SLCJY (SLCJY) Q2 2026 Earnings Report, Transcript and Summary

[Technical Difficulty] Financial Planning and Investor Relations Manager. Joining me today are our CEO, Aurelio Pavinato; and our CFO and IRO, Ivo Brum. It's a privilege to be with you this morning. Please note that this conference call is being recorded and will be made available on the company's IR website, where you will also find the presentation. [Operator Instructions] We would like to emphasize that the information contained in this presentation as well as any statements made during the conference call regarding SLC Agricola's business outlook, projections and operational and financial targets are based on the management's beliefs and assumptions as well as on information currently available. Forward-looking statements are not guarantees of their performance. They involve risks, uncertainties and assumptions as they relate to future events that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect SLC Agricola's future performance leading to results that differ materially from those expressed in such forward-looking statements. I would now like to turn the floor over to our CEO, Aurelio Pavinato, to begin our presentation. Pavinato, please go ahead.

Good morning. Good morning, everyone. Thank you, Andre. Welcome to SLC Agricola's Second Quarter 2026 Earnings Conference Call. We appreciate the participation of our shareholders, analysts, investors and all other participants. Let's please move to Slide 4, where we'll discuss the cotton market. The first 6 months of 2026 were marked by significant recovery in international cotton prices following a long period of depressed prices. This scenario directly affected international polyester prices, which, given its competition with cotton and given the textile industry's ability to switch between these 2 raw materials, helped support the appreciation of the natural fiber. From a fundamentals standpoint, global cotton consumption for the 2026-'27 crop season is estimated at approximately 123 million bales compared with a projected production of 117 million bales. Therefore, there is a global deficit of approximately 5.3 million bales. Brazil is expected to continue gaining market share in the international market, consolidating its position as one of the top global players. The 2025-'26 crop year already reflects this trend with Brazilian cotton exports registering volumes above the historical average for the period. Now let's move to Slide 5 to talk about soybeans. Soybean prices, both on the CBOT spot market and at the Paranagua-CEPEA benchmark have recovered significantly through 2026. The recovery in global prices as reflected in the CBOT benchmark has been driven largely by the outbreak of the conflict between the United States and Iran and the resulting rise in oil and energy prices. Against the backdrop of growing concerns related to the decarbonization of the global energy mix and the increase of use of renewable fuels in the mix, we see the correlation between soybean oil prices on the CBOT and crude oil prices strengthening. This provides important support for soybean prices. Globally, the USDA projects a tighter supply and demand balance for the '26-'27 crop season with the smallest surplus in the past 5 years. Demand for Brazilian soybeans also remains strong with national exports in March through -- in January through March, broadly in line with the volumes recorded in the same period in recent years. This confirms both robust global demand and the competitiveness of Brazilian soybeans in international markets. It's also important to monitor potential tariff changes imposed by the United States on its trading partners, similar to what occurred with China during Donald Trump's first presidential term. At that time, Brazilian soybean exports to China benefited relative to U.S. exports. Over the past few years, particularly since 2018, Brazil has established itself as a consistent supplier to the Chinese market. Let's please now advance to Slide 6, where we'll talk about corn. Corn prices in the CBOT spot contracts and in the Brazilian domestic market have shown significant volatility throughout 2026. Corn prices in Brazil have found solid support from growing domestic demand. And this has been driven in turn by the expansion of the corn ethanol industry. As a result, Brazilian exports have been facing increasing competition from the domestic market where prices have been more attractive. Globally, the corn market is expected to remain in a deficit with demand exceeding supply by 24 million tonnes. This is the largest deficit in the past 6 years, according to USDA data. Meanwhile, the ongoing Russia-Ukraine conflict remains an important factor in the global corn trade given Ukraine's position as one of the largest world exports. This situation remains critical for global export flows as Argentina, Brazil and Ukraine, together with the United States are among the world's leading corn suppliers. Let's please now go to Slide 8, where we'll discuss the status of the '25-'26 crop season. We have completed the soybean harvest with a record average yield of 4,146 kilograms per hectare. This performance is 4.7% higher than the previous cycle and 2.7% above our initial projection. More important than the record itself is the fact that this result was achieved while expanding the soybean acreage. This demonstrates the efficiency of our operations and the benefits of our investments over the past few years. As a result, we have achieved a yield approximately 12% higher than the national average. We have now harvested 62% of our cotton crop and the outlook remains very positive. We expect one of the best cotton crops in the company's history with yields approximately 12% higher than last year's crop season, reflecting the strong crop development we have seen so far. For second crop, corn, we have now harvested 90% of the crop. The crop faced weather-related challenges due to delayed planting and uneven rainfall, particularly in Maranhao and the Araguaia Valley in Mato Grosso. Even so, we continue to expect yields of approximately 6,798 kilograms per hectare, demonstrating the resilience of our operations in spite of less than favorable conditions. Let's move now to Slide 9, for an update on our hedge position for the '25-'26 crop season. We continue to maintain a high level of hedging for the '25-'26 crop. We have already hedged 90% of our soybean, 94% of our cotton and 54% of our corn. This increases revenue visibility and reduces our exposure to price and market volatility. I will now give the floor to my colleague, Ivo Brum, for a few comments on our financial performance. Ivo, please proceed.

