SLC Agrícola S.A. ($SLCE3)

[Audio Gap] My name is Andre Vasconcellos, Financial Planning and Investor Relations Manager. Joining me today are our CEO, Aurelio Pavinato, and our CFO and IRO, Ivo Grum. It is a pleasure to have you with us this morning. Please note that this conference call is being recorded and will be available on the company's Investor Relations website where you can also find the presentation. [Operator Instructions] Before proceeding, I would like to remind everyone that statements made during this conference call regarding the business outlook, projections and operating and financial targets of SLC Agricola are based on the beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they relate 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 operating factors may affect the future performance of SLC Agricola and may cause actual results to differ materially from those expressed in such forward-looking statements. Now I would like to turn the call over to our CEO, Aurelio Pavinato, so that we can begin the presentation. Pavinato, please go ahead.

Thank you, Andre. Good morning, everyone. Welcome to SLC Agricola's First Q '26 Earnings Conference Call. We appreciate the participation of our shareholders, analysts and all other attendees. Today, we will present the main operational, financial and strategic highlights for the quarter. I would like to ask you to please move to Slide 4, where we will discuss the cotton market. The beginning of 2026 was marked by a significant recovery in international cotton prices. following an extended period of downward pressure on quotations. Among the key drivers for this was the escalation of the conflict between the United States and Iran throughout the period which led to higher oil prices. Rising oil prices generally support cotton prices because synthetic fibers, which are petroleum derivatives and cottons may competitors become more expensive. In this context, expectations remain positive for Brazil to continue gaining market share internationally, further strengthening Brazil's position as one of the leading global players. According to USDA the supply and demand balance for the 2025, '26 crop season points to a surplus of 2.5 million bales. For the '26, '27 crop season, USDA data indicate a global deficit of 5.6 million bales driven by tighter supply conditions. And with the world production projected at only 116 million bales, while consumption is expected to reach 121.7 million bales. This scenario should lead to a 7% decline in global inventories, which will also support prices. Now let's turn to Slide 5. for some words on soybeans. The recovery observed in the global market as reflected in the CBOT benchmark is associated with the onset of the conflict between the United States and Iran. And of course, to the resulting increase in oil and energy prices. Against the backdrop of decarbonization in the global energy matrix combined with ongoing efforts to expand the share of renewable fuels in the transportation sector. The correlation between CBOT, soybean oil prices and crude oil prices has strengthened. As a result, soybean oil prices posted a significant increase on Chicago Board of Trade. Next, Slide 6. In addition to prices, we'll discuss the global soybean outlook. For the '25-'26 crop season, the USDA projects a positive global soybean supply and demand balance of only 1 million tons. And Brazil once again consolidated its position as the world's largest producer, leading global exports. According the USDA the outlook for the 2026-'27 crop season points to a positive balance of only 0.8 million tons, despite a 4% increase in planted acreage in the United States. Global production is projected to reach a record 441.5 million tons, led by expectations of a historic performance from Brazil where production is estimated at 186 million tons despite record supply levels, the market remains tight. Imports from China are projected to increase to 114 million tons, keeping global ending stocks on a slight downward trend to 124.8 million tons. This scenario should continue to support prices. Now let's please advance to Slide 7 to discuss corn. Prices stabilized in February and recovered slightly in March, sustained by strong demand for export and initial weather-related concerns. However, since expectations for the global supply for the '25-'26 crop season remain comfortable there was no significant price appreciation. The global corn outlook for '25-'26 indicates record production, resulting in a modest supply surplus. The USDA projects production with a positive balance of 19.9 million tons. For the '26-'27 crop year, the USDA estimates point to a global deficit of 11.1 million tons. This supply deficit reflects lower global production and inventories projected to fall to the lowest levels in more than 1 decade. The decline in global production is particularly significant in the United States and Argentina. In the United States, production declined by 6% and reflecting a 4% reduction in planted area and a 2% decline in productivity. In Argentina, the decline is driven by expectations of lower planted area with production decreasing by 4 million tons according to the USDA. This scenario is expected to put pressure on global ending stocks for '26-'27 which are estimated at 277.5 million tons, down 19.4 million tons compared to the previous year. If confirmed, this would represent the lowest global inventory levels since '13-'14, 2013-'14, potentially leading to higher prices. Now let's please proceed to Slide 9 to discuss the status on the '25-'26 crop season. Soybean harvesting has been fully completed first crop cotton is in the final maturation stage and progressing well towards the beginning of harvest, which is expected to start in June '26. Second crop corn and second crop cotton and corn are developing very well. For second crop corn, however, the situation requires additional caution since part of the planted area was on outside the ideal planting window and therefore, depends on adequate rainfall volume and distribution over the coming weeks to ensure full grain filling and yield potential. On Slide 10, we'll discuss the record soybean yields in the recently harvested areas. The historic increase in soybean productivity achieved over recent years reflect a consistent long-term strategy that was based on continuous investments in soil quality, people development and the disciplined adoption of agronomic practices and more efficient technologies. Over the past 8 years, soybean yield increased by 11% going up from 62 bags per hectare in the 2018/'19 crop season to 69.1 bags per hectare in the current season. During the same period, we also grew our planted area by 75%. This crop season, we achieved a new record with average productivity of 4,146 kilos per hectare, representing in comparison to the previous crop season, an increase of 4.7%. While soybean planted area also increased by 12.5% versus the '24-'25 crop season. Now let's move to Slide 11. We are well hedged already ensuring greater predictability in a more volatile market environment. All crop inputs for the season have already been purchased. In soybeans, considering existing commitments, we reached 79.2% of estimated production hedged at USD 11.20 per bushel. In cotton, we reached 84.6% of expected production at an average price of USD 73.88 per pound while in corn, we locked in 47% of expected production at BRL 53.36 per bag. We also executed foreign exchange hedges aligned with commodity sales, mitigating both price and currency exposure. At this point, I would like to turn the call over to my colleague, Ivo Brum, to discuss our financial performance. Ivo, please go ahead.

