Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• SLC Agricola SA (SLCJY) reported stable cotton prices and a positive global balance, indicating a strong market position.
• The company achieved record productivity in cotton harvest, with yields significantly above the national average.
• SLC Agricola SA (SLCJY) has successfully hedged a large portion of its crops, securing favorable prices for soybeans, cotton, and corn.
• The company has expanded its planted area by 11% for the 2024/25 season, indicating growth and increased production capacity.
• SLC Agricola SA (SLCJY) received several ESG awards, highlighting its commitment to sustainability and transparency.

Negative Points

• Net income was negatively impacted by a decline in gross profit from corn and adjustments in biological asset value.
• Soybean yields were 17% below budget due to irregular rainfall and heat waves, affecting overall performance.
• The company faces logistical bottlenecks in cotton exports, increasing costs and affecting profitability.
• There is a risk of tight margins for the 2025/26 crop year due to low commodity prices and limited room for input cost reductions.
• SLC Agricola SA (SLCJY) has a high level of debt, with a net debt to adjusted EBITDA ratio of two times, which could limit financial flexibility.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with SLCJY.

Q: Can you elaborate on your hedging strategy, particularly for soybeans and cotton, and the triggers for advancing the locking process? Also, what are your thoughts on the current cotton area in Brazil and its potential impact on expectations? A: (CEO) Soybean stocks are increasing, putting pressure on prices. We started hedging for the 2024-25 season at current levels and are locking in favorable FX rates. For cotton, we have hedged 24% of the crop and are waiting for better prices. The delay in soybean planting may lead to less cotton being planted, which could help stabilize prices.

Q: With the current favorable cost scenario, do you think the production cost floor for American farmers will change? A: (CEO) Fertilizer prices have returned to historical levels, but are still 20% higher than pre-pandemic levels. Considering inflation, I don't expect significant cost reductions for American farmers. Soybean prices should be around $11-$12 to adequately remunerate growers.

Q: How are you planning to manage the higher cotton stock levels and what are your expectations for margins in 2025? A: (CEO) We are completing shipments of the 2022-23 crop and starting on 2023-24. Margins are tighter due to price reductions, but we expect to ship cotton closer to announced prices. The 2024-25 season should see more normal profitability with weather conditions back to normal.

Q: What are your expectations for soybean yields and the 2025-26 crop year? A: (CEO) Soybean planting is on schedule and conditions are favorable, so we expect excellent yields. For 2025-26, we anticipate tight margins due to low commodity prices and stable input costs. Our growth strategy aims for a 5% annual increase in planted area.

Q: What impact do you foresee from the end of the soy moratorium on land prices? A: (CFO) We don't expect significant changes in land prices. The Green Deal will impose additional restrictions, but the practical effect on land prices will be minimal. The soy moratorium's impact is expected to be slight.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.