Adecoagro S.A. (AGRO) Q2 2022 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And thank you for waiting. At this time, we would like to welcome everyone to Adecoagro’s Second Quarter 2022 Results Conference Call. Today with us we have Mr. Mariano Bosch, CEO, and Mr. Charlie Boero Hughes, CFO. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the Company’s presentation. After the Company’s remarks are completed, there will be a question-and-answer section. At this time, further instructions will be given. [Operator Instructions] Before proceeding, let me mention that Forward-Looking Statements are based on the beliefs and assumptions of Adecoagro’s management and on information currently available to the Company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Adecoagro, and could cause results to differ materially from those expressed in such Forward-Looking Statements. Now, I will turn the call over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning and thank you for joining at Adecoagro of 2022 second quarter results conference. Before going into the results of the quarter, a brief update on our distribution policy. As you know, we have committed to distribute via a dividend and buyback and minimum of 40% of the net cash flow from operations generated in the previous year. In May, 2022, we marked the milestone for Adecoagro as it was the first time in our history that we made a cash dividend payment. We paid out the first installment of $17.5 million, and in November of this year, we will pay the second installment. As announced, this will amount to a cash dividend distribution of $35 million, approximately $0.32 per share. At the same time, we continue buying shares under our buyback program and during the first seven-months of the year. We repurchased 2.7 million shares totaling more than $20 million. Now going into the highlights of the operations, I would like to start with a sugar ethanol and energy business. During the quarter, adjusted EBITDA went up by 42% year-over-year, despite an increasing costs. And this was tanks to our commercial strategy, which enabled us to sell most of our production at the peak of prices. Two clear examples of this. One, we started the quarter with our tanks full of ethanol, and in April when Ethan prices hit levels, 35% higher than sugar, we ended our tanks and even sold our day-to-day ethanol production. Second, in June, when domestic ethanol prices dropped, we exported part of our anhydrous ethanol to Europe, and achieved an average premium of 15%. Exports are a possible outlet for our production, because we have the necessary certifications and the industrial capacity to reach the alcoholic content required in Europe. It was because of our high degree of asset flexibility and our low sugar commitments that during the quarter, we were able to divert 80% of our TRS to ethanol. The product trading at the premium in our region. Maximizing ethanol production also allowed us to generate more catalog grades and to produce more vinasse. Vinasse is the sub product used to produce bio fertilizers that we spread in our own fields. And it is also the main input for our production of biogas. And regarding carbon credits, so far, we have reached $7 million in sales and secured prices as high as $40 per share. We expect to make $20 million in 2022, only from the sales of these carbon credits. As you know, the year started slowly in terms of crushing volume, because we wanted to secure cane availability. We are now accelerating our pace to reach our crushing forecast for the year, which remains unchanged at roughly 11 million tons. We have entered into the second semester of the year with good cane availability. Agricultural productivity indicators fully recovered from the 2020 first frost event. And we are also entering into with enough storage capacity to carry over our production until year-end, if needed. Now, moving to our farming business, harvesting activities of our crops and rice businesses related to the 2021-22 season are practically finished, totaling over 1.1 million tons of rice production. Adjusted EBITDA in our farming business presented a year-over-year reduction, partially driven by the solid results of 2021 when we captured high commodity prices and lower costs. This year, there was a mixed performance in terms of prices and yields. In the case of yields, for instance, rice, peanuts, and corn second crop were lower compared to the previous campaign. At the same time, the global inflationary environment led to an overall increase in costs in dollar terms, which pressured margins, including higher cost of agricultural inputs as well as higher logistics costs. These are the times where our constant discipline and strategy of focusing on increasing operational efficiencies and being the low cost producers is more important than ever. It is the only way to achieve sustainable profits, even during the current circumstances. Now, before concluding, I would like to mention that three weeks-ago, we published our first integrated report together with our 2021 audited sustainability report. There, we reinforced our commitment to the three ESG pillars over the past 20-years, since we founded Adecoagro, we created over 6,600 jobs providing opportunities in regions where there were. We also contributed towards improving the educational levels of the regions where we operate. When we arrive to Angélica and Ivinhema to Mato Grosso do Sul their educational levels, well below the national average. Today I’m proud to say that both cities outperform Brazil’s score. We are also working on promoting the development of women in agri business by offering trainings such as how to operate tractors and that will provide them with necessary tools to get jobs in the region. From an environmental point of view, we manage over 520,000 hectares of farmland under a sustainable production model which fix huge amounts of carbon in the soil. In terms of energy, over 90% of the required total energy conception is self-generated renewable energy. These are just a few examples of the work we have been doing, which is now being overseen by our ESG Committee to make sure it continue to be integrated into the Company’s overall strategy. To conclude, I want to reiterate my gratitude to all our employees, contractors and stakeholders for their hard work and commitment. I’m proud of the company we have built together over the past 20-years and excited about the opportunities ahead. Now I will let Charlie go through the numbers of the quarter.

