My name is André Vasconcellos, Financial Planning and Investor Relations Manager. Joining me today are our CEO, Aurélio Pavinato, and our CFO and IRO, Ivo Brum. 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. For those who require simultaneous translation, we have this feature available on Zoom through the interpretation icon located at the bottom center of your screen. After selecting it, please choose your preferred language, Portuguese or English. Participants listening in English may also mute the original Portuguese audio by selecting Mute Original Audio. For the Q&A session, we kindly ask that your questions be submitted through the Q&A icon at the bottom of your screen.
As usual, your names will be announced so that you can ask your questions live. At that moment, a request to activate your microphone and camera will appear on your screen. If you prefer not to speak live or turn on your camera, please write "No microphone," and I will read your question aloud. 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 Agrícola 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 Agrícola and may cause actual results to differ materially from those expressed in such forward-looking statements. I would like to turn the call over to our CEO, Aurélio Pavinato, so that we can begin the presentation. Pavinato, please go ahead.
Thank you, André. Good morning, everyone. Welcome to SLC Agrícola's first Q 2026 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 four, where we will discuss the cotton market. The beginning of 2026 was marked by 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 cotton's main 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 2025/2026 crop season points to a surplus of 2.5 million bales. For the 2026/2027 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. Let's turn to slide five 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 U.S. and Iran and of course, to the resulting increase in oil and energy prices. Against a 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. Slide six. In addition to prices, we'll discuss the global soybean outlook.
For the 2025/2026 crop season, the USDA projects a positive global soybean supply and demand balance of only 1 million tons. Brazil, once again, consolidated its position as the world's largest producer, leading global exports. According to the USDA, the outlook for the 2026/2027 crop season points to a positive balance of only 0.8 million tons, despite a 4% increase in planted acreage in the U.S. 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. Let's please advance to slide seven to discuss corn. Prices stabilized in February and recovered slightly in March, sustained by a strong demand for export and initial weather-related concerns. However, since expectations for the global supply for the 2025/2026 crop season remained comfortable, there was no significant price appreciation. The global corn outlook for 2025/2026 indicates record production, resulting in a modest supply surplus. The USDA projects production with a positive balance of 19.9 million tons. For the 2026/2027 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 their lowest levels in more than one decade. The decline in global production is particularly significant in the United States and Argentina.
In the United States, production declined by 6%, 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 2026/2027, 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 level since 2013/ 2014. 2013/2014, potentially leading to higher prices. Now, let's please proceed to slide nine to discuss the status on the 2025/2026 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 sown 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 eight years, soybean yield increased by 11%, going up from 62 bags per hectare in the 2018/2019 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 kg per hectare, representing, in comparison to the previous crop season, an increase of 4.7%. Soybean planted area also increased by 12.5% versus the 2024/2025 crop season. 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 $11.20 per bushel. In cotton, we hedged 84.6% of expected production at an average price of $0.7388 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 total of the quarter at BRL 2.3 billion, down 2.7%, reflecting lower sales volumes of cotton, soybeans and cottonseed. 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, on the investment front, the quarter was marked by the final payments related to the acquisition of Fazenda Paladino in Bahia, totaling BRL 361.5 million, and the farm located in Unaí, Minas Gerais, totaling 95 million BRL.
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 private 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 Fazenda Paladino's and Unaí 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 2026. Continuing the presentation, I will now turn the call back to Pavinato to discuss the outlook for the 2026/2027 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 2025/2026 crop season.
For nitrogen, no nitrogen purchases have been made yet due to the recent impact of the conflict involving U.S., 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 2026/ 2027 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 2026/ 2027 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 $11.20 per bushel and 33.5% of cotton production hedged at an average price of $0.7388 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 area certified under regenerative agriculture by the Regenagri program, representing growth of 79% with 325,000 hectares. As a result, we maintained our position as the largest certified area in the Americas. We also obtained animal welfare certification for our feedlot operations granted by FairFood for the Pantanal and Planalto farms. For the fourth consecutive year, SLC Agrícola'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 one-time recognition, the company's recurring presence in the index demonstrates consistency in governance practices, risk management and environmental efficiency, aspects that are increasingly incorporated into capital allocation decisions.
Let us 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 point 179 to point 123 of CO2 per ton in 2025. Finally, let us move to slide 23 to discuss the carbon removal potential of our farms. It's important to mention that 4 farms recorded a negative carbon balance in the 2024, 2025 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.
We will now begin the Q&A session. As a reminder, questions should be submitted through the Q&A icon located at the bottom of your screen. As usual, your names will be announced so that you can ask questions live. At this moment, a request to activate your microphone and camera will appear on your screen. If you prefer not to activate your microphone or camera live, please write, "No microphone, no camera," and I will read it aloud. Our first question comes from Julia Zaniolo, Bank of America. Julia, could you please activate your microphone and camera?
