop year and next crop year. As you said, we saw some increases in input prices and also increases in freight costs and logistics, if you could tell us a bit about the relevance of these 2 lines in terms of crop treatment and also costs. And what kind of increases you anticipate for the crop year '22/'23? And how much of that could impact your CapEx or your costs?
And my second question is about hedging, if you could please give us a little bit more light in terms of how much you sold this crop year, this quarter, in terms of your own cane so that we can try to reconciliate your exposure to -- I mean, of your own cane to the cane in the next crop year. This could be very helpful.
Isabella, thank you for your questions. Let me start with your last question. Our hedging at present is 100% our own cane. So for the crop year '21/'22, I have 712,000 tons sold at BRL 1,655. And this accounts for 85% of our own cane hedged. Now in terms of Consecana, we do not hedge it. We sell it as we receive from suppliers. In the case of the crop year '22/'23, we have 346,000 tons. And once again, this is own cane, and it's about BRL 1,800 per ton. In Consecana, we don't have anything sold at the moment. But when Consecana starts moving ahead, then -- in terms of Consecana, we promote sales gradually into the market in order not to have any mismatching. Therefore, we never go ahead of Consecana.
Yes, yes. I know that. I don't know whether I was very clear with my question. But when we look at the numbers, for the fourth -- for the quarter, you had 900-and-some thousand tons hedged, and that was a percentage of your own cane, but the percentage of your own cane today is a bit lower because part of that was factored in, in terms of your deliveries. So if I could rephrase my question, I would say, how do you look -- how can you see your hedging going forward? What is your exposure in terms of March vis-à-vis the next quarters?
Yes. Now I understand your question. So there was a percentage reduction because the bulk of our revenue was almost totally with our own cane. Because according to the rules of Consecana, I think it's around 18% to 20%. I don't have the hedging per screen, but I can ask my team to send you the information later. But roughly speaking, I am not very much hedged in the March screen. Because if you look at Consecana in total, I would say, almost 100% in October and not much in March, very little in March. But I can give you more details later on.
And the first question, referring to costs. For the next crop year, crop year '22/'23, I think that any cost increase that we already have, we already have from last year to this year. I do not anticipate a new cost increase for the next crop year. So let's assume a number. NPK was up about 50%. And we usually increase yield, and we have many projects to expand vinasse. And with that, I reduce my consumption of nitrogen, of N. So given that investment, you will not then see any major cost increases. But there was an increase of 50% with NPK costs. But on average, I would say, 50%. Last year, just to give you an idea for -- I mean, crop season '20/'21, I spent BRL 60 million between nitrogen, phosphate and potassium. In this year, I may spend something close to BRL 90 million.
But in the case of potash, I am decreasing consumption by approximately 20%, 30% because of some projects that were initiated. And we had already anticipated that we would use less potassium. So the cost increase in terms of machinery or steel roll, coupled with input costs, this is already reflected in this crop year. But for the next crop year, maybe there should be a reduction. And if worse comes to worst, it will be maintained at this level, which is already very high. So when you look at my total cash cost and that includes CapEx and caps, uses a lot of crop treatment, then you see that it increased by 32% in the case of sugar and 45% in the case of ethanol because of these higher costs. But in CCT, for instance, a large part of CCT is diesel. Diesel oil was up by 53% in the quarterly comparison quarter-on-quarter.
There was a quarter last year where oil prices were very low in the midst of the pandemic period, but then there was an increase this quarter, but that is an important aspect of our cost. But in order for me to give you a shorter answer, if you look forward to the next crop year, costs should be either equal or lower when converted this year. I mean, cost of crop protection products, diesel oil, et cetera. So we do not anticipate any major increase.
But now in regards to steel. And here, I'm talking about machinery and CapEx. The bulk of CapEx of São Martinho is cogeneration in corn. So we were able to conclude that project even before that increase in steel prices. That's why this did not impact our projects. But in terms of our agricultural machineries, when we will have to make some replacement of harvesters, tractors, et cetera, and this should occur probably at the end of the quarter, then there will be an increase of approximately 25% to 30% in terms of machinery cost, but we are still trying to find ways to reduce that further.
