Sao Martinho SA
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Sao Martinho SA
BOVESPA:SMTO3
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Market Cap: 8.2B BRL
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Earnings Call Transcript

Earnings Call Transcript
2025-Q2

from 0
Operator

Good Afternoon Ladies and gentlemen, and thank you for waiting. Welcome to the Sao Martinho S.A. Conference call to discuss the results related to the second quarter of the '24-'25 crop years.

With us here today are Mr. Felipe Vicchiato as CFO and Investor Relations Officer; Alexandre Soares, IR Manager, New Business Development and External institutional communications; and Guilherme, IR Specialist at São Martinho.

The audio and slides of this conference call are being broadcast simultaneously over the Internet at www.saomartinho.com.br/ir. Participants will be able to choose which language they want to view the presentation. There are two tabs that will appear at the top of the screen with the options. [Operator Instructions] Then we will initiate the Q&A session for investors and analysts when further instructions will be provided.

Please be advised that certain information contained in this conference call may contain forward-looking statements. Such information is subject to known and unknown risks and also uncertainties that may cause such expectations not to be realized or to differ materially from what was anticipated.

Now I would like to turn the floor over to Mr. Felipe Vicchiato, who will initiate the conference call.

F
Felipe Vicchiato
executive

Thank you, and good afternoon, everyone, and thank you for joining us today at our earnings release presentation. I will initiate the presentation with the agenda. The first two items on the list have to do with the production and CapEx guidance that we talked about yesterday. Next, we will highlight the financial performance of the company, product margins. We will talk about trading in the next coming quarters, given our inventory levels that are already concluded, we will talk about foreign operations and price evolution followed by the ethanol market.

Now going straight to the CapEx guidance, in order to talk about this very relevant topic and something that the analysts are discussing quite extensively. As we often do, we start with an evaluation of our CapEx guidance and crushing guidance. CapEx guidance was up 12% starting with BRL 12.5 billion to BRL 2.8 billion. If you look backwards, BRL 80 million out of that increase relates to the crop treatment of the fires. This is an information that we already disclosed at the end of August when we had the fires and that crop treatment was quite important to put in the sugarcane plantation to preserve the land for the next crop season with a good yield prospect. So this is something that is already concluded.

Also, there was an increase in our planting CapEx of BRL 50 million. Basically, this has to do with the schedule. We made some investments at the end of the last crop year, whereby we increased our sugarcane planting capacity. And the goal was to conclude the sugarcane plantation until the end of August. Until then, we weren't sure if we could be able to fulfill according to plan. But now we are very much certain that we will be able to plant 100% of sugarcane by March.

What is the importance of planting sugarcane until March before the beginning of the crop year? Because once that planting is concluded until March, the yield coming from that cane is much better. And then the operation is 100% available with our fleet of trucks, et cetera, to do the harvest. So this is a schedule. So that BRL 50 million will be able to -- we would be able to spend it in April. But if we can't plant the sugarcane area until March, that BRL 50 million will then be spent in the middle of March. So what was April this year? Or what I spend, I look at the April crop year in 2025. I'll spend that money in March. That's why there is an increase of BRL 50 million. And this number should be lower next CapEx or the next earning release by the end of June.

So another important increase in CapEx relates to a project that was running as a pilot project in several areas of the company, and that is the project of irrigation, involving BRL 100 million. It started with approximately 50,000 hectares in total in terms of acreage. And this means that we've done several POCs, we tested the different cane varieties that will be more adequate to give a better response to irrigation. And according to our database, we understand that irrigation system will increase yield by 15% to 20%, if I have irrigated land. I mean, as you know, climate issues are significant in the region where we are located. So this CapEx is mostly concentrated in São Martinho and Santa Cruz unit. And this year was extremely hot and also very little rainfall. If we had irrigation in 100% of the acreage, the sugar implantation will be able to give us a different response. So the return would be between 20% and 25%.

And if it rains a lot if we have no rainfall issues, I mean, the return of that project will be lower. But if we have drought in a lot of heat that the project will mature and will yield much quicker. The credit lines are subsidized, most of the lines and the coverage is very quick, and this is what matters if we want to ensure the yield coming from the company.