Good morning. Good morning, Pavinato, Ivo, André. I have two questions. Firstly, about El Niño.
Well, since the last call, you know, we saw that expectations about the intensity of El Niño have grown. In years where El Niño 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, 2026, 2027, thinking there is still a lot of uncertainty around nitrogen. My second question is about fertilizers, focusing on nitrogen again. Well, the war is not over. It's already May. I think that the risk of product availability and higher prices is still growing. I understand that you can wait for a better purchasing window. You have all the way through January. 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? 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 Niño. We are analyzing the potential effects of El Niño in our production. We know that with El Niño, there are 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's less rainfall with El Niño and a loss of yield. In other years, this is not the case. Our strategy is to analyze the conditions of each farm and of each crop, and to try to mitigate risks.
We'll also make adjustments to the fertilizer package, trying to save for this year. If it doesn't, you know, rain this year, we'll obtain cost reduction. We're being very cautious in analyzing the details of each farm. I think that in a year like this where we're expecting lower rainfall, risk mitigation is especially important because it reflects in, you know, 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, you know, some people are intensifying production. For example, in the U.S., natural gas is still cheap. Naturally, with higher nitrogen prices, you know, 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, you know, has been purchased from large companies. What we haven't bought yet, which is nitrogen, the expectation is that there will be enough supply. The price for urea and ammonium 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. Whenever the conflict slows down, urea is quickly adjusted in prices with a downward adjustment. 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 lower, at a lower level. I think that phosphorus, however, is the most concerning topic internationally.
Phosphorus suffers not only from the effects of the conflict, but also there is a competition for the production of batteries in China. There is a change in the overall phosphorus pricing, which is of course, you know, intensified by the conflict. The price adjustment in phosphorus will probably, you know, see a lengthier period of higher prices. Also in our planning, we are doing the analysis, should I plant more soybeans or, you know, or corn or cotton? 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.
In the current crops, they represented 79% of our fertilizer package, 31% representing nitrogen. You know, 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. This is also being offset by commodity prices.
Thank you very much. Thank you for your answer.
Thank you, Julia. Our next question is from Matheus Enfeldt, UBS. Matheus? Could you please activate your camera and microphone?
Hello, Pavinato and Ivo. Thank you for your time. 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, you know, a good rate for the year?
Should we consider that the company will close the year with a CapEx of 1.1 billion BRL? 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 2026/2027 crop year in comparison to the 2025/2026 crop year. When we look at the yields, we see that the climate conditions in both years were very favorable for Brazil. It seems to me that yield is perhaps a little above the trend line in the past two years. Maybe a drop in 2026/2027, even in a normal climate scenario. While this could probably represent 3%-5%, a drop of 3%-5%.
When we do a recap of the favorable conditions for the crop year, 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 Enfeldt, 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're using with wells and reservoirs. 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. Probably for the next crop year we'll have an additional 6,000 hectares under irrigation. I think it's easy to do the math based on what we invest. We also purchased the Ceres operations.
There's also a modernization of the fleet in Ceres and of our current structure. 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 droughts. When we consider the potential of our crops, you know, it's a potential for more than 70 bags per hectare. This year we posted 69.1% bags per hectare. In spite of this, you know, we could have gone further.
In Mato Grosso, we saw excess rain at the end of the harvest. This was not in our favor. When we look at the different varieties and the data that's coming in, we get the vision that we'll continue to expand our productivity in coming years regardless of weather conditions. El Niño years, for example, are years of greater caution because it usually rains less than usual. We'll take all measures possible to mitigate this risk. Maybe, if we lose 3%- 5% of our average yield, how much can we save, you know, initially to offset this loss of productivity? The fact that, you know, 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.
For next year of course we are going to make projections based on our trend line. It's going to be a little less than 69. But considering our potential, it will be more than 70 in the case of soybeans. 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 harvest. If it doesn't rain more, we'll see probably a slight crop failure. 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. If we plant in February, we'll see an expansion of yield for corn.
We are investing more in corn because, you know, price considerations, and we are expecting to increase our productivity in corn. Similarly with cotton. Cotton has extraordinary potential. We have, you know, some farms, with some outstanding yields in Brazil. We're making the fine adjustments to increase our potential even further. About El Niño, we are much better prepared than we were in 2016. At the 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 Niño, which is Bahia. We are much better prepared to face El Niño. Of course, this is a point of concern for us. Of course, we want to go through the El Niño without experiencing any losses.
Thank you very much.