Thank you, Mariano. Good morning, everyone. Let’s start on page four with a brief analysis on the Mato Grosso do Sul. As seen on the top tables, rainfall cluster during the second quarter of 2022 were 103.4% higher and during the same period of last year and 3% higher than the 10-year average. After a dry start of the year, receiving above average rainfall during March and April allowed our short implantation to continue to recover from the impact of 2021 first event. Better cane availability in turn, enabled us to increase our crushing pace and continue to take advantage of the constructive price scenario. Let’s move ahead to Slide 5, where I would like to discuss our sugarcane crushing. During the second quarter, our crushing volume amounted to 3.3 million tons of sugarcane only 5% lower than last year. Thanks to our 27.3% increase in harvested area, which allowed us to compensate for lower productivity indicators as we will see next. On a year-to-date basis, crushing volume reach 3.6 million tons 35.7% lower compared to the same period of last year. This was fully explained by the dynamics of the first quarter, namely the late start of crushing activities as expected, and the fact that harvesting activities were mostly concentrated on reform areas with limited growth potential. Nevertheless, we expect it to make up for the slow starting the following quarters and reach a crushing volume in line with last year. For instance, we accelerated our crushing pace and in July 2022, we marked a new monthly record of 1.5 million tons crushed in our cluster. Please turn to Page 6, where I would like to walk you through our agricultural productivity. As we are expecting, sugarcane yields during the quarter were 24.5% lower compared to the same period of last year, reaching 60 tons per hectare while TRS content presented on 11.8% reduction to 119 kilograms per time. These reductions, which resulted in a 33.4% drop in TRS production per hectare were fully explained by the lagging impact of 2021’s adverse weather conditions. As most of the harvested area was came below its optimal growth stage. Sugarcane yields during the first half of the year reached 59 tons per hector while TRS content reached 117 kilograms per time, mark a year-over-year reduction of 24.6% and 7% respectively. Our strategy of mostly harvesting reform areas enabled us to allow areas with greater potential to continue to grow, leverage area to plant new high yielding cane available for next harvest season and maximize ethanol production and capture attractive prices. Let’s move ahead to Side 7, where I would like to discuss our production mix. In the second quarter of 2022, both hydrous and anhydrous ethanol traded an average price of 23 and 25.02 per pound to equivalent 19.1% and 30.6% premium to sugar respectively. Thus, we diverted as much as 79% of our TRS to ethanol to profit from higher relative prices compared to the 59% report in the previous year. To further take advantage of price premiums43% of our total ethanol production was anhydrous ethanol compared to 34% during the second quarter of 2021. This high degree in flexibility constitutes one of our most important competitive advantages, since it allow us to make a more efficient use of our fixed assets and profit from higher relative prices. Year-to-date, we diverted as much as 80% of our TRS to ethanol the product trading enterprise premium. Although production of both ethanol and sugar was lower as a consequence of the reduction in crushing volume, this was offset by higher average prices. We were able to capture attractive prices, thanks to our high inventories at the start of this year, which were 56% higher than in 2021. In the case of ethanol and 75% in the case of sugar. Let’s please turn to Slide 8, where I would like to discuss our selling volumes and average selling prices by product. As you can see on the left chart, ethanol reported as 16.6% increase in selling volumes to 258,000 cubic meters, mostly driven by and hydrous sales, which increased by 37.5% or over average selling prices were up 45.4% year-over-year to 4.90 per pound. Thanks to our commercial strategy of clearing out our tanks at the peak of prices and our flexibility to sell it to the domestic market and export markets. In the case of sugar, there was a 75.8% decrease in volume, which partially offset the 19.7% increase in average selling prices. The lower volume sold were driven by lower production due to both lower crushing and lower mix, as well as by higher carryover relative to sales. In energy, higher average selling prices were fully upset by a decrease in selling volumes as a consequence of lower crushing and off our commercial decision to carry over bio gas in order to benefit from higher expected prices. Regarding carbon credits, let me remind you that you to the efficiency and sustain sustainability in our operations rank among the highest in the industry, we have the right to issue carbon credits every time we sell ethanol. Year-to-date, we sold 387,000 CBios, 2.5 times higher than the previous year at an average price of $18.30 per CBios. Following the end of the first semester, we cleared it out our stock of CBios at an average price of $29 per CBios, achieving prices as high as $40 per CBios before the drop in prices