Next slide, I will refer to the recently disclosed guidance. But just to give you an idea, this irrigation CapEx will allow us to -- in the next 2 years, we will be able to reach 24 million tons. The other CapEx increase that was also disclosed relates to biomethane. This is total CapEx of BRL 150 million. We are anticipating the schedule of their projects so that we can get the plant ready a few months before schedule. So once again, we already talked about those CapEx is 100% funded by FINEP and BNGS is a very attractive credit line with returns over 30%. Therefore, if I anticipate CapEx and if I can anticipate the ramping up of the plant, I can get the benefits earlier. So the idea is to anticipate it because in terms of return, it will pay off. And there are other smaller projects in terms of operating efficiency. So this is a very summarize explanation that relates to the different CapEx guidance for the end of this crop year.

But for next crop here, what we have is probably a little bit more biomethane in terms of advancing our schedule and maintenance CapEx. We do not have any other approved CapEx in the company that will be carried over to the next crop year. So in the next crop year, our CapEx will be about BRL 1.9 billion, BRL 1.2 billion, which would be a more normalized level.

Now moving to the next slide. Now here, we talk about the financial highlights. Just a second please.

Okay,here we have the financial highlights. We saw an increase in net income of 37% quarter-on-quarter. That means we increase our sugar volumes and increase in ethanol volumes and better ethanol prices. It reached BRL 2.7 per liter, 15% higher year-on-year, but last year, the base was quite low anyway. But we saw a good recovery of ethanol prices. In the case of sugar quarter-on-quarter, the prices were down by 3%, but volumes were higher. And EBITDA margin stood at 48% this quarter with EBIT margin of 25%.

The biologicals really hampered the results for the quarter. But last year, Copersucar's registered warrants, which added up to a significant number at the end once you run a comparison -- quarter-on-quarter comparison, we arrive at a different figure, but operating results were quite good, probably led by better ethanol prices last year and higher sugar volumes. Sugar cost in the next slide. Cash cost was down by 7% comparing 6 months -- with the previous 6 months in the case of ethanol, for now, costs are flat, but there was a drop in operating margin.

Now speaking about trading, this will give us a better idea of what is to come going forward. Here, I have a summary of the trading. Looking at our new production guidance, which is obviously impacted by a change in the mix, which was quite relevant, as you know. Unfortunately, we couldn't have 1 million tons of sugar, which was anticipated in the initial guidance, and that was due to all of the fires. We were impacted by almost 2 million tons of sugarcane because of the fires. And because of that fire impact, the level of impurity was high.

So we had to produce more ethanol and less sugar. We weren't able to convert sugar cane sugar into sugar per se, and therefore, we had to produce more ethanol. So the guidance is in keeping in terms of TRS, but there was also a significant change in the mix. And with that, 58% of the total sugar volume was already invoiced. 42% is yet to be invoiced. So even with better margins, if we look at the sugar prices, some of the screens show a higher price.

Sugarcane ethanol, 40% is already invoiced, 60% is yet to be priced for the next 2 quarters. Ethanol prices are better. We see that demand remains strong, 3 million liters a month. And in February, there is an ICMS adjustment in the price of gasoline, which will help ethanol prices starting February when the price goes up in the pump and now corn-based ethanol, we only sold 32% in total. You saw that our guidance for corn-base ethanol. We will produce a bit more, but there is yet 68% to be priced. Corn-based ethanol is 100% hydrous. In Goiás with a tax benefit, then the price will be slightly above the hydrous, over BRL 100 per cubic meter, and this is recurring. So this is a product which will certainly pose better margins.

So in terms of TRS, we already marketed 46%, but there is still some to be trading. The corn operation is doing quite well. We reviewed the guidance with a 5% increase in production. To date, we had an EBITDA of BRL 55 million EBITDA, basically its cash generation, depreciation and amortization, which are practically what was a plant that is new. So practically no CapEx required. We expect that the corn plant based on the volume of corn that we have purchased and depending on the price dynamics of ethanol that will get a cash generation, which is quite robust with almost 30% of my EBIT -- actually correct itself, 10% of the EBITDA for the full year. In the case of the corn plant, since there is no CapEx, these 10% correspond almost to the EBIT.

Now speaking about sugar. Given the wild fires and reduction in volume of sugar produced, we have 100% of our sugar already hedged for this crop year. we even had to repurchase some because they lost more than 200,000 tons of sugar than expected. So this repurchase did not entail grade losses in this quarter, BRL 1 million considering the repurchase of sugar and the dollar rate. But the upside of sugar after the fires will not be captured this year, will be captured next year because all of the prices increased after everything that happened.