Next question from Luiz Carvalho from UBS.
My first question, I think this is a recurring question that appeared in previous calls given your deleveraging process and cash generation. Because when we look at the net leverage of the company, being not even in a comfortable position or maybe below optimum level, if I could put it this way. We know that you have some projects in your pipeline. But if you could give us some color in terms of your capital allocation, that will be nice. And other -- also, if you could talk a little bit about dividend or buyback or your cogeneration projects and maybe corn-based ethanol. I know that you are also talking about second-generation ethanol and whether you would be interested in the area as well.
And my second question is probably more related to your current results. And I would like to talk about something more on the structural side. When we do our calculations here -- and I think in the last answer you talked about your cash cost. When we look at the cash cost of the Brazilian industry, the Brazilian sugar and ethanol industry, bear in mind the depreciation of the currency, the industry became much more competitive vis-à-vis other foreign competitors. And if you look at Thailand, they have 16 to 17 per pound. In India, even above that, considering all the subsidies. And then we'll probably start seeing structural change in terms of the different price levels of sugar. And going forward, if we assume that the exchange rate is not at this level, things may change. So could you shed some light in terms of how you see the competition and considering the Brazilian industry vis-à-vis the other peers abroad?
Thank you, Luiz, for your questions. Let me start with your first question on capital allocation to our investments. Starting with your last point, the second-generation ethanol, which has been very much -- which is something that people comment a lot, especially lately, we will be interested once we understand that this is a feasible technology in terms of cost and if we understand that the addressable market is larger. But for the time being, we do not have any projects in that regard. And our project team, Agenor's team, they are closely monitoring how this will unfold. And in addition to that, I mean -- and I will give you the information in order of attractiveness.
The second phase of our corn-based ethanol plant that we could start up as soon as the first plant is ready, which would be in approximately 1 year, this will take about BRL 700 million to BRL 800 million in CapEx. And this would add about 200,000 cubic meters of ethanol very quickly, meaning that this would be a way for us to add ethanol very quickly, unlike what happens with sugarcane. Because if the decision would be to expand Boa Vista from 5 million to 10 million, not only CapEx would have to be much larger, but then also, it will take some time for you to develop the sugarcane crop. So the first thing we are looking at is in -- also, if it makes sense, we are looking at the second phase of our ethanol-based -- our corn-based ethanol plant.
And then there are other things. There's so much in Santa Cruz. We plan to add about 150,000 megawatts of energy. This is an energy that we place in the network during the drought season, and CapEx involved would be around BRL 700 million for both mills. But this certainly depends on pricing.
Energy prices in the last auction, the price was not feasible. But depending on the development of the tax reform and then prices go from 34 to 21, then things become more attractive because the energy costs will be lower. And then at the same time, we would have some tax benefits, which, for a project of this magnitude, it becomes very attractive.
But we have to see how things evolve. These are the 2 major capital investments. And then there is M&A in the region. We still see the possibility -- I mean, despite the fact that the industry posted some improvements in terms of profitability, foreign exchange and ethanol prices, we also noticed that some mills need to make some additional investments in 1 or 2 plants. If they -- if the deal is financially feasible, we are monitoring a process with a mill next to ours, but they are still going through a reorganization process, and that plant would fit into the region of São Martinho and Santa Cruz. This would allow us to expand São Martinho and expand Santa Cruz, and we will be able to crush that cane. And in turn, this will reduce our fixed cost. And by the same token, we'll increase our profitability. But certainly, this will depend on pricing and other conditions. And in addition to that, there may be a few other M&A possibilities that we are looking at.
Now speaking about dividends and buyback. Well, buyback, we are thinking about initiating a new program. This is not finalized yet because we are still very much concerned with the liquidity of the shares to -- we have to increase the liquidity of shares. And so buyback, on the one hand, is not very favorable in this kind of situation. But at this level of share price, BRL 31, BRL 32, BRL 33, given the results going forward, maybe it makes sense to start a buyback because sometimes the buyback is even better than investing in the other projects that I mentioned.