Thank you, Pavinato. Good morning to all. Please let's move to Slide 13, where we present some highlights from our income statement. Net revenue totaled the quarter at BRL 2.3 billion, down 2.7%, reflecting lower sales volumes of cotton soybeans and cotton seed. And it's important to highlight that during this quarter, we recorded revenues from farms located in the Midwest of Brazil, which posted lower productivity levels. In the coming quarters, revenue from other regions will begin to recognize with productivity levels above or in line with the company's overall average. During the period, adjusted EBITDA was BRL 695.2 million. Cash generation was negative by BRL 1.3 billion, reflecting higher working capital requirements, especially related to crop input payments. Additionally, the investment from the quarter was marked by the final payments related to the acquisition of Fazenda Paladin in Bahia totalling BRL 361.5 billion and the farm located in Unai, Minas Gerais, totaling BRL 95 million. Now let's move to Slide 14, where we present a summary of CapEx in the quarter. In 2026, first quarter, expansion investments represented 32.6% of total CapEx amounting to BRL 95.3 million, of which BRL 73.3 million was invested in the irrigation project. Maintenance CapEx represented 67.4% of total investments totaling BRL 197.2 million. Investments were concentrated in the implementation of pivot irrigation structures, drilling of wells, reservoirs and electrical and hydraulic infrastructure works. Moving on to Slide 15, where we present our debt position. The company ended the first quarter of 2026, with adjusted net debt increasing by BRL 1.3 billion compared to 2025. This increase was primarily driven by crop financing needs and the settlement of acquisitions of Paladino and Unai Farms. As a result, leverage measured by net debt to EBITDA increased 1.97x to 2.72x. Regarding our debt profile on Slide 16, the company further extended its debt maturity profile compared to the fourth quarter of 2025 with the share of long-term liabilities increasing from 78% to 81% in first quarter '26. Continuing the presentation, I will now turn the call back to Pavinato to discuss the outlook for the '26-'27 crop season. Pavinato, please go ahead.

