South America Calling
Alastair Stewart South America Correspondent

Friday 08/15/14

Brazil's SLC Agricola Slows Expansion, Tightens Belts

The recent slump in soybean, corn and cotton prices will prompt SLC Agricola, one of Brazil's leading corporate farms, to slow the pace of expansion and seek to hold down costs in 2014-15.

"In the short term, we don't see a major improvements in prices ... Our job is to do everything well and reduce costs of production," Aurelio Pavinato, the company's CEO, said during a conference call.

SLC Agricola has expanded area at breakneck pace in recent years. In 2013-14, planted area rose 22% to 849,700 acres. Pavinato did not give figures but guaranteed that expansion would be well down on that level in 2014-15.

The focus is on growth of cashflow, not growth in area at any cost as in the past, he said.

SLC is confident it will manage to lower costs next season after buying fertilizers on 'the low end of the curve' earlier this year. That's a relief after fertilizers and chemicals drove soybean costs an average of 13% higher in the 2013-14 season.

Some have been surprised that SLC, along with many other Brazilian farmers, will still be increasing soybean area next season despite next-crop future prices that are below the $12-per-bushel level, which is a rough guideline for costs in the Cerrado regions.

The reason analysts are pegging Brazilian soybean area will rise 4% to 5% in 2014-15 lies partly in operational issues -- conversion of pasture is a three- to four-year process, and there is a lack of summer crop alternatives if you want to double crop -- but underpinning planting decisions is optimism about the long-term prospects. Farmers reason global soybean demand continues to rise and prices must rise to stimulate Brazilian farmers to produce more.

"The long-term outlook is good ... Our challenge is to be more efficient than the rest," Pavinato said.

The executive was speaking during a conference call to discuss the company's second-quarter earnings.

SLC saw revenue growth of 25% year-on-year last quarter following a large soybean crop.

Earnings also improved. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rose 24% on lower unit costs due to higher soy and corn yields.

Pavinato highlighted that SLC had sold much more of their crop than the Brazilian average.

According to the results, SLC had sold 92.1% of its 2014 soybean crop at an average of $13.30 per bushel and 47% of 2015 production at $12.30 per bushel.


Posted at 11:23AM CDT 08/15/14 by Alastair Stewart
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