Thank you, Matheus. Our next question is from Mr. Lucas Ferreira, JPMorgan. Lucas, could you please activate your camera and microphone?
Thank you. Thank you very much. Firstly, Pavinato, what is the trigger for soybeans that is still missing? I know that, you know, 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 Niño on the radar, which could lead to, you know, more demand. What do you think is missing to make the soybean prices go up? Are you waiting for next year to accelerate your hedging for cotton? How are you positioned? 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. My question, especially if you have leased land, we see tighter margins, and this is difficult. The leases have gone up in the past 5-10 years. Do you see the potential for reducing your share of leases? You know, yield at three years, it doesn't sound so good. There's no reversal in sight. It's just like that tug-of-war that you always mention, 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?
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, an upwards adjustment, and soybeans went from $10- $12, and corn from $4- $4.6, $4.8, and cotton from $0.65- $0.68 per pound. Why didn't soybeans go even higher? Because, you know, the world is planting more soybeans and corn because of the high prices of urea. That's why the stock-to-yield ratio was not even further compressed. This is what I said in the last call. With prices under pressure, when you look at soybeans, inventories are still high in the world. We have 29% of carryover stocks. In the next cycle, 2026, 2027, this is expected to decline to 2028 in a scenario where demand is growing consistently.
You know, stocks for soybeans are still high. In corn, the average is 27% historically. In this scenario where, you know, we'll see stocks going down to 21%, the lowest level in history. At the same time, wheat is down. You know, the 19% of wheat is used in meals, in feed, in fact. We're seeing, you know, a scarcity of grain in the world. This is my understanding of this scenario, and this will put pressure on prices. 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. 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. This is, you know, the overall picture for grains. Now, soybeans, of course, it follows the grain. If there is less wheat, less corn, you know, it will follow, in fact. When we look at production costs for the next crop season, it will put even more pressure on the Farmers margins. Even considering, you know, the price per bushel, margins will be even tighter than they are now in 2026 for Brazilian farmers. Is Brazil going to expand acreage in 2026 or 2027 with those tighter margins?
If Brazil does not expand, who is going to meet the growing demand? This is the scenario for commodities, Lucas. You are right. There is an upward price adjustment going on. 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. 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, on the supply. You know, the world has realized, well, polyester is cheap, but it's not going to be cheap forever. Having cotton as an alternative is very, very interesting for the world. When we think of, you know, 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. 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 2026, 2027. 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 tracked 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. Thank you.
Thank you very much.
Thank you, Lucas. Our next question is from Pedro Gama, Citibank. Pedro, could you please activate your camera?
Hello, Pavinato, Ivo. Good morning. Two additional points about fertilizers and costs. Late last year, the company announced production costs that were higher because of the replenishment of nutrients. 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. What about the volume that's being applied? 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.
What do you see, for example, in relation to this currency exchange downward trend, especially considering, you know, prices in dollars and in BRL for hectares, for your hectares?
Well, about fertilizer prices, of course, we're going to use a smaller dose of fertilizer. 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, you know, a matter of efficiency. In the specific case of nitrogen, as you know, there is no stock in the soils, or there's a lower stock in the soil for N. There is, you know, inventory in the soil, but at a lower level. 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 used 3% less nitrogen that year. That was the world's decision because of high prices. There will be a small adjustment. As for phosphorus and potassium, we purchased phosphorus at a lower price than last year. We won't be reducing. We'll just make very small adjustments in phosphorus. There will be a bigger adjustment in potassium. We'll make the final adjustments, and if we need, I will buy a little more. As for our dollar prices, I think that the, you know, 57%, 58% of our prices were in dollars, right? Fertilizer, seeds, diesel, part of it is in dollars and with seeds.
You know, that was the percentage of our production costs that are pegged to the dollar, right? We have the freight to port. You know, there is a correlation when the dollar rate goes up. Usually, it's denominated in BRL. When we analyze the impact of the currency, the BRL is appreciating, our cost in dollars are increasing. For the freight cost, this will increase our cost in dollars and also workforce. The currency, the currency appreciation of the BRL is not favorable to us. Fertilizers, phosphorus and potassium, 3%-4% increase, as I said. Crop protection, we have already purchased, you know, at a price that was 5%-6% lower than last year. What's still open is nitrogen.
How much more expensive will it be? This will have a direct impact in our input cost. In BRL, of course, there will be, you know, an increase in cost because of the currency. Usually when it's an election year, there's more volatility in the currency exchange. We have to wait and see, especially now in this scenario where Brazil is attractive for investors. This seems to be, you know, Brazil seems to be seen as a reliable alternative for investment. You know, we're still waiting for more data to analyze this. Our interpretation is that the, you know, the increased prices will offset the increased cost. 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. Thank you.