Thank you, Pavinato. Let's please move to Slide 11, where we share some highlights from our income statement. Net revenue for the semester reached a record BRL 4.4 billion, up 6% year-over-year. This performance was driven mainly by higher volumes of cotton, soybean, corn and cattle being sold. Gross profit reached BRL 1.9 billion, an 8.8% increase, mainly reflecting improved operating performance in cotton and corn. Adjusted EBITDA totaled BRL 1.3 billion in the first half, 15% from first half '25, mainly reflecting lower gross profit from soybeans and cotton seeds. In addition, selling and administrative expenses increased. Now let's move to Slide 12, where we have a summary on our CapEx for the quarter. During the first half of the year, we continued to execute our investment plan to expand production capacity and strengthen operational resilience. We invested BRL 155 million in irrigation, one of our key levers to mitigate weather-related risks, improve stability in production and support productivity gains. Following the end of the quarter, we announced the acquisition of 8,900 hectares of arable land from Groupo Radar. We also renewed leases covering 8,700 hectares with the new tenants, ensuring that we can continue to operate this land. As a result, 5,300 are leased through the '29-'30 crop and around 1,000 hectares are leased through '26-'27. The remaining 2,500 hectares have been re-leased for additional 15 years, starting with the expiration of the current lease at the end of '26-'27 crop at a cost of 19.5 sacks per hectare. We have also opened a new cotton gin at Fazenda Parnagua. These initiatives expand our operational and industrial capacity. Now on Slide 13, we discuss our debt position. Regarding our capital structure, adjusted net debt ended the quarter at BRL 7.5 billion, while leverage stood at 3.09x adjusted EBITDA. This increase reflects our operational growth, higher working capital requirements and the investments made in the period. Despite the increase in net debt, which, of course, reflects our expansion, we maintain a solid capital structure and a balanced debt profile. We have paid off most of the costs associated with the '25-'26 crop and 78% of our debt was classified as long term, similarly to 2025. This reflects our discipline and financial management and our focus on maintaining a capital structure that supports sustainable growth. Now turning to Slide 14. We will give you an assessment of our land portfolio. We have completed a reevaluation of the company's land portfolio. Our own property, together with those held through private equity partnerships were valued at BRL 13.5 billion, reflecting the continued appreciation in the average price of land per hectare. Over the past 5 years, the assets have appreciated 8.4%. At the end of June 2026, net asset value stood at BRL 27.12 per share, representing a significant discount to the company's market value. Continuing the presentation, I will now turn the floor over to Pavinato to discuss the outlook for the '26-'27 crop.

Okay. Let's move now to Slide 16 for an update on fertilizer purchases. As we move through the current crop season, we continue to make progress in planning for the '26-'27 crop. We have already secured 100% of our phosphate requirements, 90% of our potassium chloride, 70% of our nitrogen fertilizer needs and 96% of our crop protection. On Slide 17, we discuss our hedging for the '26-'27 crop. We have continued to manage our risks carefully, increasing our hedged positions for the next crop, always protecting margins and reducing our exposure to market volatility. Our current hedge position covers 49.2% of soybeans and 55% of cotton, including committed volumes. Now finally, let's move to Slide 19, where we discuss some ESG highlights and awards. For the fifth consecutive year, we have been recognized among the best companies in Brazil in Exame's Best ESG awards, further strengthening our track record in ESG. We have also identified 5 farms with a negative carbon balance, showing that productivity and sustainability can walk hand-in-hand. And finally, we have ranked 15th in the 2026 Great Places to Work, agriculture ranking, improving from the place we had in 2025, which was the 19th. Now we are ranking 15th among agribusiness companies. We thank you all for watching, and we will now open the Q&A session. Andre?