mid-July. Please jump to Page 9, where I would like to walk you through our sales. Net sales amounted to 164 million in the second quarter of 2022 marking a 10.9% increase compared to the same period of last year. Higher revenues are fully explained by a 98.8% increase in ethanol sales during the quarter. Volume sold were mostly concentrated in April when ethanol prices peaked driven by a delay in the beginning of harvesting activities in Brazil. We took advantage of this scenario and conducted a monthly record sale of 125,000 cubic meters effectively clearing out tanks at an average price of 26.4 cents per pound sure equivalent. During June, we began building inventory to be sold towards year end at higher expected prices. In addition to profit from higher prices abroad during the quarter, we exported 10,000 cubic meters at a time when domestic prices traded at lower levels. This represents a competitive advantage as we are one of the few players in Brazil certified to export ethanol and who can reach the level of purity required in Europe. Moreover we sold 5.2 million worth of CBios under the Renova VO program. On the other hand, sugar sales were 20.2 million marking a year-over-year reduction of 71.7% whereas energy sales amounted to 9.5 million, 15.6% lower versus prior year. On a year-to-date basis, net sales amounted to 232 million marking a 5.6% year-over-year increase. Out of this amount ethanol sales were 186 million, 71.7% higher compared to the previous year partially offsetting the 71.1% reduction in sugar sales. CBios sales reached 7.1 million during the first six month of the year, whereas energy sales were 11.2 million marking a 24.6% year-over-year reduction. Despite the late start of harvesting activities and thus the lower production, our commercial strategy to carry over stocks from 2021 enabled us to benefit from the constructive price scenario, in particular, to capture the hike in ethanol prices, both domestically and in export markets. Finally, to conclude with the sugar, ethanol and energy business, please turn to Slide 10 where I would like to discuss the financial performance. Adjusted EBITDA during the second quarter was 104 million, 41.8% higher year-over-year. These solid results were mainly driven by the aforementioned increase in sales, a 10 million year-over-year gain in the mark-to-market of our unharvested cane led by higher expected sales and prices coupled with an increase in Consecana prices, which resulted in again in the mark-to-market of our harvested cane. And a 9 million year-over-year gain in the mark-to-market of our commodity hedge position, driven by decreasing prices. Results were partially offset by an increasing costs mostly fertilizers, fuels, lubricants in addition to the slight reduction in volume. These same drivers explain the 22.7% year-over-year increase in adjusted EBITDA during the first semester, which amounted to 162 million. In terms of breakdown, during the first half of the year ethanol accounted for 81.5% of total adjusted EBITDA generation in the sugar, ethanol and energy business, considering other operating income, while sugar accounted for 14.5%. To conclude with this section, I would like to briefly comment on the outlook of our sugar ethanol and energy business for the second semester. One year-ago, when our sugar gain plantations was hit by original frost, we communicated to the market what we believed would be the potential implications for our business. In-line with our expectations and as explained above, we entered into an harvest period from December 2021 to mid-March 2022, to allow our sugar to continue to recover from the impact of frost. In terms of productivity, yields were impacted during the first semester as expected, but presented a gradual recovery between the first and second quarter. We expect it will return to normal levels towards the second half of the year, as there will no longer be sugarcane impact it by the frost. Lastly, we are now accelerating our crushing pace to make up for the slow start of the year. That being said, our operational focus for the year was designed it with these events in mind and seeing as our view has so far materialized, our focus for the full-year remains and change. I would now like to move on the farming business, this direct your attention to Slide 12. As of the end of July 2022, we have 271,000 hectares or 93% of total area and produce over 1 million tons of aggregate grains. The remaining hectares are expected to be fully harvested in August. Regarding our rice business, this quarter, we included 12,000 hectares related to our recent acquisition of Viterra rice operations, which had an average yield of 7.3 times per hectares and marginally increased this campaign average yield from 6.8 to 6.9 times per hectares. As anticipated, being geographically diversified enabled us as to mitigate where risk. Let’s move to Page 13, where would like to walk you through the financial performance of our Farming & Land Transformation Businesses. Adjusted EBITDA in the Farming & Land Transformation Businesses amounted for 20 million for the second quarter, 38.4% below the same period of last year. The decline is fully explained by a lower contribution from our crops and rice businesses into the overall results. Year-to-date, adjusted