Good morning, everyone, and welcome to the second quarter 2023 earnings release conference call of SLC Agrícola. My name is Rodrigo Gelain. I am the Financial and Investor Relations Manager. Here by my side are our CEO, Aurélio Pavinato, and our CFO and IRO, Ivo Brum. It's a privilege to be with you this morning. Please be aware that the conference call is being recorded and will be made available on the company's IR website, where you can also find today's presentation. For those who wish to listen to the simultaneous translation, we have this tool available. In Zoom, look for the globe icon labeled as Interpretation, located at the bottom of the screen. Upon selecting it, choose your preferred language, Portuguese or English. For those listening to the conference in English, there is an option to mute the original Portuguese audio by clicking Mute Original Audio.
Regarding the Q&A session, we encourage you to send your questions through the Q&A icon at the bottom of your screen. According to the usual procedure, your names will be announced for you to ask your questions live. At that moment, a request to activate your microphone and camera will appear on the screen. If you prefer not to open your microphone and camera live, kindly write "No Microphone" at the end of your question and I will read it aloud. We emphasize that the information in this presentation and any statements made during the video conference regarding SLC Agrícola's business outlook projections and operating and financial goals represent the beliefs and assumptions of the company's management, as well as currently available information. Future considerations are not performance guarantees.
They involve risks, uncertainties, and assumptions as they pertain 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 operational factors can affect SLC Agrícola's future performance and may lead to results that materially differ from those expressed in such future considerations. We inform that as of today, we have reissued the release adjusting the cotton price for the 2022/2023 crop year from $88-$ 91.13 per pound weight, in addition to the hedged percentage at 64.5% in the hedge table. Now, I would like to turn the floor over to our CEO, Aurélio Pavinato, to begin our presentation. Pavinato, you may proceed.
Thank you very much, Gelain. Good morning. We appreciate everyone's participation in the second quarter 2023 earnings conference call for SLC Agrícola. Please, let's move to slide four, where we discuss the cotton market scenario. According to projections in the latest USDA report, there is a good balance between global supply and demand in the current cycle. However, the market could see potential reductions in the output of major producing countries, which could create a gap between supply and demand and put upward pressure on prices. Xinjiang, the main cotton-growing region in China, experienced unfavorable weather conditions for crop development in July, putting current production estimates at risk. According to the USDA report, 41% of the U.S. cotton crop was rated as good and excellent, a 5% point decrease from the previous report.
The current market expectations point to a reduction in the current cotton crop in West Texas. The portion of cotton area in drought reached 20%. Planting in India is on par with the previous year, with rainfall concentrated in the central cotton-growing areas. However, an early end to the monsoon season could impact production. In summary, the price scenario for cotton fiber is expected to be volatile, influenced by climate factors in major producing countries, which may present good opportunities for higher prices. Moving on to slide five, let's talk about soybean. Soybean prices in CBOT spot contracts and prices paid for the oilseed in the Paranaguá CEPEA market have been recovering in the second quarter of 2023. This trend was influenced by a 4.6% reduction in the planted area in the U.S., which primarily shifted to corn, with productivity for the 2023/2024 crop maintained.
Additionally, drought in the Corn Belt region during June and part of July brought crop conditions below the levels seen over the past years. This could provide support to soybean prices on the Chicago Exchange. Globally, for the 2023/2024 crop year, the USDA expects a positive supply and demand balance of approximately 20.8 million tons, 15% lower than the initial projections. The market is awaiting the upcoming USDA report to be published on August 11, which will include updates on the 2023/2024 crop projections. Moving to slide six, let's discuss corn. For the 2023/2024 season in the U.S., the drought scenario previously described for soybean also affected corn crops, which are in the reproductive stage of development. As a result, there was an impact on yield. The good and excellent conditions of American crops are currently at their lowest levels for the comparable period of the last five years.
The USDA's July supply and demand report already indicated a - 2% revision in corn productivity, which was more than offset by an increase of 6.2% in the planted area. Monitoring of crop conditions, combined with climate expectations, will be important price indicators to watch during August and September. With its global significance, the Russia-Ukraine conflict continues to impact international corn prices as Ukraine ranks as the fourth-largest global exporter of the grain. While weather conditions continue to support a positive outlook for corn in Ukraine, the country's export remains at risk. I'll now turn it over to my colleague, Ivo Brum, to comment on our financial performance. Ivo, please proceed.