[Operator Instructions] Our first question comes from Gabriel Barra, Citi.

Can you all hear me?

Yes, we hear you fine.

Well, there are 2 things. I think that when you're talking about agriculture, I think that this question is something that you cannot walk away from. We see a very challenging climate scenario. Several companies are preparing for a more challenging climate scenario. So I would like to know what measures have you been discussing to overcome any risks? I think that, for example, your investment in irrigation is a sign of what you're planning. But are you thinking of doing something more specific in the second half, especially in relation to the next crop season? How are you going to protect against this uncertain scenario? Now we see now that the company is at a higher leverage level even in comparison with the previous year, you're 0.7 points higher than last year. And Ivo made reference to the investments you made and the current working capital requirements. But this is a level that makes us a little more unprofitable considering also the interest rates. So could you give us your perception on the current leverage? And in your vision, what should be the leverage by the end of the year? Is this a reason for discomfort in your view that could lead you to take any measures to reduce the leverage and also face the higher interest rates that are expected for next year?

Gabriel, such easy question as always. Okay. So I'll answer the question about El Nino, and then Ivo will talk about the financial indicators and leverage. Well, El Nino is something we're not facing for the first time. and we know that there is an effect in our operations. And this year, we have the forecast of a very strong El Nino. And this, of course, causes a concentration of rainfall in the south of Brazil and more drought in the central North. So we're preparing for it. So what could be done to mitigate any damage caused by El Nino? Well, the damage be greater or lesser. We've had some El Nino years with very little damage in Mato Grosso. It will rain less. And in Mato Grosso, it always rains too much. It doesn't mean that we're going to have a drought. And now in Bahia, it doesn't really rain too much. So those are the 2 extremes, Mato Grosso, Bahia. We also have Mato Grosso do Sul, which is usually not affected by El Nino, and Maranhao as well. Even though the Northeast in general is affected, we have a shorter Indian summers in Maranhao. So at any rate, we could have some drought. So what could be done in terms of mitigation? Just to give you an example of what we're doing today, increasing soil coverage or also avoiding turning of the soil is something that we could do because this -- of course, this leads to loss of moisture, that could affect germination. So we changed our management to maintain more moisture in the soil. So we've been investing greatly in soil coverage. Our system has a much higher capacity of soil -- of water retention in the soil than in the past. Also, the planting window requires adjustments. So in Bahia, we planted cotton in December. This year, we have to plant sooner because if there is a shortage of rainfall, the crop will have developed enough to avoid greater damage. So we'll adjust the planting windows also to mitigate the effect of an Indian summer in the middle of the cycle that could lead to crop failure. Moreover, adjustment in inputs. Am I going to use up all of my potassium in the first application? No, I will do it in 2 parts. And the same with nitrogen. Usually, we apply in cotton 3 times. So we'll make adjustments depending on crop development. It's a strategy to retain moisture and to reduce cost. This is what we can do. And of course, making the most of whatever rainfall there is, and always following the weather forecast to avoid greater losses. This is what we'll do to reduce any damage that might occur.

And by the way, Pavinato, maybe you could talk about our area of distribution.

Yes, yes. If we compare the situation to 2016, where we had losses of 20% of our output, we saved 5%. So in the end, we had losses of 15%. In 2016, we had a much greater concentration in the Northeast than in the Southwest. And we had more immature land from Cerrado to planted areas from -- in a range from 10% to 25%. Now we have 100% of these areas as mature land. So the system is far more resilient. In 2016, some crop areas in Bahia were producing 45 sacks of soybeans and young areas produce 10 or 12 sacks of soybeans. So this, of course, shows the magnitude of difference. And in 2016, there was almost no irrigation installed in Bahia. And now with the project we are completing at Piratini, we have 25,000 hectares under irrigation in the farms where risks were higher. So the 25,000 hectares, since we have 2 crops a year, this represents 50,000 hectares in Bahia and Goias. This is where we have most of the irrigation that was nonexistent in 2016. So in a similar damage scenario, we expect that the losses in '27 should be much lower than they were in 2016.

