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Q & A Highlights

Q: What are the main triggers for a positive price action on sugar, and what is the expected timing for this? A: Renato Junqueira Pereira, VP, Sugar, Ethanol and Energy Business: The sugar market is currently dependent on Brazilian production due to disappointing crops in India, Thailand, and Pakistan. The Brazilian crop is expected to be smaller due to last year's drought and fires. This scenario suggests that sugar will need to be traded at a premium over ethanol. We have hedged 31% of our production at $0.207 per pound and will increase hedging if prices rise above $0.19 per pound.

Q: How might global trade changes, such as import tariffs, impact Adecoagro's Farming and Crops business? A: Mariano Bosch, CEO: The tariffs and trade tensions benefit South American soy and corn production, improving basis prices. For rice and dairy, we see opportunities in new markets like Central America, benefiting from current price levels.

Q: Can you provide more visibility on the Tether offer and its impact on management's priorities? A: Emilio Gnecco, CFO: We cannot comment further on the Tether proposal due to legal restrictions. Discussions are ongoing, and we continue to operate normally, focusing on delivering results and creating shareholder value.

Q: What are the expectations for sugarcane crushing volumes in 2025, and what constraints exist? A: Renato Junqueira Pereira, VP, Sugar, Ethanol and Energy Business: We expect to crush around 13 million tons of sugarcane, with a slower start due to dry weather. We are selecting lower potential cane for early harvest and expect improvement in the second semester with 18-month cane. Third-party cane is not needed unless weather conditions worsen.

Q: What is the outlook for ethanol prices and parity with gasoline? A: Renato Junqueira Pereira, VP, Sugar, Ethanol and Energy Business: Ethanol demand remains high, with current inventories sufficient for 1.8 months of consumption. Prices are 32% higher year-over-year in reais terms. We expect prices to potentially surpass the 70% parity due to a smaller sugar-oriented crop and increased ethanol demand.

Q: What are the expectations for margins in the Sugar and Ethanol division in 2025? A: Renato Junqueira Pereira, VP, Sugar, Ethanol and Energy Business: Production costs should be similar in reais and slightly lower in dollar terms, with labor costs increasing with inflation and some crop protection inputs decreasing. Overall, costs are expected to be stable.

Q: How do tax credits affect production costs, and what is the expected production cost mix? A: Renato Junqueira Pereira, VP, Sugar, Ethanol and Energy Business: Production costs are calculated based on ethanol sold during the year. The mix should remain similar to last year, with tax credits not significantly affecting costs.

Q: What is the outlook for CapEx and expansion costs given the increase in harvest area? A: Renato Junqueira Pereira, VP, Sugar, Ethanol and Energy Business: We leased strategic farms with better soil quality and topography, reducing planting costs by 15%. Expansion planting costs are about BRL13,000 per hectare, and we expect improved planting costs in the coming years.

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

This article first appeared on GuruFocus.