For the next crop season, we have 295,000 tons of sugar hedged at a price close to BRL 2,000 per ton. In the market this number would go about BRL 2,650 if decided to do it all now. Supply and demand for sugar is quite belongs. The South and Midwest should add production between 39,000 and 40,000 tons of sugar, not a lot more than that. which gives us an important upside for sugar prices in the coming years. added to the dollar rate, BRL costing about BRL 5.70. In the case of São Martinho, this is probably going to be for São Martinho a crop year with a higher sugar share in the mix. I'd like to remind you that this year, we completed 100% of the installation of the sugar plant that we acquired. This CapEx was initially estimated back in June. And for the coming year, I have a capacity -- nominal capacity of doing up to 1.7 million tons of sugar if able to crush 24,000 tons of sugar.

If I crush between 23.5% number will increase to 1.6 million tons of sugar, which is quite relevant. In the São Martinho mix, that would give us almost of 70% of sucrose being converted into sugar. And the internal effort will be concentrated in Goias because over there we have better margins. So this is kind of the plan for next year as an all market now. .

As I have mentioned a little before, the ethanol market remains very robust, growing year-on-year. In October, I think it grew -- let me just get the number here, please give me a minute. 2.9 billion liters, up around 10%, what we had in the same period last year. Parity still has some room for improvement. We have a parity of 65%, 66% of hydrous ethanol. We have the effect of the ICMS tax adjustment, which is done every now and then by [ Confast ]. That gives us a possibility of the prices increasing or improving even more.

When we look at inventories, they are quite high because the crop season unfolded well. But EMEA gives me a relationship between inventory volume per use, which is very low. So we believe the price tends to recover and get close to the 17% parity, although the corn ethanol plants running practically all year long.

Our corn ethanol plant should have a maintenance stoppage but just 15, 20 days tops. So we can have a corn volume, which will be very substantial for the whole year. And I guess that for my comments and we can move to the Q&A. Thank you very much.

Operator

[Operator Instructions] Our first question comes from Ms. Isabella Simonato with Bank of America.

I
Isabella Simonato
analyst

Felipe, I just want to clarify whether I understood this right, regarding corn ethanol I didn't understand whether this was cash conversion or how much corn EBITDA was of the total? You mentioned something like 10%. I would just like to understand what this number refers to. And regarding my questions. First question is I think we had a change in the weather forecast in the off-season period in the intercrop period, more it seems that the weather is looking more normal in this intercrop period. So I'd like to understand what you're expecting for the Brazilian crop year next year. in crushing the possibility of doing 24 million tons.

And my second question is about ethanol gasoline parity. Is there an expectation of a higher parity. At the same time, there's a dynamic of hiring vectors. So in your opinion, what is the real likelihood that we are going to have an intercrop period with a parity above 70%.

F
Felipe Vicchiato
executive

Thank you for the questions, Isabella. My point about when ethanol is we believe that in my total EBITDA for the crop year, what is being estimated by the average of the analysts kind of 10% could be corn ethanol. Because if we look at year-to-date, we had BRL 50 million of corn ethanol in our EBITDA, but I only sold 30% of the corn ethanol.

So this EBITDA of BRL 50 million year-to-date represents very little of the ethanol story -- and corn ethanol story for the whole year. I sold very little because we purchased corn at a reasonable price. DDGS is at a good price, so my comment was that it has been a surprise regarding corn ethanol, It should account for 10% of my full year EBITDA, according to the average that the analysts are calculating everything in full as we expect prices, et cetera. So that was my comment.

Regarding next year crop year, the crop year was really dry and the year was very hot, we had a reasonable volume of inflow starting at the beginning of November. In some reagents, rate practically the total amount that was expected for the full November. And this was great. to reduce any chance of the impact of the wildfires that happened. So in our case, we were expecting a crop year that will be good next. It's difficult to say how much better it will be, but it will be a good crop year. To give you an idea, before the fires and after the fires, what we were expecting in terms of the production. Before August 25, that's when we have the fire, we had an internal in-house forecasting that we would get to 22,800,000 tons of sugarcane that we would do 50 million tons of sugar and 150,000 cubic meters of ethanol. What happened after the fire? Well we went to 22,400 tons, 200,000 tons of sugar and 1.3 of sugar. What I'm saying is that we were having a very good crop year despite the whole drought and heat that we had throughout the crop year. Of course, this has a little bit to do with the quality of our sugarcane fields, the quality of the land. But if it weren't for the fire, we would be at a different level of crushing.