Thank you, Ivo. Now let's continue moving to Slide 18, where we'll provide an update on fertilizer purchasing status. The company has already contracted 100% of phosphorus and 85% of potassium requirements with an average increase of 4.3% in U.S. dollar terms, in line with planning for the '25-'26 crop season. For nitrogen, no nitrogen purchases have been made yet due to the recent impact of the conflict involving the United States, Israel and Iran on global fertilizer markets. The region represents a significant share of global fertilizer trade and also natural gas flows which are the main input for nitrogen fertilizers, thereby putting pressure on urea and ammonia prices. The procurement window for nitrogen fertilizers is longer. Since these inputs will be used in cotton planting between November and January, and in second crop corn, that will be planted in February. In this context, the company will continue to monitor the market in order to make purchases at the most appropriate timing. Crop protection products, which represent around 19% of production costs have already been contracted at 74.3% with an average reduction of 6.3% in U.S. dollar prices. Finally, the planting mix for the '26-'27 crop season has not been finalized yet and may impact future fertilizer and crop protection requirements. On Slide 19, we present our current hedge position for the '26-'27 crop season. From a hedging standpoint, we have already made strategic advances enjoying the market opportunities. We have 35.7% of soybean production hedged at an average price of USD 11.20 per bushel and 33.5% of cotton production hedged at an average price of USD 73.88 of dollars per pound, considering existing commitments. To conclude, let's please move to Slide 21, where we highlight some ESG achievements and awards. At the beginning of 2026, we published our integrated report for 2025 and also expanded the areas certified under regenerative agriculture by the [ Regenagri ] program, representing growth of 79% with 325,000 hectares. As a result, we maintain our position as the largest certified area in the Americas. We also obtained animal welfare certification for our feedlot operations, granted by Fair Food for the Pantanal and Planalto farms. For the fourth consecutive year, SLC Agricola's inclusion in B3's Corporate Sustainability Index reinforces from an investor perspective, the strength of our ESG strategy and our ability to execute consistently over time. More than a onetime recognition, the company's recurring presence in the index demonstrate consistency in governance practices, risk management and environmental efficiency aspects that are increasingly incorporated into capital allocation decisions. Let's move now to Slide 22 to discuss our carbon intensity index. The company maintains the carbon emissions reduction program with several commitments and initiatives. This has enabled us to obtain a reduction in our carbon intensity index from 0.179 to 0.123 of CO2 per ton in 2025. Finally, let us move to Slide 23 to discuss the carbon potential -- removal potential of our farms. It's important to mentioned that 4 farms recorded a negative carbon balance in the '24-'25 crop season, meaning they removed more carbon from the atmosphere than they emitted. This result demonstrates the potential of certain areas to operate as net carbon sinks, contributing to long-term net carbon removal. Thank you all for your participation. And at this point, we will open the floor for the Q&A session.

[Operator Instructions] Our first question comes from Julia Zaniolo, Bank of America. Julia, could you please activate your microphone and camera.

I have 2 questions. Firstly, about El Nino. Well, since the last call, we saw that expectations about the intensity of El Nino have grown. And in years where El Nino was strong, we witnessed a drop in production. Well, based on this, how are you preparing. Also thinking of the acreage for the next season, '26-'27, thinking there is still a lot of uncertainty around nitrogen. And my second question is about fertilizers, focusing on nitrogen again. Well, the war is not over. It's already in May. And I think that the risk of product availability and high prices is still growing. I understand that you can wait for a better purchasing window, you have all the way through January. But based on what you have been discussing with other partners and exporters of fertilizers what is their view? Will there be a lot of competition for the product, if you wait. And what about availability of the product in the market? Will there be enough for everyone because, of course, there will be a certain erosion of the supply.