Well, about leverage. At the time of acquisition of Sierentz, we knew that we would see a pressure on our working capital requirements. We pay off most of the suppliers in the first half of the year. So having a net debt over EBITDA ratio of 3x, this is no surprise to us. Now at the end of the cotton harvest and corn and with the deliveries in the second half and also with the conclusion of the soybean harvest, we believe that there will be a significant leverage. Actually, we are wondering whether we need to get more leverage to pay off the land that we acquired in June, of course, we still are pending payments because this is a period of very high cash generation. So the trend is downward on the net debt over EBITDA ratio. If we want to step up our deleveraging, we also have the opportunity of selling, but we would like to do this without leaseback because we know the areas, we know about the potential of these areas. So it would be not good for us to lose an area that's already in operation. This is something we commented on our last communication. We might sell, but without leaseback. And of course, firstly, we have to find the right buyer. So a leverage of 3x makes us slightly uncomfortable, but it was already in planning.

Thank you, Barra. Our next question, Mr. Guilherme Palhares.

Congratulations, Pavinato, 33 years with the company. And I would like to hear your thoughts on 2 points. Well, the timing for fertilizer purchases, you made a large nitrogen purchase. I think that you did it right on time, urea and nitrogen in general. Well, you had a window of opportunity and you seized it. And I would like to hear a little bit of a follow-up about your debt amortization schedule. Do you think there's anything that you can do in that sense because there's a concentration of payments in '26-'27.

Thank you very much, Guilherme, for your question. Fertilizer purchases, yes, we got the timing right. We had already purchased all of the phosphorus before the outbreak of the war. And phosphorus is what is really going through a structural cost change. So in fact, and with potassium, potassium was not deeply affected by the conflict. We had already purchased it on the early days of the conflict. And this combination of phosphorus and potassium, we were able to buy with a reduction of 4% in dollar prices. So once again, we got the right time in our purchase of nitrogen. We bought 70% of our volume at the trough of the curve. Then it went up again. It's going down again. So we still have 30% to buy, something that we'll only use next year. So we were able to form our prices at adequate levels for the next crop season. We don't run the risk of witnessing a very expressive cost increase for the next crop year. We believe that with the increases in prices in the international market -- we believe that prices actually will outpace the increase in cost.

Well, about the debt amortization schedule, every year, we pay off between BRL 1.2 billion and BRL 1.3 billion for the crop year expenses. Of course, we are trying to lengthen our debt profile and also, we don't see a reversal of the trend of interest rates in the near-term. Now we're a little bit more optimistic. So we are thinking of taking some loans in dollars to lengthen our debt profile because in dollars, the interest rates are around 6% to 7% a year. So with this, you could pay off the interest rates and you leave the bulk to pay at the amortization. So that renegotiation is something that's very common place since our debt is financed by the crop, of course, this is the only difference.

Okay. Pavinato, just going back to something you said and also thinking of the response you gave to Barra in a high-cost scenario, not everybody has been making purchases of fertilizers as well as you have. So maybe this will have an impact because there's a climate risk and inflation. So when you think of your hedging strategy, are you thinking of underutilizing imports? This could lead to lower yields, perhaps?

No. No. We are using the maximum economic efficiency, which is not the same as the highest agricultural yield rate. So we always take the economic factors into account. We are not reducing the use of fertilizer in the next crop season. Of course, there are some one-off adjustments that we make depending on soil fertility. But as I said, we will only stop applying fertilizer if there's low water, right? Because this would be an expense with no return on investment. So basically -- so it's going to depend on the drought. If there is rain, enough for plants to develop, then we're going to fertilize the areas as we usually do.

Thank you, Palhares. Our next question is from Mr. Leonardo Alencar, XP.

I have 2 questions, if I may. Well, there was some expectation about the B16 that there would be an increase in August instead of April. Now we hear that this could happen only in August 2027. So we don't really know. So this frustration, do you think that this is causing an impact in terms of the premiums and exports? How does it affect you in relation to biodiesel? And a question to Pavinato. There was a change in the cotton curve recently and also following the war dynamic that it didn't go back to the same level. Now cotton has accelerated a little bit more. And we see this more in the short-term. So the curve is not really adjusting. And when we think of your models, and we see how it's going, it's an impact. So I would like to hear what you expect for the cotton market more in the long-term.