For next year, it's too early to say. If the rainfall is normal and we had a good month of November in terms of rain, we believe that we are going to get very close to what we produced in terms of a record crushing, which I believe was in the past crop year. For next year production in the Midwest and South, on just like summer time, a lot of people invested in sugar as much as possible.

In terms of the sucrose available, so this should be a crop year with 41,000, 42,000 tons of sugar in the Midwest and South of Brazil. But I don't think that this is too relevant when we think from a reduction in the sugar price for other reasons. While demand is growing India is reducing their sugar production. They will probably not be exporting sugar. For Brazil, this increased sugar production coming from 39.5% to 40% this year, should not cause a reduction in price.

In terms of the ethanol gasoline parity in the intercrop period, it is true that inventory is high. That was because of two factors. First, the mix. Just like Sao Martinho, a lot of players were impacted by the wildfires. And it's a physiological factor of sugarcane in terms of compressing on converting has to close into sugar, having less sucrose and more other types of sugar. And in this conversion, we would produce fewer banks of sugar per ton. This is one of the reasons why the ethanol inventories are so high compared to a year ago. On the other hand, demand is 10% higher. So we think that there is room for us to get to mid-January with a parity very close to 70%.

Operator

Next question from Leonardo Alencar with XP.

L
Leonardo Alencar
analyst

Perhaps I would like to insist on the sugar topic. We remember conversation we had before when you mentioned the main data you thought that sugar was going to have an adjustment in the curve. Something around BRL 0.20. Now it's a lot more than that with the unfavorable exchange rate. So I'd like to hear from you about the strategy in terms of hedging, what we can expect in terms of the hedging speed . With this level of sugar price and exchange rate.

But I remember that you also mentioned that the appetite of the sector to increase the crystallization capacity was not that interesting, given the price differential at that moment. But now with a higher price level, perhaps you should see more investment in crystalization capacity for the sector as a whole. And thinking about that. I know that we still have a lot of way to go.

With a more favorable weather, I think that in the first quarter of next year in the planting season, you're going to have more favorable weather. And we don't know about production. Do you think that 42,000 tons of sugar for 2025, '26 crop years too optimistic, but given the new capacity for crystalization. So if you could elaborate, it would be helpful.

F
Felipe Vicchiato
executive

I'll start with the last one. I think the 42 million tons, 42 million tons is a realistic forecast based on the best information we have now, which is the sugar production capacity in the Midwest and south of Brazil, coupled with the volume of rainfall we've been observing lately.

This November rate fall is very important for the recovery from the drought we had until then. Assuming the rainfall will remain at the average level, it is possible of 42 million tons of sugar for next year. I'd like to remind you that today, the sugar price, I'm not mistaken, is between 60% and 70% above that of ethanol on the same basis. Depending on how we're comparing March 26, that's great. We are producing ethanol equivalent to almost BRL 5,000 cubic meter in the same sugar. So of course, all companies will be migrating to produce more. And São Martinho in Sao Paulo has 70% of this capacity to produce sugar. São Martinho in Sao Paulo is sugar, special ethanol for exports and anhydrous ethanol.

And there's an important point that I forgot to mention when talking about the guidance, something I overlooked, so let me mention it. Although we have to produce more ethanol than sugar, and it has lower profitability. And part of this ethanol is hydrous ethanol. We have an ICMS credit volume in the asset, which is relevant. It's a credit that we got at the end of last year. You saw that in the balance sheet. And this credit will be monetized.

So from the standpoint of what's in the income statement, no has a lower profitability than ethanol. But in terms of cash conversion, Given this release of working capital, it is better. So sugar 42 million tons is a good number given the permission we currently have. I think it's quite reasonable. Regarding pricing strategy, we're following monitoring the market. And I guess that we'll accelerate more during the summer season when we have more information about rainfall and recovery of the sugarcane crops. Today, we have about 25% hedged looking at the possible production of 1,600 tons of sugar.

Operator

Our next question is from Thiago Duarte from BTG Pactual.