Thank you, Julia. Thank you for this question. About El Nino, we are analyzing the potential effect of El Nino in our production. We know that with El Nino, the more rainfall in the south of Brazil and Argentina and less rainfall in the north and northeast of Brazil, sometimes it's not the same behavior, sometimes there is less rainfall with El Nino and the loss of yield. In other years, this is not the case. But our strategy is to analyze the conditions of each farm and of each crop and to try to mitigate risks. Will also make adjustments to the fertilizer package, trying to say for this year, if it doesn't rain this year, we'll obtain cost reductions. So we're being very cautious in analyzing the details of each farm. I think that in a year like this, we are expecting lower rainfall. Risk mitigation is especially important because it reflects in lower costs. In relation to fertilizers, the market is still running, I mean, even if you're not directly involved in the conflict, we see that some people are intensifying production, for example, in the United States, natural gas is still cheap. So naturally, with higher nitrogen prices, they are ramping up production here. We don't believe there will be a scarcity in the supply of fertilizers. What we have already procured has been purchased from large companies. And what we haven't bought yet, which is nitrogen, the expectation is that there will be enough supply. The price for urea and ammonia sulfate, well, they have basically doubled in price. There has been some downward price reduction. In ammonia, for example, it's now at [ $736 ], a drop of almost [ $100 ] in the last few weeks. So whenever the conflict slows down, urea is quickly adjusted in prices with a downward adjustment. So we believe that in the coming months, the conflict will probably be resolved in some way and we'll be able to buy nitrogen at a lower level. I think that phosphorus, however, is the most concerning topic internationally. Phosphorous suffers not only from the effects of the conflict, but also there is a competition for the production of batteries in China. And there is a change in the overall phosphorous pricing, which is, of course, intensified by the conflict. So the price adjustment in phosphorus will probably see a lengthier period of higher prices. And also in our planning we are doing the analysis. Should I plant more soybean or corn or cotton. And of course, it's about the contribution margin for each crop to decide which crop to plant in the different farms. The more expensive fertilizers in our specific case, where we have a good position of phosphorus and potassium. And in the current crop, they represented 79% of our fertilizer package, 31% representing nitrogen. So locking in the prices of phosphorus and potassium at prices that are very similar to last year give us a lot of comfort in terms of price formation or cost formation for the next crop. And this is also being offset by commodity prices.

Our next question is from Matheus Enfeldt, UBS. Matheus, could you please activate your camera and microphone.

I would like to discuss CapEx. The first quarter was at BRL 290 million, a little higher I know that this is coming from the irrigation project. But is this a good rate for the year? And should we consider that the company will close the year with a CapEx of BRL 1.1 billion. And how sensitive is this number to diesel prices and input prices for 2026. The second question may sound as a follow-up of the previous question. But in fact, thinking of the risks in terms of yield for the '26-'27 crop year in comparison to the '25-'26 crop year. When we look at the yields, we see that the climate conditions in both years were very favorable for Brazil. So it seems to me that yield is perhaps a little above the trend line in the past 2 years. So maybe a drop in '26-'27 even in a normal climate scenario, well, this could probably represent 3% to 5%, a drop of 3% to 5%. So when we do a recap of the favorable conditions for the crop years and thinking of the trend line, what should we expect?

Ivo, could you answer about CapEx?

Of course. Thank you, Matheus, for your question. Indeed, Matheus, our focus, our expanding CapEx results from the investments in irrigation. As you know, we have a cost of BRL 25,000 per hectare with the model we are using with wells and reservoirs. So the challenge for this year is to prepare 6,000 hectares with irrigation for the next crop year, which will also help secure yield rates. So probably for the next crop year, we'll have an additional 6,000 hectares under irrigation. So I think it's easy to do the math based on what we invest and we also purchased the [ Sierentz ] operations. There's also a modernization of the fleet in Sierentz and of our current structure. So I don't think it will be higher than BRL 1 billion, which we consider a very good size of investment considering our size and also the irrigation project.

Matheus, thank you very much. About yields we are stepping up yield gains in recent years. And this acceleration has been consistent, it's not by chance. Yes, climate was favorable. Weather was favorable. Last year, not so good. We saw some loss of yield because of drafts. So when we consider the potential of our crops it's a potential for more than 70 bags per hectare. This year, we posted 69.1% bags per hectare. But in spite of this, we could have gone further. In Mato Grosso, we saw excess rain at the end of the harvest. So this was not in our favor. So when we look at the different varieties and the data that's coming in, we get the vision that will continue to expand our productivity in coming years. Regardless of weather conditions. So El Nino years, for example, are years of greater caution because it usually remains less than usual, but we'll take all measures possible to mitigate this risk. Maybe if we lose 3% to 5% of our average yield, how much can we save initially to offset this loss of productivity. The fact that the 69.1 bags per hectare is not really an outlier, so much so that we are expecting to reach 70 very soon even this year. And for next year, of course, we are going to make projections based on our trend line. It's going to be less -- a little less than 69. But considering our potential, it will be more than 70 in the case of soybeans. And in the case of corn and cotton, we are also gaining yield. Well, in this year, there was a delay in the planting of corn. That's why we are a little bit concerned with the harvesting. If it doesn't rain more, we'll see probably a slight crop failure, but we are expanding our planting acreage and we want to plant in February, which is the ideal planting window. March is more risky for planting. And if we plant in February, we'll see an expansion of yield for corn and we are investing more in corn because of price considerations, and we are expecting to increase our productivity in corn. And similarly with cotton. Cotton has extraordinary potential. We have some farms with some outstanding yields in Brazil. So we're making the fine adjustments to increase our potential even further. About El Nino, we are much better prepared than we were in 2016. At that time, we had many young areas with soil that was not mature with much lower irrigation, especially in the region that suffers the most with El Nino, which is Bahia. So we are much better prepared to face El Nino. But of course, this is a point of concern for us. And of course, we want to go through the El Nino without experiencing any losses.