Well, soybean demand for biofuels. Well, since oil is more expensive now, this favors biodiesel. And this is something that is very positive, in fact. Even if we maintain B15 today, we see a very consistent demand for soybean. Prices in Mato Grosso are now disconnected from the export prices. So we have domestic prices higher than export prices. We had -- so prices are now more in parity in the Northeast where they don't have a biodiesel industry yet. So there is a strong demand in corn, in soybean, even with the massive crop that we had. And of course, this is one of the top areas of demand. So for B16 and B17, this strengthens the demand in the domestic market. And this favors liquidity and also creates premium prices. Now in cotton, we see a connection to geopolitics and war. Polyester prices were at [ $0.44 ] now it's at $0.50. So polyester is the top competitor for cotton and the fiber that grows the most in the world is polyester because it's cheaper. So the fact that polyester has appreciated is something that supports cotton prices. So this is a very important driver with the conflict, cotton is favored. And then we have the market. In the United States, the crop is smaller, in India as well. In Australia, they don't want to plant it anymore because there is no water. So the El Nino is actually positive for us. Australia had planted 650,000 hectares of cotton. And now in March and April, they harvested 470,000 hectares of hectare (sic) [ cotton ]. And next cycle, they will probably reduce this to 325,000 hectares because only if the reservoirs are full, they will plant cotton. This is what we saw in April in Australia. This is the consequence of El Nino. El Nino is driving a reduction of area in Australia. So therefore, this is a scenario in which we -- well, production of cotton is not meeting the demand. So that's why our prices are supported. We -- I think that the critical times in terms of pricing of cotton are now behind us, and we are at a level that remunerates Brazilian growers better. For American growers, the current price of cotton does not really remunerate them. They have a cost of around $0.82 per pound. So that's why Brazil is gaining share. The world demand for cotton has remained stable at around 125 million bales and Brazil has increased exports. And now India has become a very important client, India, China. China is a major client. Sometimes they import more or less depending on the year. And now India will become an important client because there is growing demand for food, for -- and they will be planting more food-related crops than cotton. So this is our market outlook. I think that the valley or the trough is behind us. And of course, geopolitics affect cotton greatly.

Thank you, Leonardo. Our next question is from Lucas Ferreira, JPMorgan.

My question is about capital allocation in '27. You are expecting better margins for next year. So probably leverage will reach the peak. Do you have any idea about CapEx for next year? Can you share this with us? And secondly, well, if we imagine the El Nino impact will be not quite as relevant. Do you think it's the time to go back to acquisitions? Maybe there will be assets up for sale, even thinking of the Radar Groupo, I'm not sure if there are any other assets for sale. I'm just trying to understand if this is a year, next year for reducing leverage, if you have a target or if you're going to keep an eye on the opportunities that emerge.

Well, leverage. Something we won't keep up on is our investments in irrigation. We'll start the irrigation installation for Paladino [indiscernible] is concluding, and then we'll start with Paladino. We'll have the licenses, and this is already planned. And then, of course, we'll have maintenance CapEx. We are not planning major investments for next year, except for irrigation and crop protection and fertilizer. And of course, because there could be growth, as I said, if we have the transaction without any leaseback, then of course, we could grow again. It all depends on what we see in the coming months. But basically, we have all the way to March or April next year to define our growth because then we'll start working on the next crop season at '28-'29. Sorry, sorry, let me go back to one point. About the acquisitions in relation to Radar Groupo, we have to wait and see whether they have their assets up for sale again. I think that the -- what I heard in the market that they wanted to reach around BRL 10 billion. I think that they raised a lot of funding, but maybe they want to sell more areas, but maybe there aren't that many buyers available. They can give a discount, but -- so it's going to take a lot of negotiation. Our leases are insured until '29 in Maranhao. So we still have a lot of time to exercise our preference rights if needed.

Thank you, Lucas. Our next question is from Mr. Henrique Brustolin, Bradesco.