Good morning to all. Let's proceed to slide eight, where we highlight some of the key points in our income statement. Net revenue for the quarter reached BRL 1.4 billion, a decrease of 13.2% compared to 2Q 2022 due to lower soybean sales volume. We closed the first half with BRL 3.7 billion in net revenue, a decrease of 10.1% compared to first half 2022 due to the lower cotton carryover stock from the 2022 season, in which productivity was lower than the 2021 season. In relation to the fair value adjustment of biological assets for cotton lint and seed cotton, there was an increase of 3.1% this quarter, influenced by better yield estimates. We still need to adjust the fair value for 31,000 hectares of cotton, which were not at the harvesting stage at this date, and 13,000 hectares of corn, which represents 9%.
Adjusted EBITDA for the quarter reached BRL 569.8 million with an EBITDA margin of 39.4%. For the first half, adjusted EBITDA was BRL 1.5 billion with a margin of 41%. Cash generation in the quarter was BRL -386 million, mainly due to payment for inputs, leases, and ag implement rentals in the season. In the second half, we will have the sale delivery of cotton and corn being harvested, whose costs have already mostly been disbursed, projecting a more positive cash scenario and net debt adjusted EBITDA ratio for the year. Our net result had a 24%, and we also had net income was BRL 380.8 million. Even those results for the quarter, while lower compared to the previous period last year, still present strong margins and are in line with historical results.
Let's move on to slide nine, where we present the cost forecast for the 2022/2023 season. Higher yields and intensive use of new digital agriculture technologies have positively impacted the per-unit cost per crop. Due to higher production and reduced input usage, the per-unit cost for first crop cotton decreased by 2.2% and second crop cotton decreased by 12.8%, while soybean decreased by 2.9% and second crop remained stable. Moving on to slide 10, we'll take a look at the debt position. Adjusted net debt ended the quarter at BRL 3.9 billion, up compared to 4Q 2022. Despite the negative cash generation, the net debt adjusted EBITDA ratio finished the period at 1.61x , which will be the peak for the year considering we paid almost 100% of the crop cost, and in the second half, we will receive cash from the 2022/2023 first crop cotton and corn harvest.
I'll hand it over now to Pavinato.
Let's move on to slide 12, where we discuss the crop status and estimates for the 2022/2023 season. Soybean concluded another season with good yields, nearly stable compared to the previous record-breaking season. We reached 3,910 kg per hectare, in line with our initial predictions, and 11.5% above the national average, according to CONAB. As we announced in the material fact on July 3, both the first crop and second crop cotton as well as second crop corn are expected to surpass initial projections. Based on the evolution of the harvested area, we have updated our current yield estimates in this quarter's release. The first crop cotton is expected to reach 2,005 kg hectares of lint, 3.7% above budget and 0.8% higher than the material fact announcement.
For second crop cotton, we are just beginning the harvest and estimate a 12.7% surplus over the projection, reaching 2,072 kg of lint. The cotton fields have shown strong performance with good lint yields. Regarding second crop corn, 66%, that is 2/3 of the area, have been already harvested. The expectation is to reach 7,750 kg per hectare, 0.9% above budget and 23% higher than the previous season's performance, which was a year with scarce rains. In addition to exceeding projections, we have achieved a significant lead over the national average. For soybeans, it's 11.5%, for first crop and second crop cotton, an average of 12.3%, and for corn, 35%, all of which surpass the national averages released by CONAB in July 2023. In summary, strong production is confirmed for all crops in the 2022/2023 season. In slide 13, we discuss the land appraisal report.
An evaluation was conducted on the company's land holdings by the independent consulting firm, Deloitte. The lands were appraised at BRL 10.9 billion, a 12% appreciation in the adjusted portfolio. The current value of the average agriculturally usable hectare owned by the company is BRL 52,895 per hectare. We have advanced with purchases of inputs for the 2023/2024 season, nearly completing the acquisition of fertilizers. Additionally, we have already procured 87% of the crop protection package, 100% of the chemicals purchase, and 13% pending for biological products. Based on these commitments, we have also progressed in the hedge for the 2023/2024 crop, reaching 38% for soybeans, along with 17% in commitments. A total of 56% of soybean are hedged and 32% for corn. Now let's move to slide 16 where we will discuss ESG updates.