a BDITDA was 56 million 37.3% lower than the previous year due to the aforementioned lower contribution, which full-year offset the improved the performance in our daily business. Higher costs driven by a global inflation environment, coupled with a mixed performance of yields and prices are the main reasons towards the decrease. As known, inflation in the United States amounted to 8.5 for the last 12-months whereas in Europe it reached 8.9%. This cost a pressure on margins across industries and geographies. In our crop businesses, adjusted the BBITDA amounted to six million in the second quarter, marking a 63.4% reduction compared to the same period of last year. Results were mainly impacted by higher costs in U.S. dollar terms, mostly seen in agricultural input costs such as fertilizers and diesel, as well as logistics costs. Moreover, we reported a year-over-year loss of six million in the mark-to-market of our forward contracts due to higher commodity prices. Nevertheless, results were partially offset by a 66.9% increase in gross sales coupled with a year-over-year gain of five million in the mark-to-market of our biological assets on higher harvested area and better prices. Year-to-date adjusted EBITDA was 24 million, 28.5% lower versus the previous year. It was mostly explained by higher cost in U.S. dollar terms driven by global inflation are mixed performance in terms of yields with peanut and corn second crop presenting our 4% and 11% reduction respectively, coupled with our 12 million loss in the mark-to-market of our forward contracts. Adjusted EBITDA in our rise business was five million during the quarter and 13 million in the first semester, marking up 49.4% and 65.4% year-over-year reduction respectively. Results were mainly impacted by lower yield and the 9% decline in prices at the moment of harvest. Thus, this resulted in a year-over-year loss in the mark-to-market of our biological asset and in the net realizable value of our agriculture produce of the harvest of 30 million in the second quarter and of 20 million in the first six months of the year. Regarding years, the decrease was caused by the impact of an area in some of our rice farms, we are confident that the acquisition of Viterra rice operations will contribute to mitigate weather risk and increase our geographic diversification in the region. Moreover, EBITDA generation was also negatively impacted by higher cost in U.S. dollar terms, which pressured margins. Moving on to the dairy business, adjusted EBITDA amounted to seven million during the second quarter, flattish compared to the previous year whereas during the first half it amounted to 14 million marking a year-over-year increase of 17.6%. In both cases, results were explained by an increase in both volume and average prices and our continuous focus on achieving efficiencies in our vertical integrated operations. Again, results were partially offset by higher cost in U.S. dollar terms driven by the global inflation environment. In the case of Land Transformation, although no farm sales were conducted, the positive results reflected the mart-to-market of an account receivable corresponding to latest sale of farms in Brazil, which tracks the evolution of soybean prices. Let’s now turn to Page 15, which shows the evolution of Adecoagro’s consolidated operation and financial performance. On a year-to-date basis gross sales expanded 27.7% year-over-year to 588 million, where as adjusted EBITDA amounted to 205 million marking at 2.7% decline compared to the same period of last year. In terms of production, we expect crushing volume to end in line with last year, as we are accelerating a crushing pace. However, it is worth to highlight that despite lower year-to-date crushing, we are able to capture high prices. Thanks to our commercial strategy. To conclude, please turn to Slide 16, to take a look at our net debt position. As of June 30th of 2022 net data amounted to 830 million, a 5.3% higher compared to the previous quarter. This was fully explained by a 9.4% increase in gross debt partially offset by a 31.8% increase in our cash position. As a reminder cash generation is concentrating second semester of the year. Whereas the first has the highest working capital requirements, as our crops are planted and harvested. Thus, we expect to reduce our indebtedness as we finish with harvesting activities and start collecting sales throughout the next quarter. On a year-over-year basis net debt increased by 11.5%. This was mainly driven by the impact of adverse weather conditions in Brazil resulting in a year-over-year reduction of 3.5 million tons in our crushing volume and negatively impacting our last 12-month results coupled with higher working capital up, mostly on account of higher input costs. We believe that our balance sheet is in a healthy position, not only based on the overall debt levels, but also on the term of our indebtedness most of which is long term. Our net debt ratio was 1.9 times in this quarter that is versus the previous quarter. At the same time, our liquidity ratio reached 1.3 times. This clearly shows the full capacity of the company to repay shorten debt with cash balance with operating external capital. Thank you very much for your time. We are now open to questions.