And dividend payout, we pay the 40% dividend payout according to our policy. Historically, São Martinho used to pay about 28%, and now we paid 40% of the cash net income. And if by the year-end, and given the current conditions, our debt position will be so low that maybe I would pay out profits on dividends. And if my debt is not in an interesting level, that would put us in a nonoptimal capital situation.
So in addition to all of the things that I mentioned before, every year, we talk a lot about some internal projects in our own mills that could also offer some additional cost reductions. For instance, this project that I briefly mentioned in the beginning of my presentation when I refer to reducing the use of potassium, this was a project that we initiated last year. We spent BRL 80 million in all of our mills. And with that project, I was able to reduce my potassium requirement by 30%. And what is the impact of that in a year where price increases go up by 50%? I can then reduce my cost and at the same time remain competitive.
Projects like that, in addition to other projects because we are analyzing another project for water in São Martinho so that I could increase anhydrous ethanol production in the system because it's more profitable, et cetera. So this combination of projects that we look at every year in São Martinho could give us about BRL 150 million to BRL 200 million. And these are projects with good returns. Therefore, we always submitted to the Board for further evaluation.
Now in terms of the second question related to competitiveness, I think you're right. Because São Martinho today, if we look in the long run, my cost -- I mean, given the current exchange rate, my cash cost for sugar and ethanol equivalent is close to BRL 0.10 to BRL 0.11. Well, it depends on what mill you look at, but it's between BRL 0.10 to BRL 0.11. And if we look at the industry as a whole and looking at Brazil, it should be close to BRL 0.14, nothing less than that. And as you said it yourself, with the main players in the world, India and Thailand, these countries are at a higher level than that, not even -- not to mention the fact that India has -- works with a lot of incentives, so they can balance sugar and ethanol. This is a project that has been approved. So this will happen. Therefore, I think the structural sugar prices should improve in the long run. I don't know whether it will go to BRL 0.18, BRL 0.20 or BRL 0.24, but it will certainly be better than in the past 5 years.
Because if I'm not mistaken, on average, it was close to BRL 0.14. But I do agree with you, this is the way going forward. And even with the price range of around BRL 0.20, which is the price today, I don't see in Brazil, no one trying to get new projects forward to put a lot of sugar in the market. Because that means that either you change your ethanol mix and produce more sugar, but you have to consider the prices of oil today, or you start up a new mill, and in this case, you would have to use a lot of capital. It takes a long time until your sugarcane crop is formed. So I don't see anyone venturing into that area.
And then you would compete with soybeans and cotton. And this is not a very likely competition. And I think sugarcane would lose in that game. So with all of that combined, I think it's very possible that in the midrange you would see a much better price for sugar. Obviously, this could change if ethanol prices go down or oil prices go down. So this is crucial if you want to maintain sugar prices. To give you an idea, our long-term plan at São Martinho when we talk about that with the Board, long-term sugar prices is usually in parity with oil prices. It's never above oil prices. So this is how we work here. So therefore, oil prices are very important for us to strike the balance.
If you allow me, I have a last question. This new PEC, does that have any impact on your production?
Let me give you an honest answer. We don't know yet. In this court-ordered debt security, PET, according to my reading, they are trying to segment it into installments. But there are those that are not installments. I mean the court-ordered debt securities, we didn't read in that PET whether they would treat court-ordered debt securities that are already installments. I'm already receiving the fourth installment. I mean Copersucar already informed us that the funds have been deposited. So now we just have to get the money that has been deposited, but we have no further details on whether there will be a reinstallment of the already installment payments.
But we assume that this will not happen. But we still have to wait and see whether this will affect us or not. If this affect us, what we still have to collect for the next 4 years is something around BRL 700 million free of taxes. So instead of getting paid in 4 years, we would get paid in 10 years, but we are not sure whether there will be a recomposition of the payment.