Our next question is from Mr. Lucas Ferreira, JPMorgan.

Firstly, Pavinato, what is the trigger for soybeans that is still missing. I know that in terms of the stock ratio, there's an adjustment, as you said, oil is pushing up the demand. China is buying more than the risk of El Nino on the radar, which could lead to more depend. So what do you think is missing to make the soybean prices go up? And are you waiting for next year to accelerate your hedging for cotton, how are you positioned? And then a more conceptual question. I think this is going to be the third year in a row in terms of margins for farmers in the world. And my question, especially if you have lease land, we see tighter margins, and this is difficult. And the leases have gone up in the past 5 to 10 years. So do you see the potential for reducing your share of leases yield at 3 years, it doesn't sound so good. There is no reversal in sight. So it's just like the tug of war that you always mentioned, Pavinato between farmers on one side, those who implement the strategy and those who own the land. Do you think that a rebalancing between profitability and owning the land should be in place.

Well, Lucas, thank you for your question. Commodity prices, there has been a very expressive adjustment. We commented on this last call. There was an adjustment on upwards adjustment and soybeans went from BRL 10 to BRL 12 and corn from BRL 4 to BRL 4.6, BRL 4.8, and cotton from BRL 0.65 to BRL 0.68 per pound. But why didn't soybeans go even higher, because the world is planting more soybeans and corn because of the high prices of urea. So that's why the stock to yield ratio was not even further compressed. And this is what I said in the last call. With prices under pressure. When you look at soybeans, the inventories are still high in the world. We have 29% of carryover stocks, but in the next cycle, '26-'27, this is expected to decline to 28% in a scenario where demand is growing consistently but stocks for soybeans are still high. Now in corn, the average is 27% historically. And now in this scenario where we'll see stocks going down to 21%, the lowest level in history. At the same time, wheat is down. The 19% of wheat is used in meals in so in feed, in fact. So we're seeing a scarcity of grain in the world. This is my understanding of this scenario, and this will put pressure on prices. So there is less supply in the world and with all of the price increases caused by oil and crude prices, there will be pressure towards an adjustment. The market is simply not sustainable at the current corn prices, considering the scarcity of supply. And under a logic where demand grows every year, corn saw an expansion of 27 tons per year and soybeans 11, an additional tons. So especially with the conflict and with the demand for crude oil, crude oil being higher, is increasing demand for biofuels. Biofuels are seen as an alternative. So this is the overall picture for grains. Now soybeans, of course, follows the grain. So if there is less wheat, less corn, it will follow, in fact. So when we look at production costs, for the next crop season, it will put even more pressure on the farmers market, farmers margins. Even considering the price per bushel margins will be even tighter than they are now in '26 for Brazilian farmers. Is Brazil going to expand acreage in '26 or '27 with those tighter margins. And if Brazil does not expand, who is going to meet the growing demand. This is the scenario for commodities, Lucas, and you are right, there is an upward price adjustment going on. So either commodities go up or there will be an adjustment of costs, a downward adjustment of costs with the end of the conflict. This is our perspective on commodities. In relation to cotton, once again, we are selling as much as we can since also our yield has already been determined. We have already sold more than 80% because this is an opportunity. And I believe that this is going to be the case. And we don't believe that it will go back to the old prices, you see that there is more pressure on the supply, the world has realized while polyester is cheap, but it's not going to be cheap forever. So having cotton as an alternative is very interesting for the world. So when we think of -- for -- we're selling cotton, we have already sold 33% of our cotton in the new harvest at this price of $0.67, $0.68 that we sell in New York. So we are exploring this opportunity. And when we look at our cost formation scenario in commodities, we believe that, once again, the scenario will be positive in '26, '27. Obviously, Brazilian agriculture will see a more challenging 2027. Well, I talked about the margins about Brazil. Leases now. We have very few renegotiations underway, but I track the market. And yes, the leases are under adjustment. There are some people renegotiating some land being turned back. This will, of course, result an alignment -- a new alignment of prices. This is what we are witnessing.