T
Thiago Duarte
analyst

I would like to talk about two points. One is when we look back at the outlook at the beginning of the crop year, I think it was in our June earnings release. we were anticipating a higher availability of own cane vis-a-vis third-party cane. But when we look at the crushing, accumulated until September, the performance was better because you crushed more third-party cane vis-a-vis your own cane when you look at the numbers year-on-year. .

But I would like to understand that in this last quarter in terms of crushing, would -- do you think we should see a reversal in terms of what you have in mind due to the fires or many other issues, whether we should see a different mix of third-party can in comparison with what we anticipated. And also what will be the margin? Thinking about Consecana, this would be my first question.

My second question is about the irrigation project. And I think you believe that you will be able to increase 15 additional tons of yield with irrigation. I would just like to understand how determining is this project? Do you think that you will reach, I mean, 24 million tons a year of crushing capacity or you think that the for 50,000 irrigated hectares that you will believe to -- that you believe that you will be able to deliver more pain due to irrigation. I just want to have a better idea in terms of how much cane potential will be added or it will be just enough CapEx to reach your full capacity when the weather allows you.

F
Felipe Vicchiato
executive

Thank you for the questions. Now in relation to the mix, from third parties in our own year-to-date. We had more cane from third parties, from suppliers because of the delivery schedule of that came. The large volume of cane from third parties is up until September. So proportionally speaking, until September year to September, there is a higher volume being delivered from third parties. And the numbers were better than we anticipated. So there was good yield. And whenever we hire suppliers, we hire based on the acreage. And so we got more can and we processed.

Now speaking about the end of the crop year. These 2 million tons of sugar cane that burned with the fire. 85% was our own cane. If you look at the mix of the season, it's a bit worse. I mean I can give you more specific data by the end of this call. It will be a little bit worse, but nothing relevant enough to the point that our margins could be affected. But 85% of the cane that was burned in August was our own cane because the fires affected the region where we were located.

Now in terms of the irrigation project, If you look at a normal season where you would expect to see normal curves. With that project, we will be able to get 24.5%, 24.7%. I mean delivering between 10 to 15 tons per hectare. Irrigation per se, mice is more beneficial. And generates greater yield during the dry season. I mean the industry never invested much in irrigation because the rainfall in the acreage with sugarcane, never needed Irrigation. Irrigation has always been very expensive, especially irrigation with state-of-the-art technology. So Irrigation has three technologies. I mean drip irrigation, salvage irrigation and high-tech irrigation. This CapEx is 6x lower per hectare when you look at drip irrigation and vivo irrigation. And you cannot place it in everywhere because you have to look at soil conditions and the geography of the area. The water comes from waste from your production venues and so that requires some technology.

However, in practical terms, if it is too dry, this irrigation produces quicker results I will crush less in total because the irrigation only covers 50,000 hectares. But instead of 10 to 15, with irrigation, my yield can exceed even 30 tons. But with this project and with the sugarcane plantation where we are anticipating 24.5 million tons, which would be going back to normal levels. And this is very good because then we can expand the season a bit more. We could probably extend over more cane. So that will be our strategy.

I don't know if you recall what I said at the beginning, I know my presentation was a bit fast. But given the setbacks with the fires our initial estimate was that first to have 28% instead of 22.4%, we will grow 400,000 tons. But part of that would come from third-party cane and the other part would come from our own case.

T
Thiago Duarte
analyst

Well, that's very clear. And I would just like to clarify one more thing. When we think about that additional crop treatment, you do from the cane the burn, do you believe that what was left over from the fire? I mean, if you carry over next season, you think this will not affect the next crop season. You think that you will be able to reach numbers close to the record of the previous season. I think it was 23,000 or 22,000 tons?

F
Felipe Vicchiato
executive

I think, Yes. The fire affected the standing pain. And the sugarcane that was treated, and there was a strong overhead, and that was burned. The BRL 80 million that we are adding to our CapEx. The bulk of it or 80% of that is to treat the cane that was harvested especially when we talk about crop protection products because when there is a fire, all of the cane that was treated in all of the crop protection products disappear with the fire.

And then when rains and the cane emerges, all you have is just weeds and you lose a lot in terms of yield. And -- but the cane that was burned, basically, what happens is that I lose my year production. It took me 7 years to crush the cane. You just ended now many of the mills weren't even able to push. I mean, we had to spend a little bit more with the industrial funds, but we managed to push everything. And in terms of TRS, we reached a breakeven. But after the seventh day of the fire, the cane in the field has a decrease of 2% a day in terms of DDG.