Our next question from Gabriel Barra from Citibank.
I have 3 very quick questions. The first question is on ethanol. And as you said, ethanol prices is now very similar to sugar prices. And we see some players not doing the traditional carryover. So what would be your strategy for the next crop year looking at what you see in your radar or maybe changing your mix and tilting it more over ethanol? What would be the company's view?
And the second question is about the frost. And that frost had an impact on sugarcane yield and this not only happened at São Martinho, but in the entire agricultural sector. So what do you see being carried over to the next crop years? We've heard from some players that this could also have a carryover effect, not only for this crop year, but the next crop year. This would be another important point.
And to finalize, whether you could give me a very quick update about your corn-based ethanol or what you have in your pipeline, whether your deadline for the corn plant is still in place or not or there has been changes.
Gabriel, thank you for your question. Let me start with the second part of your question. The second question. Well, yes, there may be an impact on the next crop here. Because usually, when you have severe drought followed by frost, you need a lot of rain in the summer to be able to recover so that you would have sugarcane sprouting. We are making important investments now to mitigate the problem. It's sort of like refeeding the sugarcane. Because of the frost, sugarcane stops growing, and you need to do something to help it grow again. So we are making some investments for the next crop years. So it is true we should -- there should be an impact in the next crop year if we do not have enough rain in the next summer season. But if the rainfall is normal, if we have a normal rainfall from November through March, then the impact will be very minimal. And then in this case, we would have a recovery of around 5% to 10% in the Center-South sugarcane crop, depending on how the mill cared for the sugarcane crop.
Now in terms of sales of ethanol, I think we would sell according to market demand. If you look at current prices between BRL 3,100 in terms of anhydrous ethanol, I mean, we are selling it because ethanol is linked to oil prices. So assuming that the price is good today and the levels are reasonable, we will continue to sell ethanol. So we do not expect any carryovers when we sell 60% in the first half of the year and 40% in the second half. So it should be half and half.
And as for your third question, the update on our corn project. It's still at the same level of a few months ago. I think the plant would start up in the middle of August of next year. Construction has started, has begun, so I do not anticipate any delays. We are already looking for corn to buy in the region. So corn storage is the area that will be ready first. So by the end of this year, we should have a good amount of corn in storage.
And our commercial people -- our procurement people, they are looking to buy corn in the region to buy ahead. Because today, people are not selling. Now they are just waiting for a shortfall in the crop year. We were not able to buy almost anything because we couldn't find a good enough amount of corn to buy in the region beforehand, even because we don't have a storage facility. Because usually, when you buy, you have to store immediately. And in terms of our cogeneration project, the project should start up in 2023. Everything is already contracted, and we're already producing the boiler. Usually, the boiler is produced at the supplier's facility and then taken to the mill. But there is no delay there either.
Our next question comes from under Andre Hachem from Itaú.
My question is about biogas. I mean the ethanol and pulp plant. I just want to understand your view on the product. And especially in terms of CBIO, if you could change part of your machinery to biogas, you probably have greater efficiencies. So can you tell me how this project is advancing?
Sure. Thank you, Andre, for your question. Biogas, in fact -- I mean the best scenario would be for us, if we could transform our entire biogas potential, the supply, the engines of our trucks, combines, et cetera, and then we will no longer need to use diesel. So we spend about BRL 350 million a year in diesel oil. And with the amount of vinasse that I produce, I would have the potential to replace 100% of this diesel with biogas in my main mills. But the thing is that the engines for tractors and combines, et cetera, these are very heavy engines because these are very heavy machines. The engines are not yet developed to run on biogas. The automobile industry is now working on that to develop these engines. So this is just a disclaimer.