Thank you, Pedro. Our next question is from Mrs. Laura Hirata, Santander. Laura, please activate your camera and microphone.
Good morning. Thank you very much. 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 2026/ 2027 crop season? Especially considering regions that are more distant, could we see, you know, crops like cotton being favored? Considering of course, you know, that cotton is lighter than soybean. How does this affect your decisions? When we look at our three crops, what is the, you know, the most expensive freight? It's corn, right?
The cost to ship to port is the same. You know, it's BRL 500 from Mato Grosso, BRL 500 per ton. With corn, the price per ton is half of the price of soybeans.
It represents the double on the revenue on the port. With corn is, you know, where we see freight being more expensive or, you know, 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%-20% of the revenue. That's the cost of the freight to the port. Cotton, you know, is, you know, there, freight represents 7%-8%, you know, 10% at the most. 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 calculation between corn and cotton.
Of course, you know, cotton does not really get the impact as much as corn. You know, you have to look at the overall conditions. I wouldn't say that this is the determinant factor, I mean, freight.
Thank you. Very clear, Pavinato.
Thank you, Laura. Let's continue now with the next question from Mr. Leonardo Alencar, XP. Leonardo, could you please activate your camera?
Hello, good morning. Pavinato, you were talking about cotton. I would just like to explore two points. There is a correlation, you know, 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 BRL 80 for a longer period? What about your hedging position? Are there any constraints, for example, in liquidity? Was it, you know, just the currency volatility that limited you expanding your hedging? Now a second question to Ivo. You were talking about the future scenario with pressure on prices offset by commodity, but 2027 is going to be a challenging year. There's also the impact of El Niño to be factored in.
Do you think that there is a level of leverage that could lead you to, you know, 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. The driver was polyester. It went up to 57%. Definitely, there is a competition between polyester and cotton. That was the key driver. Additionally, there was a reduction in cotton production. The Texas is just dry. It's, you know, the driest ever in history. Maybe it will not even meet the projections. You know, India, China and other cotton farming regions are adjusting their production estimates down. $0.68 per ton does not, you know, really break even for those farmers.
They are planting because they get subsidies. Here the production cost is $0.86 per ton. The only reason why they plant is that they have, you know, some security. That's why Brazil continued to expand. This year Brazil did not expand its acreage. It actually reduced it a little bit. The cotton scenario, well, with the end of the war, polyester will probably see a rebound in prices. This is really about supply and demand. It's not gonna be a competition with polyester. We believe that, you know, prices will be higher, but $0.67, $0.68, which is the current price for the new crop season, is the price that we deem to be reasonable.
That's why we are moving on with the sales to secure this position, especially in this scenario where we're paying for fertilizer at the current price level. If we believe, you know, nitrogen will drop, our margins will be even better. Ivo Brum, would you like to comment on leverage?
Leonardo, we decided to make the investments in March last year. You know, with the purchase of Fazenda Paladino, Unai, and even Ceres. With this, our planted area increased by 100,000 hectares. We needed, you know, higher working capital. 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. Also, soybean productivity increased.
It was in the works that we would have negative cash generation because we had to pay off the investments. You know, we'll have positive cash generation in 2027. There could be a margin reduction for 2027, the margins are better than budget because the prices are better. You know, there's a tendency to recover our cash generation later this year. We want to be below 2x in the, you know, net debt to EBITDA ratio. Even with tighter margins, we are really stepping up our hedging to maintain this correlation between imports and commodities. Everything is moving according to plan. 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, you know, according to plan, and next year will be a cash generation year for sure.
Can we continue, André?
Yes, let's continue. Our next question is from Giovanni D'Ottaviano, Bradesco BBI. Giovanni? We're looking forward to your question.
Good morning. Good morning. Thank you very much. I have two 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? About the supply of seeds to Brazil in a comparison with this year and last year. 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 brachiaria and sorghum seed sales. About prices, our seed prices. Last year, there was a lot of pressure in prices. There was an oversupply of seeds. This year, it was not that favorable for seed production, so the market doesn't have as much pressure. We believe that prices will be maintained, even maybe recovered this year. Corn. Well, the future market is usually ethanol. We like to sell corn ahead of time.
They are the big buyers, you know, the big buyers in futures. Before, you know, it was sold to exports, and now ethanol has become more competitive. Especially when there is some uncertainty around freight prices. The volume of corn for ethanol could reach 27 million tons. Very expressive. Of course, this is a very relevant demand level.
Thank you. Very clear.
T hank you, Giovanni. Okay. Now our conference call for the first quarter of 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.