After the 20th day, we had to mix the good cane with the burn cane trying to extract some sucrose. And after that, we treat the crop -- the sugarcane plantation and that crop treatment was already part of the budget. So this will not impact our next crop season. I did not have to replant any acreage. Some other companies, they had an impact in terms of their planting and the sprouting because our planting occurs between January and March because we have the 8-month sugarcane.

Operator

Next question from Larissa Pérez from JPMorgan.

L
Larissa Pérez
analyst

I would like to hear more about your corn based ethanol plant about prices, because of the way prices are, are you going to wait a little bit more until start purchasing and also DDG. And the third point is whether you saw some progress in advances in the second phase of that project.

F
Felipe Vicchiato
executive

Today, we only have 25,000 tons of corn to buy until the end of March. So that will have 125 tons of corn in the inventory, which is what we need for the plant in the next season. So I don't have my total yet. I only have 25,000 left to buy. It's not a lot, even though corn is higher a bit. I don't -- we think that on average, this will not have an impact on the year's result.

Therefore, we are quite comfortable with the numbers. We will have a good result in corn. And with 150,000 tons in the inventory for the crop season, we will start the beginning of the season with lower prices of corn. And the harvest of corn safrina that we do in June and July. It's a result of what the harvest will be and corn yields for next crop season because at first, we are anticipating a good deal.

In terms of the second phase of the corn plant, there is nothing new. We are still running some analysis, but if there is something new in the horizon, we will certainly tell me about it rating is very clear. Just tell me a little bit about DDG prices. DDG prices are slightly better. DDG has an important correlation with the price of cattle, which is our main consumer market. So it's around 1,100 per ton.

Operator

Next question, Gustavo Troyano with Itau BBA.

G
Gustavo Troyano
analyst

Some calls ago Felipe, we were discussing about our expectation regarding costs for this year, particularly unit price with the new guidance, although we saw a reduction in crushing, total TRS continued unchanged. So what is your unit cost expectation for this crop year, considering that you have the same with less crushing in the bit of fires out impacted your cost under a different bookings. I'm not mistaken, was a reduction of 5% in the unit cost. So I'd like to have an update from you regarding that.

F
Felipe Vicchiato
executive

Thank you, Gustavo. Thank you for the question. The biggest impact is on CapEx. Since my cash cost that we report fiscal includes my full OpEx cost plus my CapEx cost and transforms that into units. Since I am increasing my CapEx for the reasons I presented in the call schedule of planting, crop treatment, additional BRL 80 million, et cetera.

When I convert this spending into cash cost, I will be able to reduce cost by 5%. So I guess it will be very close to stability because of the CapEx and also industrial inputs because when we have a problem of this big that we had of the fires in order to process the game and produced. And to produce the same TRS, we have an increase in the consumption of industrial inputs. So we won't have too many losses at the end of the day. this 5% reduction is not going to happen. We'll be close to stability.

What we believe though is that sugar price more than offset what we were estimating initially. And the ethanol price is also at a much better level. But the corn ethanol plant. Last year, when we compare year-on-year EBITDA or EBIT or whatever indicator you look, the corn ethanol plant last year was negative. This time, it's going to be very positive. So although we have stability in the cost cane sugar and ethanol because of the fires and construction of industrial inputs. .

The result of this quarter, we already had an increase in the cost of industrial inputs, especially in September because we crushed a lot were quite ethanol, do we not better we produce 5% more, the better cost. And this will then offset the problem we had with sugarcane.

Operator

Next question from Matheus Enfeldt with UBS.

Well, thank you for the clarity of all the answers. And my first question, you spoke about the decision to potentially increase the capacity of the corn ethanol plant. And there was a prior comment about not having other projects approved for next year. So in this scenario, we do not expand the capacity of the corn ethanol plants, is there room for the project, perhaps increased irrigation think about perhaps more biogas or if next year with better earnings and with CapEx in BRL 1.92 billion, is there room for us to have a more active buyback program or perhaps think about more dividends for next year. That's number one.

Number two is about DDG. I think it gave us a good idea of good prices for DDG. But do you understand that all of those problems regarding specification, market development for DDG. All of these are behind us, and this is kind of the run rate for the plant from now onward.