Thank you. [Operator Instructions] Our first question is from Isabella Simona with Bank of America. Please go ahead.

Good morning, everyone. Guilherme from Bank of America. Two questions from our side in terms of the sugar and ethanol business. First congratulations on the commercial execution in this first half. But looking for if you could just share your thoughts in terms of the mix that you expect to crush in terms of ethanol and sugar and just in terms of the commercial strategy, when you look in terms of hedges for this season and the next one, what is your strategy there? We saw marginal improvement in terms of the volumes hedged off sugar and if you could share your thoughts going forward, please. Thank you.

Hi, Guilherme thank you very much for your question. We also have in the website, another question from Eduardo Monez related to the same point, and the question is related to the tax reduction in Brazil, what are the impacts to your strategy for the rest of 2022 and is hydro production preferable are hydro prices sustainable. How do you see the trend for the ethanol exports and better sugarcane production for second half? And this price dropping can expect strong EBITDA growth margin expansion on the year-on-year. So I think, your question plus, this question in the website will be answered by Renato that can give more color on this. Renato.

Okay. Thank you for the question. So we start with sugar will remain very positive with the sugar outlook. We think that the drop of price a couple of weeks ago was a technical movement, nothing related to the fundamentals of the sugar. Actually, we are positive with the SMB scenario. If you take the supply side of the equation, we think that the centers of TRS production is going to be in line with last year, a little bit more crushing and a little bit less TRS per ton. The mix, I think we think the mix is going to be increase a little bit towards sugar approximately 1% which represent approximately one million tons of sugar is not a big change because the news were already maximizing sugar before the tax change. And also because in the third quarter is more difficult to have flexibility to produce to have more flexibility because the TRS counting is very high. The sugarcane is rich and meals are trying to crush as much as possible. Also the European crop is having some issues. So we expect a lower crop from Europe. So I think there are a lot of points in the supply side, going to the demand side the lower price increase the demand for sugar from the destination. We think that a good indication of debt is a strong cash premium and a strong line. And here just a point regarding Adecoagro, since we have not had our total position, we have hedge now 63% of our 2022 production at $19.58 per pound. We are being able to capture the spot market premium, approximately 2% this cash premium that I was just mentioned. Also that the market is predicting a adapt sugar death in the Q3 and Q4, which maybe is more positive for price. And I think, the last point on sugar, the current price of sugar is below the Indian pirate. And the market needs the Indian sugar. So we believe that the sugar has to increase close to 19, or even a bit higher to attract India sugar. So, at those levels, we might increase our hedging position. Regarding the ethanol auto outlook strategy, we are also positive with independent from the tax change, which clearly puts some pressure in the hydro ethanol. We are positive with the SMD scenario. The PS production is the same thing. As I said to sugar, the TRS in the centers of Brazil will be similar to last year. The fact that the meals are maximizing sugar in increasing one million tons of sugar will put more pressure in the hydrous market. The exports that have been increasing a lot. I think the exports are more than 80% higher than the same period of last year. So it is consuming more ethanol. We can see that demand is also recovering. Munich reported some numbers now. And we can see that the demand is recovering. The pirate rate at the pumps is close to 7%, which would incentivize the consumption. And I think most important our strategy was carry out at our hydrous production. We have a lot of flexibility in our tanks because as was mentioned, we sold our production in April at a very high levels more than $0.26 per pounds. So we have a lot of tanks through store hydrous right now, and that is exactly what we are doing. We are maximizing the hydrous. We can produce almost 7% of an hydrous ethanol of the total production in our meals. And we can also dehydrate the hydro that we have in the tanks, because we have a lot of biogas to produce energy to dehydrate. So eventually we can produce even more hydrous, dehydrating the hydrous that we have in the tanks. And we are delivering our anhydrous contracts, hydro contracts has approximately between 15% and 20% premium over hydrous. So we are delivering our contracts today at the price of 0.21 per pound. Also, we are taking advantage of the international market to export. We have already exported 8,000 cubic meters, and we think that we can export some extra 20,000 cubic meters, reaching a 100,000 cubic meters in total. This exports have a premium over 15% over an hydrous in the internal market. Here, I think it is important to, to highlight. That is not all the use can do those exports. You need to have the electrification. As Mariano mentioned, the beginning of the call, we have the bone super certification, and we have peneira molecular, which is the equipment to produce that we can reach 99.7degrees of alcoholic lab, which is required by the European market. So I think depend on the scenario, we might dehydrate more, but this is still that is the main -- at least for now. And regarding the sugarcane that I think Mariano asking the second part of the question. As we have been discussing, the first semester we were having lower yields than we expected due to the frost of last year. And also because of our strategy to prioritize the harvest in the beginning of the year of the cane, we fill lower potential growth. So basically, we crushed only replanting areas. Now that, we are moving to the second semester. We can see that the yield are recovering very fast. Actually the sugarcane fields are looking very good. As it was mentioned in July, we have a - crushing monthly crushing in our Mato Grosso do Sul we crush almost 1.6 million tons of sugarcane in a month. Also, I think it is important to mention that early this week, we had 55 millimeters rain in our cluster in Mato Grosso do Sul which was fantastic for the sugarcane outlook, supporting the improvement towards the end of the year and into next year. So as the season advance we expect to catch up the crushing gap, finishing the year with crushing similar or slightly higher last year. And by doing this our costs will be diluted. So we expect that the total costs this year will be 10% to 15% higher than last year. So something close to the inflation. So I think that were the questions, right Mariano?