I have 2 questions. Firstly, about yields, the yields you delivered in the previous crop year, especially in soybeans and cotton. Well there's always something different. But did you see anything that you weren't expecting that led to this yield levels? Or is this something in your trending curve? Just to know exactly if the investments you have made paid off and comparing this to what was delivered in the '25-'26 season. Then I have a question about SG&A. We saw a heavier freight line. Was that a one-off thing because of unit prices or because of the mix of crops? Or do you think that this is a cost that will remain because of more CIF soybean shipments. Just to try to understand.

Okay. I'll talk about the productivity first. Well, we have, of course, made our projects based on the trending line and our trending line has been growing consistently. And you asked about the maximum potential. And today, analyzing the market scenario and the new varieties and management, I think that we're really seeing growth instead of decrease. So it's only normal that you -- where climate is good to be above the trending line, when there are some losses, you are right on the curve. And when there are climate-related losses, you remain below the trend line. But what is positive is that we see greater potential in the crops and the different varieties. So we're feeling optimistic that our yields will continue to increase soybeans, for example, we harvested 69 bags, but we made much more, but then we had excessive rainfall and we had some losses during the harvest season. So the potential is actually greater than what we harvested this year. In cotton as well, we had some farms producing as expected and others with more potential with the yields going up. So we expect that in coming years, we'll continue to expand our yields. And even more importantly, we will be really setting ourselves apart from the international competition. We know how much the Argentinians produce, how much Australians. I think that the Australian cotton is an example for us because they really made great progress in yields. And we -- that's why we have this idea that in cotton, we can even have higher yields.

I think that really it's important to remember the geopolitical issues. Transport costs increase. International logistics had impacts because of diesel costs and insurance. Sierentz adopted the CIF methodology. It's something that we're still learning how to use because they had some gains to be obtained. So maybe we'll incorporate this as a best practice. And this is what we saw in sales. Also, we've talked about this many times, the cost of eucalyptus as biomass. We see this also as cost is increasing. The demand for ethanol in Mato Grosso also expands the demand for this biomass in the state and in other states. We are now planting more eucalyptus as a protection. But in some farms, this increases costs. So this was a year in which we had to pay nonrecurring items. We had, for example, the payment for BTG and Pinheiro Neto because of the transaction with BTG funds. And in the first half, there were discussions relating to the purchase of the farm in June, but we've been in negotiations since March. So this, of course, created an impact. We also incorporated the Sierentz team and this also increased our SG&A. But of course, we expect positive gains with all of this coming in. Along the cycle, we had to discontinue the Sierentz operations and implement our own system. Up to the time, they were different systems. And gradually, this will lead to cost reduction. So we reached a very good level, but we see more opportunities for cost reduction in the near future.

Thank you, Henrique. Our next question is from Mr. Matheus Enfeldt, UBS.

I have 3 items to follow-up on. You were talking about the climate scenario and consultancies are debating whether the area in Brazil will grow. So this is my first question. Then about cotton. Leo asked a very interesting question. So I'll try to look at the short-term. Cotton above 80, are you planning to increase cotton in your mix and to go back to planting cotton in the areas that didn't make sense economically in the past. Also when you think of your property, plant and equipment, it's around BRL 900 million, and you have been saying that CapEx would be closer to BRL 1 billion. So I would like to know if there was some carryover from last year to this year? Or I'm trying to understand the impact of in cash and investment in 2026.

Matheus, our maintenance CapEx is around BRL 700 million. And comes irrigation, which is an additional CapEx related to growth. So we reached BRL 700 million. We have investments to make, maintenance is not over and irrigation is almost fully completed. So this is our scenario. You know that irrigation costs BRL 25,000 per hectare. So as you allocate your capital and the pivots are installed, irrigation begins and we close the cycle. So it's really within plan. We don't have much to spend on the second half of the year. In fact, so basically, the investments needed in relation to [ cereals ]. We needed to increase the machinery for planting. There was no need to increase capacity.