Our next question is from Pedro Gama, Citibank.

Two additional points about fertilizers and costs. Late last year, the company announced production costs that were higher because of the replenishment of nutrients. And my question is about this crop season, are you planning to apply less fertilizer for this crop season because you only announced the percentage of fertilizer that has been purchased. But what about the volume that's being applied? And in your vision, what would be the limit of application of nitrogen fertilizers that would be viable without losing productivity or yield. Finally, can you give us a little more color about the dollar price for the company? I'm not sure whether it's too early to talk about the cost for the next crop season. But what do you see, for example, in relation to this currency exchange downward trend in especially considering prices in dollars and in BRL for hectares -- for your hectare as well.

About fertilizer prices, of course, we're going to use a smaller dose of fertilizer. So when fertilizer is cheap, we apply more, and we also accumulate stock in the soil. And when it's expensive, we use less. This is, of course, a matter of efficiency. But in the specific case of nitrogen, as you know, there is no stock in the soil or there's a lower stock in the soil for N. And so there is inventory in the soil, but at the lower level. So we cannot really reduce the doses significantly. We can go down to 3%, 5%. Going back to 2022, when fertilizers were very expensive, the world use 3% less nitrogen that year. That was the world's decision because of high prices. So there will be a small adjustment. As for phosphorus and potassium, well, we purchased phosphors at a lower price than last year. So we won't be reducing. We'll just make very small adjustments in phosphorus. And there will be a bigger adjustment in potassium. We'll make the final adjustments and if we need -- we'll buy a little more. As for our dollar prices, well, I think that the 57%, 58% of our prices were in dollars, right? Fertilizer, seeds, diesel part of it is in dollars with seeds and -- so that was the percentage of our production costs that are packed to the dollar, right? Then we have the freight support. So then there is a correlation when the dollar rate goes up, but usually, it's denominated in BRL. So when we analyze the impact of the currency, the BRL is appreciating, so our cost in dollars are increasing. So the freight costs, this will increase our costs in dollars and also workforce. So the currency appreciation of the BRL is not favorable to us. Now fertilizers, phosphors and potassium, 3% to 4% increase, as I said. Crop protection, we have already purchased at a price that was 5% to 6% lower than last year. So what's still open is nitrogen. So how much more expensive will it be? This will have a direct impact in our input costs. And in BRL, of course, there will be an appreciation of costs, an increase in cost because of the currency. And usually, when it's an election year, there's more volatility in the currency exchange. So we have to wait and see, especially now in this scenario where Brazil is attractive for investors. This seems to be -- Brazil seems to be seen as a reliable alternative for investment. So we're still waiting for more data to analyze this, but our interpretation is that the increased prices will offset the increased costs. And this is, of course, for us, and it does not apply to the industry at large. Maybe, Ivo, would like to add something.

No, I think that was a very on point answer.

Our next question is from Ms. Laura Hirata, Santander.

Well, speaking of costs, I would like to take a different approach. You were talking about freight and diesel, how can diesel affect your competitiveness? What is the mix you're considering for the '26-'27 crop season? Especially considering regions that are more distant, could we see crops like cotton being favored, considering, of course, that cotton is lighter than soybean. How does this affect your decisions?

When we look at our 3 crops, what is the most expensive freight, it's corn, right? The cost to ship to port is the same. It's BRL 500 from Mato Grosso, BRL 500 per ton. With corn, the price per ton is half of the price of soybeans, but it represents the double on the revenue on the ports. So with corn is the -- where we see freight being more expensive or -- and also the effect of the currency exchange rate, the effect is stronger in corn than in soybeans. In soybeans, it's a smaller percentage, depending on the region, it's 15% to 20% of the revenue. That's the cost of the freight to the port. In cotton, their freight represents 7% to 8%, 10% at the most. So that's why cotton doesn't have a limitation in relation to the radius to port. This is an incremental cost. The freight, of course, has a participation in the calculations between corn and cotton, of course, cotton does not really get the impact as much as corn. But you have to look at the overall conditions. I wouldn't say that this is the determinant factor, I mean, freight.