Thank you, Renato.

Thank you. The next question is from Lucas Federa with JPMorgan. Please go ahead.

Okay. Thank you. So I have two questions. The first one may also to Renato about the quality of the sugarcane and the damage that was caused by the last year event. So my question is Renato, if we have like a normal rain season during the summer, so how will be the quality of your sugarcane next year for the next season so how fast can crushing recover if you have no weather issues during the summer? And the second question to Mariana and Charlie. So if you can talk about the outlook for the following season in the farming and rice businesses regarding your expectations on weather and also costs. So if you can comment on how that especially the fertilizer line impacted you this season and how regarding considering your purchases, how should we think about this fertilizer line going forward? Thank you.

Thank you Lucas for your question. And Renato, do you want to comment on -.

Hi Lucas, as I was mentioning, the sugarcane is looking very good. All the sugarcane that we are harvesting now, they are regrowing. And this [indiscernible] crop that we call is looking very, very good. The fact that the year that we didn’t have much rains in key periods were very good because we didn’t have damage during the harvesters operation. So we are very optimist about the sugarcane for next year. We didn’t have any frost this year. So we have basically finished the wind that we have frost in businesses. So no frost this year. So we are very optimistic about next year. So we expect to increase our crushing in at least 10% compared to this year. I think next year is going to be a transition year because we are recovering from a lot of weather bad events. So is a year of recovery and probably we will reach our full capacity, get very close to our full capacity, not next year, but in the following months.