So the second half will be basically a semester for investing in irrigation infrastructure. About the soybean area in Brazil, we believe that the [indiscernible] area will be stable, perhaps for the first time in the last decade, there will be no expansion in the soybean acreage in Brazil. This is highly positive for prices because if Brazil is not expanding, the supply and demand is balanced, demand grows every year. And the United States has planted the max they could this year. So what's going to happen with corn? In corn, we see a growing trend because corn inventories have never been as low as they are now, only 20%, only when usually there's at least 27%. So the top crops, soybean. Soybean, cotton, corn and wheat, all of them are reducing their inventories. Why? Because international prices did not really incentive expansion. And since demand grows every year, especially in soybean and corn, that's why the carryover stocks of corn are so low, especially with the drought in Europe, and we saw corn prices really spiraling. So we believe that we've been through the trough of commodity prices. And even with the recovery of 10% to 15%, since costs grew significantly. Well, thinking of the inflation in the United States, the baseline 2020, before the pandemic. Well, the increase was 28% in the past 6 years, that was the increase in the United States. And this is a structural change in production costs. And that's why even with Chicago at $11, bushel and corn at 4.5, this is not enough to drive expansion. So our perspective is that we are past the trough. And in Brazil, this is -- when I look to the market, what we see that growers are growing through this period where we went through '24, '25, '26. And in the case of SLC, what sustained our profitability is the efficiency in our operations. The yields we saw this year in soybean and cotton, this is what we are -- this is what's maintaining us in the right profitability levels in '27 for us, with the cost we formed for 2027, we expect to improve margins in 2027. But agribusiness. Well, in agribusiness, '26 is worse than '25. And what about '26, better or worse than '27? I think that '27 will be worse unless there is a boom in commodities with the current prices, when you think of the fertilizer prices in the first half last year and if you compare it to the first half, 20% more. So in cases, the fertilizer contribution to cost will be 20% higher. And when I make a comparison with the historical prices, we see fertilizers 40% more expensive, if you discount any outliers, any outlying years. So there is growers' margins are under pressure, and this does not encourage expansion. That's why it's getting tighter in terms of supply in corn, in cotton, even rice where we don't see growth in demand and in specific case of cotton as well. So the fact that soybean acreage will not expand this year indicates, well, it actually leads to an expectation of price adjustments with better remuneration of growers. Imagine, for example, in '27, then in '27, there will be a reduction in acreage. And what should we do? That's why we believe that the low period in prices is past is. In Brazil, we are not really reaping the results because there was an appreciation of the FX that ended up eating up part of the returns. So this is why the appreciation of the commodities was not as high. Now cotton once again has better yields. And if you look at our history, we always conduct an assessment farm by farm to see what will give us better returns. And we're doing this also in the next crop year. We'll be announcing this in October with probably some adjustments. For cotton, the more you plant on the second crop season, the better. And because you have then soybean and corn as the second crop.

Thank you, Matheus. Our next question is from Mr. Gustavo Troyano, Itau.

Hello? Can you hear me? Let's go back, please, to leverage. I would like to talk about the sales leaseback. Can you share your views of potential sales leasebacks in the comparison between owned areas and leased areas in your portfolio? We believe that you are moving towards a more asset-light scenario. This is not a linear process because sometimes good opportunities appear. But I would like to know, do you have a target in relation to this mix? And even more importantly, how flexible are you in relation to this target, considering that this should be also something relating to your capital structure? Would you be willing to adjust your target if there is an appetite? If there are buyers, would you be willing to accelerate the process? What is the target? And what's the range in this target?

Well, we want to work with 1/3 of owned areas and 2/3 leased areas. Along the process, there could be some oscillations. We could end up buying some areas that are not part of the strategy. But buying and selling, well, we could buy and also lease back. So depending on the farm and how much return it could give us, maybe we couldn't lease back. But our strategy is to grow our operation and avoid allocating so much capital in land because the return is low in the short-term. But at the same time, we have different farms. We have farms with a better return on investment. So we try to protect the assets with higher return on investment. And in Mato Grosso, just the purchase of the land pays off in the short-term, it is something that is expensive. But in the long-term, it pays for itself and will be well positioned. The return, of course, is in a period of 10 to 12 years. So we haven't changed our strategy, obviously, and the market opportunities and market fluctuations have to be managed. That's why we accepted higher leverage. Our goal is always to be below 2x in leverage. But maybe one day, we'll have a lower share of own land, less than 25%, depending on the growth of our leased area, maybe we could have a lower percentage, always with a focus on efficiency in operations and in allocation.

Thank you, Gustavo. The earnings video conference call is now closed. The Investor Relations department is at your service to answer any questions. Thank you very much for participating, and have a great day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]