Let's continue now with the next question from Mr. Leonardo Alencar, XP.

Pavinato, you were talking about cotton. I would just like to explore 2 point. There is a correlation with crude oil prices. Do you think that the prices will change because of the scenario in Texas? Or do you think that cotton could be sustained at more than [ 80 ] for a longer period. What about also -- what about your hedging position? Is there -- are there any constraints, for example, in liquidity? Was it just the currency volatility that limited you expanding your hedging? And now a second question to Ivo. You were talking about the future scenario with pressure on prices, offset by the commodity, but '27 is going to be a challenging year. There's also the impact of El Nino to be factored in. Do you think that there is a level of leverage that could lead you to amortization of land or other types of capital allocation that could be applicable in a higher leverage scenario.

Leonardo, thank you about cotton and polyester. Well, the driver was polyester. It went up to 57%. So definitely, there is a competition between polyester and cotton. That was the key driver. But additionally, there was a reduction in cotton production. The taxes is just dry -- the driest ever in history. So maybe it will not even meet the projections. And India, China and other cotton farming regions are adjusting their production estimates down. So [ $0.68 ] per ton does not really breakeven for those farmers. They are plenty because they get subsidies. And here, the production cost is $0.86 per ton. And the only reason why they plant is that they have some security. So that's why Brazil continued to expand. This year, Brazil did not expand its acreage. It actually reduced it a little bit. So the cotton scenario, well, with the end of the war, polyester will probably see a rebound in prices. But this is really about supply and demand. It's not going to be a competition with polyester. So we believe that prices will be higher but $0.67, $0.68, which is the current price for the new crop season is a price that we deem to be reasonable. That's why we are moving on with the sales to secure this position especially in the scenario where we're paying for fertilizer at the current price level. If we believe nitrogen will drop our margins will be even better. Ivo, would you like to comment on leverage?

Leonardo, we decided to make the investments in March last year with the purchase of Palagino, Unai and even Sierentz. With this, our planted area increased by 100,000 hectares, we needed higher working capital. So everything is developing according to plan. What's slightly off is that prices are better because soybean and corn prices are better now than in the beginning of the year. And also soybean productivity increased. So it was in the works that we would have negative cash generation because we had to pay off the investments, but we'll have positive cash generation in 2027. There could be a margin reduction for 2027, but the margins are better than budget because the prices are better. So there's a tendency to recover our cash generation by the late -- later this year. We want to be below 2x in the net debt over EBITDA ratio. So even with tighter margins, we are really stepping up our hedging to maintain this correlation between inputs and commodities. So everything is moving according to plan. But if the opportunity for a land deal emerges, we'll always analyze whether it would be advantageous for the company. Our main focus today is to maintain leverage according to plan. And next year will be a cash generation year for sure.

Can we continue, Andre?

Yes. Let's continue. Our next question is from Giovanni D'Ottaviano, Bradesco BBI.

I have 2 questions. Firstly, about seeds. Your seed volume has been growing significantly. Can you quantify how much you used internally and how much you sold into the market? And about supply of seeds to Brazil in the comparison with this year and last year. And in corn in the last call, you mentioned that 50% of corn is being sold to ethanol makers, do you think that this proportion will be maintained in the future? Do you think that this will be the case in the next crop season?

Thank you. Thank you, Giovanni. Yes, 30% of the soybean seeds are used internally and 70% are sold to the market. In the case of cotton, 80% is used in our farms, and we market -- to the market less. We are now starting [indiscernible] and sorghum seed sales. About prices, our seed prices last year, there was a lot of pressure in prices. There was an oversupply of season. This year, it was not that favorable for seed protection. So the market doesn't have as much pressure. So we believe that prices will be maintained even maybe recovered this year. Corn, well, in the -- well, the future market is usually ethanol. So we like to sell corn ahead of time. So they are the big buyers, the big buyers in futures. And before it was sold to exports and now ethanol has become more competitive especially when there is some uncertainty around freight prices. And then, of course -- so the volume of corn for ethanol could reach 27 million tons, very expressive. And this will -- of course, this is a very relevant demand level.

So now our conference call for the first quarter 2026 is now closed. The Investor Relations department will be happy to take any questions you might have. Thank you very much, and have a great day.