Very clear Renato. Thank you. Lucas, regarding the outlook for the following season, we are very well positioned today in rice and crops for next season. We are starting the planting season, the amount of water we have already in the reservoirs for the rice operations are very good and enough to have a very an excellent season. And regarding the crops, all the fields are ready to start the plantation. We have all the necessary inputs we have acquired more and that is why you see more inputs and more working capital for this season in order to be well prepared for the planting season, where that is what will be reflected in 2023 numbers. So just to give you a little bit more color, the campaigns are shown in the following year. So the campaign 2021 is what we reflected in the numbers of 2021 - on the 2021 year, that for rice and crops was an excellent year. That excellent year of 2021 has to do with very low cost at the planting time and all the price increase in 2021. So that was an exceptional year 2021, when we analyze all the history of our research in crops and rice. Then when we go to the following year that is the current year, we are having not good results, not that good result because we have a small increase in prices, 10% to 15% increase in prices and almost a 40% increase in the price of mainly freight, fertilizers and chemicals. So all that, increasing prices is being reflected in the current campaign that we just finished that is reflected in this current year 2022. So for next year 2023, that is what we are starting to plant. Right now is where we think we are much more optimistic because the pricing list has already occurred. And we are still bullish in the price of the commodities that we will have to - we will be harvesting. And here, I would like to make a special point in our perspective for rice production. Rice is something we are feeling we are seeing very well demanded today, all this general drought and excess of hot and there is a lack of water all over the Northern hemisphere, including the U.S. and Europe. And we see lot of demand from Central America that was used to be supplied from the U.S. and now we are opening that supply, even in reducing some of the export quota - the import quotas that they have or the import limits that they have in the Central America. And also in Europe, we have sold this year 35% of all our production to Europe, something that has never happened. And we see that demand increasing because Europe has this problem, this climatic problem, I have just mentioned. And when they look for rice, they cannot supply their needs from Asia. That is the cheaper price. And they need to come here to South America. So the demand from South America is being hired because they have the necessary quality that they need, the traceability, the security that they need when they are sourcing for this product. That is why I wanted to make this special point in rice, where today for us that we have improved a lot in the logistics, our port and having Uruguay. We are becoming a main supplier from South America, including rice, from Uruguay and Argentina. So we position ourselves in the commercial discussions as the, probably the main supplier from South America to those solids.

Perfect. Just one quick clarification. So the fertilizers you are going to be using in the 2023 crop season with the one you are starting to plan now. So how much that increased over 2022, just so we have an idea?

The main impact is 2022. The impact we increased, so the numbers we are reflecting today increased 40%. Now from that 40% to today is almost flat.

Okay perfect. That is what I wanted. Thank you very much.

Yes.

[Operator Instructions] The next question is from Henrique Brustolin with BTG. Please go ahead.

Hi, good morning everybody. One question on my side, on the sugar and ethanol business as well. I just wanted to hear from you when we look forward, how much -- how do you see the current environment to continue expanding the sugarcane fields you have in your current cluster? And when you think about your installed capacity to fill that up, how much do you believe improved yields should help that and how much should come from a bigger area expansion? So that is my question on the sugar and ethanol side.

Okay. Thank you very much. And for your question, Renato, do you want to comment, and then I can compliment.

Yes. Thank you for the question. Our current area of sugarcane is almost enough to supply our industrial capacity. Our industrial capacity in the cluster in Mato Grosso do Sul is around 12.5 million tons. And in [Montreal] (Ph) 1.2 and we have an are almost enough to supply all the cane that we need. But of course we depend on the use that we are discussing. So if you have a yield between 85 and 90 tons per hectare, we are fine, but we are still planting new areas. Because, we think that we always can crush a little bit more than that in the industry. We always can remove some bottlenecks and crush a little bit more, and we have a lot of farms in our cluster in Mato Grosso do Sul that are very strategic, very close to our mills so we can reduce the average distance of our sugarcane fields. So take into consideration, as I said before, next year is a transition year. So we should be crushing in Mato Grosso do Sul close to 11 million tons of sugar cane. I would say one million tons more than this year, and probably reach something between 12 and 12.5 on the following year. And Mariano, if you want to compliment.

Yes. Clear the 20.5 is only in Mato Grosso do Sul. So in the 1.2 of - reach the 13.7 that we always talk as a total amount that we will be crashing, just that clarification. And on top of that, I would add to your question that you have seen all over Brazil, sugarcane area being reduced, and in this specific area of Mato Grosso do Sul because of the particular competitive advantage of the sugarcane over the soy and corn it has been a different case. So we have been continuing to increase our sugarcane area comparing to these areas, because it is more competitive because of this combination we always talk about the soy and climate and what is more profitable to do in that specific areas. That is why we are so optimistic to complete our crushing capacity. And on top of that, as Renato was saying we can go even further when we think in the long term project of the organic growth of this area that can continue to improve.

That is very clear. Thanks very much.

This concludes the question and answer session, at this time I would like to turn the floor back to Mr. Bosch for any closing remarks.

Thank you everyone for participating in the call and hope to see you in our next events.

Thank you. This concludes today’s presentation. You may disconnect your line at this time and have a nice day.