F
Felipe Vicchiato
executive

So let me start with the second question. Regarding the quality of our DDG, that's already behind us. Okay. Our DDG has very good quality, and it has excellent acceptance in the market. However, we still have room to expand the market. And perhaps get markets with a slightly better margin. This is a constant challenge that we set forth for our commercial team. But the quality issue, that's behind us. The evolution of this market and now gaining new customers, we can see DDG is about testing it on the farm, the veteran area and understanding that the product is responsive for the capital for the pay and then they'll start putting the orders. So it takes a little bit. But I think that in the next few years, we still have room to gain more market share and better price.

Regarding projects for next year.

No irrigation project. That's not in our radar. With this CapEx, we kind of already invested in the project that would bring us a reasonably good return. So it's 50,000 hectares, areas where we tested the most responsive varieties, and we are applying that only to those more responsive varieties. So no more irrigation projects in the radar.

Regarding biomethane. No, not really, biomethane should start in mid-June, July, we have to wait for the plant to run for a whole year to make a decision whether to expand or not in principle, we are not going to expand. I'd like to remind you, biomethane in order to have returned from the project that a loan facility -- credit facility from BNDES because it's a big, big CapEx and without adequate cost, the project will have no return.

So today, know more about that biomethane. And with that, if we don't get approval for the CapEx for the second phase of the corn plant, then we would have a room to continue buyback. We just ended one, we canceled the shares. We opened a new buyback program. We are in a locking period. In the last 15 days the data is not wait for next year, depending on the price of the shares, we'll continue with the buyback project. Once that is complete, we can have a next round or pay more dividends. But we'll have to wait a little longer to see how the ethanol and sugar prices are behaving so we can make a decision.

Operator

Next question from Gabriel Barra from Citi.

G
Gabriel Coelho Barra
analyst

I have a question. I don't know whether it has been answered before, but it's about hedging. There is a recent spike in terms of the depreciation of the BRL, I don't know how much you how much progress you had, I don't know whether you took advantage of the recent fiscal moves and how you see the hedging movement going forward?

And the second point is the approval of the fuel of the future and still related to the biogas discussion, I think this will be a topic of the meeting next year. How optimistic you are in terms of having E30 in the next crop year? And how do you see this affecting the pricing of ethanol? In addition, if you could also talk about how this impacts your business and how advanced this is.

If I look at the distribution of fuel -- what is your idea about bringing this monovision to ethanol as well. This also has to factor in the formality of this industry. I would just like to hear your views and how do you think this would impact this industry? What are the pros and cons? And whether you believe that this is something that should be expected for next year or a year after that?

F
Felipe Vicchiato
executive

In terms of hedging, Today, 25% is hedged for next year and we are making the decision to move forward more towards the summer once we have information or not in terms of what the next crop year will be. We usually advance further in January and March, depending on the rainfall in this in the mid-south. But in terms of the market, if we were to do everything with I already have available, I think the price would be something like BRL 2,600, BRL 2,700 per ton. And this is already 75% higher for the hydrate spot price, when you compare to hydrous ethanol.

Now in terms of i30, we are counting on it. I know that should be in early April and with the mix that will be 30% more. All of the discussions already happened this year. And the document was signed the document for the fuel of the future. In addition of 30% of the mix means more ethanol at the range of 2.2, 2.3 liters depending on the auto cycle during the period. And it will depend very much on what will happen. But now in regard to biomethane, it will take a bit longer for the needle to move because the percentage is very small.

In terms of [indiscernible], this will happen in due time. It has been approved and it will happen for hydrous. For so much channel, If we had the manufacture for hydrous ethanol, I could improve my working capital, especially if we consider both taxes, state and federal taxes. So it is -- it doesn't make a lot of difference for us because if you pay your taxes and if you're an honest taxpayer, we don't have any problems with that.

Operator

This concludes the Q&A session. I would like to turn the floor back to Mr. Felipe Vicchiato for his final remarks.

F
Felipe Vicchiato
executive

Well, thank you so much for joining us. We are certainly available to answer any further questions. And I'll see you again in February when we will discuss the third quarter results. Thank you very much.

Operator

São Martinho conference call has now concluded. Thank you very much for joining us, and have a very pleasant afternoon.