But the crème de la crème of biogas is to replace it, right? Diesel oil, because not only you will reduce your cost, but again, your environmental impact would be positive. Well, since we don't have this development in trucks and combined engines, you have to look at other avenues. There is electric energy, which is one avenue. We are not exploiting that yet. But there is another project in one of our units, which is Santa Cruz. That Santa Cruz has a good infrastructure to inject biogas in the network. So therefore, we are now assessing whether this investment will pay out or not. I mean, in terms of our annual investments that we discuss every second half of the year in São Martinho, this investment in biogas at Santa Cruz is one of these debates. I don't have any numbers to give you. It's a profitable project, but not as large, about BRL 50 million at the most.
I think we could transform biogas into electric energy. Because if in the future the industry develops engines that run on biogas, then you already sold your electric power and then the transition doesn't happen so quickly. So we are in the midst of this evaluation right now. And this is pretty much our view.
And I would like to make 3 follow-ups on previous questions. The first one is about the carryover. You said that maybe this year there will be lots of room for carryover. I'm talking about the ethanol. So don't you see a risk with the figure that you mentioned? Do you believe there could be a shortage of ethanol in the period between the crop, the intercrop period? And anhydrous, certainly, as well. So do you believe this risk is big or not?
And the second follow-up has to do with the discussion about the sugar price in the medium term. You mentioned at the end that the price of oil is a very important variable because of the historical correlation with the sugar prices. Well, is this still true? And there is a reason for my question. Because in all these discussions occurring in India, as you mentioned yourself, and in Brazil in the last crop year, in the current crop year, we are very close to maximize the output of sugar for any price lower than ethanol vis-à-vis the oil. The room for Brazil to add more sugar to the supply seems to be limited in my view. I would like to hear your view about that.
And the third follow-up has to do with the last question. You said that you have not started to buy corn for the mill that will be started up next year. So we believe that you will be buying in the spot market. Is that correct?
Thank you very much. I will start by the last one. In fact, we bought about 15,000 tons of sugar, very little vis-à-vis 500,000 that I have to buy. And we have not bought yet because we didn't have availability. Nobody was selling in the region. As soon as we get a considerable volume of corn to be bought, then we will buy it. And this should happen when our warehouses will be ready by the end of this year. And I expect by the end of this year, beginning of next year, we will be buying a relevant amount of corn. So we are not going to buy spot. We are going to -- the idea is to buy where you have the second profit in the region where you have a very bulky supply of corn in the region. And what happened is that, in the last 12 to 18 months, there was an important shortfall in the corn crop in Brazil and abroad as well. And for this reason, the supply chain is a little bit hindered. It is not normal, so to say. So our strategy is to buy before as soon as we have availability of corn in the market and the warehouse is ready.
And the second question regarding sugar, you are correct. I do agree with you. And in fact, today, you don't have more production of sugar to put in the market. Major investments should be made or had to be made or would have to be made in Brazil or even make investments in the ethanol mills in the Goiás and Mato Grosso region that are pure ethanol and going towards sugar, such as the case of Boa Vista. But what I mentioned and that we put in our business plan, our business plan always has a very conservative stand. In order for me to evaluate how much cash flow we will be generating in the future to buy back our shares, to pay dividend, to make investments and when we discuss this at the Board, in the long run, the price of oil is my cap for sugar as well.
I do agree with you when you say that it will be very difficult for Brazil to place even more sugar very quickly to the market. In Goiás, there is a problem regarding logistics. If I put a sugar mill in Goiás, the investment will be about BRL 300 million, which I would convert it to 2.5 million tons of sugarcane into sugar in order to make it feasible. The ethanol must be low because I will be removing ethanol and putting sugar, so -- but the reason why I use the oil price has to do with capital allocation, as I said to Luiz.
Regarding capital allocation, what is the rationale for your financials? So we look at the oil prices as indicators of the sugar price. But we are being pleasantly surprised, and maybe sugar will be even better than ethanol in the future.
And now going to your first question regarding our shortage of ethanol until the end or by the end of the crop year. We understand that the shortage of anhydrous ethanol would be a major problem in São Martinho and the sector as a whole. Should this occur, we are ready to import. So this is our commitment, ours and the whole sector's. And if say there is a shortage of anhydrous ethanol in Brazil, then we will be importing ethanol from the United States or some other country in order to supply the Brazilian market and have no problem.
And the hydrous ethanol, the consumer of ethanol has the possibility of using gasoline. And what happened is that, if the price goes up steeply, the consumer will be migrating towards gasoline, and gasoline will need anhydrous to supplement. And let's say there is a shortage of anhydrous, so we will be importing and we will be supplying the market with no problem whatsoever. But in fact, sugarcane suffered quite a lot because of the dry weather and yield is very low. And many players such as São Martinho have already adjusted their mills in order to produce more anhydrous. Most of the ethanol that I'm making is anhydrous. And we have to dehydrate the hydrous ethanol to have more anhydrous. This is not a very simple process, but it can be done.
And the whole industry is making moves in order to avoid importing. But should this be necessary, we will be doing this. And I think it has to do with the regulator so that you avoid any kind of new rules that change the mix or the blend of ethanol. Well, let's say the regulator reduces this mix, you have to get gasoline -- you -- the whole industry at the beginning of the year committed itself to place 27% of the mix. And it has to be done. You cannot blame the rain or the lack of rainfall. You have to abide by what you promised. And you have to address the problem and, should it be necessary, import. But I would like to mention that São Martinho does not export any anhydrous ethanol. The anhydrous ethanol that could be exported we are not exporting in order to supply the domestic market, and we expect the other players in the market to do the same.
Lucas Ferreira, JPMorgan.
I agree with you when you talk about the capital allocation. My question is the following. Do you believe São Martinho should increase planting in order to increase productivity or yield and also the industry as a whole in order to have a better predictability, let's say, 3 years ahead? Would it be worthwhile for you to invest to increase your planted area?
Lucas, thank you for the questions. Well, this is really an obsession. We talk about improving yield and expanding the planted area. We talk about this every single day. The operations team tracks this very closely. And pre-sprouted seedlings is a very important step towards this. We are accelerating this as much as we can, but there is a physical limitation. In the case of -- well, let's say, in the case of Iracema, São Martinho and Santa Cruz, there is no room for us to expand our planted area in hectares because everything is taken already. So I cannot lease more hectares. I can try, but I cannot. This is impossible. And that would be the easy way.
In Boa Vista, I can do this. And this is the reason why Boa Vista today, among all units, is the one that suffers the less, the least. Because in practice, it has a surplus of sugarcane vis-à-vis the size of crushing of this mill. At the end of the year, when we talk about the crushing per unit, you can see that Boa Vista suffered less because of the weather. But more important than that, it is designed in order to have more sugarcane than the other mills. And when you have a problem regarding the weather, it ultimately benefits from that.
And that is -- was a cattle region, and we expanded north to lease more and more. But here in São Paulo, this is totally impossible. There is no more area, no more land to be leased. So it has to do with increasing the unit per hectares. And it leads to a dilution of the fixed cost, which is much more relevant when you have a better yield per hectare. And we make our best endeavors in this direction. And we are ahead with the best techniques in the São Martinho unit, for instance, 5, 6 years ago, reached 94 tons per hectare. This year, it's going to be 75.
In the last 6 years, we invested a truckload of money in productivity and pre-sprouted products with Meiosis, et cetera, but this -- the kind of dry weather that we have been seeing in the last few months -- well, when it rains, we will be recovering, and we will be recovering faster than the remainder of the sector. And I was comparing the crushing of the Center-South with the São Martinho crushing. And a few weeks ago, I was doing this. And when we have this level of dry weather, very often, the shortage in our mills is even bigger than in the Center-South because we have a very good plantation, we have a very good field, and we are more negatively impacted. But on the other hand, when we have rain, then we have a bigger positive impact than the others, and we have to use the best practices in order to accelerate this.
And one of -- we have to increase the level of phosphate in the soil in order to hold all the sugarcane in the soil, and we should be implementing this. Embrapa brought this technology. We have been discussing with Embrapa the last few months about this. And we should start to implement this still within 2021, using the best practices in order to increase our yield.
And M&A is a very important path as well. If you only buy the sugarcane, then you just close the mill. I have a buffer, and I don't lose anything with a higher price, which is another strategy.
Our next question from Werner Roger, Trigono Capital.
Congratulations for your results, despite all of the weather conditions. I have 2 questions. First, about yield per ton, we -- I think you were saying that -- will this be maintained? Or you can recover and this recovery could come from regions that were not so affected? And I'm sure that the company looked at the more affected areas where you would have further losses and you preserved the less-affected areas. Well, sugar prices are up 6% today. I don't know whether -- I mean I think this is information from UNICA, and this does not reflect yet the effect of frosts because some companies were more affected than others.
Also, if you look at ethanol prices vis-à-vis oil prices and sugar prices, well, I don't think -- this is not everything the same, but India is about to add or to increment the ethanol blend, going from 10% to 20% in terms of ethanol content in the gasoline. So they produce 6.5 tons of sugar in the next crop year. I mean there will be great tonnage coming from India. And they also announced flex, which we already have in Brazil. And in Brazil, hybrids with ethanol -- hybrid cars like Toyota and others, other companies announced the same thing. And in my view, this changes the situation of sugar because India will no longer work with subsidies. They will leave the market, and we know the demand for ethanol will continue to grow here. So my question is whether this will not lead you to another level, which would be above 20%.
And the issue of decarbonization, the entire world will seek to decarbonize. And we just read a report on climate changes, even the U.K. is adding ethanol, China, Thailand. And this represents a break with the past and changes the structure because it is no longer totally reliant on oil. I don't know whether you share my view or if you think whether we have to wait some more and see what happens.
Well, thank you for your question and your comments. I will start with the second part of your comments. I do share your view. And I think that the issue of sustainability -- and yesterday, I read the report that shows an increase in global temperature of about 1.5 degrees, and Brazil is really affected, and we should be concerned with that. If we look at the Center-South region and all of our sugarcane crops, every year, there is a bad climate news. So those that do not believe in global warming, if you are producing sugarcane, in fact, you should realize the climate has changed when compared to what we experienced in the last 34 years. And so if India takes all of these measures, we should probably see a new level of sugar prices going towards BRL 0.20, BRL 0.25. Brazil will not be able to respond quickly to put more sugar in the market, and this would be quite positive for the industry.
But my point in terms of the oil prices is when you think in a more conservative way when it comes to analyzing investments or even M&As, you have to be more conservative. I've been in the company since 2006, and I was quite excited with that price of BRL 0.20. But then we would go back to BRL 0.10, and we would realize that it was not just that, but this is a very cyclical business. Therefore, we have to be very careful. But I think with firm oil prices and more normalized exchange rate the way it is, we may see a new price level for sugar.
Your first question, I would say, yes, next quarter, we may see an improved TCH. But this does not change final crushing. Our final crushing should be within the guidance posted in June. I mean we also struggled with frost. There was frost in some areas. And when we are faced with frost, we have to harvest that gain that was affected by the frost. So we removed it from the cycle. You are harvesting sugar cane that was not ready to be harvested. And with that, this adjustment in the cycle may affect your productivity on the negative side. But we are very comfortable that the worst part of productivity is totally compensated by improvements in TRS.
So when you have cold weather or frost, your TRS is much better. If you look at the quarter itself, our TRS is 2.9% better when compared to that of last year. And last year, our TRS was already very high because it was also a very dry year. So quarter-on-quarter, TCH should improve, but the entire year, yield will not be much higher than what we expected.
We now conclude the Q&A session, and I'll turn the floor to Mr. Felipe Vicchiato for his final remarks.
Thank you very much for participating in this call today, for joining us today. We just got some questions over the chat box, and our IR team will send you the answers in due time, but we are available to answer any questions you may have. Next quarter will be released in mid-November. Thank you very much for joining us.
São Martinho's conference call is now concluded. Thank you all for joining us, and have a very nice afternoon.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]