On the ESG front, we have implemented circular economy at Fazenda Pamplona, in line with our zero waste to landfill goal by 2026, and we are implementing it also at Fazendas Pioneira, Paranaguá, Parceiro, and Planalto. This initiative aims to increase the recyclability index of waste generated in operations and eliminate the disposal of waste in landfills. Thank you very much, and now we will open the floor for the Q&A session.
We will now begin the Q&A session. We kindly ask you to submit your questions in writing and to wait for your question to be called. We request that you use the Q&A icon at the bottom of your screen. By the usual procedure, your names will be announced for you to ask your questions live. At that moment, a prompt to activate your microphone and camera will appear on the screen. If you prefer not to open your microphone or camera live, please write, "No microphone, no camera," at the end of your question, and I will read it aloud. Our first question is from Matheus Enfeldt, UBS. Good morning, Matheus. You may open your microphone and camera. Hello, Matheus, can you hear us?
I am sorry. I had a technical problem. Thank you, Ivo and Pavinato. I would like to understand the price scenario a little better because there were several discounts on the logistics front, and I know that the company was trading a little below expectations. Could you please shed some light on that? How do you view future discounts on future crops? Is there any pressure on the realized prices of the company, and how can you evade the worst windows and hold on to corn and soybean to sell at better windows? I would also like to understand for 2023 and 2024, and well, we know that price forming, well, we were expecting perhaps an exchange rate that would be far worse than what we see now.
What can we think of flat hectare prices going up very little, and do you see any opportunities for expansion in 2023 and 2024, considering the climate conditions and the scenario? Could there be a mix in your crops, perhaps more cotton than corn in the mix?
Thank you very much, Matheus, for your question. Well, let's talk about the current prices. Well, there was a strong reaction three months ago. We were facing $12 per bushel in future prices in February, March next year. Because of this climate volatility in America, prices went back to $14. Today, they are at $13.3, and in our vision, international prices will remain at a level that's higher than we had anticipated three months ago with the influence of the climate. Because the climate will remain volatile in spite of the predictions of El Niño, with good climate for South America.
But the climate is getting increasingly volatile, and this creates an influence on the international price markets. That is why we believe that the prices in the next cycle will be at around $13. And of course, it will depend on the environment, but as for premiums in the domestic market, we believe that they will still be under pressure in the last few months of the year. Premiums will improve in relation to, we are closing the corn harvest, and with the pressure on soybean, there will be a price recovery. Premiums are already positive for future sales. In comparison to the previous crop, we will command better premiums in the domestic market. As for the new crops, we foresee that there will still be pressure because there is high volume being offered, and in January, February, we will start with large volumes to be sold.
And we expect that the premiums will continue to be under pressure in the first half of next year. So currently, Brazil, in this moment and also next year, depending on the supply and demand balance, Brazil will be a country that will be offering discounted products at a negative premium, which is not the historical standard, and that will create a benefit for the end customers that are buying our products. Well, I have talked about prices and costs formation. The production costs adjustments were very intense in the last few months, and obviously, growers were waiting for that, and so they made the right decision in postponing the purchases.
Now they have made some purchase, and we see inputs at higher prices. So those farmers that have not bought everything are now facing higher prices, especially in nitrogenated products, where we saw an increase in the last four weeks, $100-$ 180 more. Also, in the chemicals market, we see some oscillation in prices in domestic and international. But for 2023/ 2024, the most important thing to remember is that costs adjustments were very quick. Perhaps they were more than we had anticipated. We thought that it would be a gradual process along 2023, and part of the cost adjustment would only hit in 2024. But since there was a lot of pressure on domestic prices, especially domestic prices, but also in the international markets, there was this downward revision for the 2023/ 2024 crop year.
So depending on the different positions we establish along the year, there would be a higher or greater revisions for the 2023/ 2024 crop year.
Thank you very much.
Oh, you asked about the mix. Crop mix, yes. Cotton is a crop that, well, since it competes with corn, so the data shows that cotton is more competitive today than corn. So when we think of Brazil, the trend is that cotton will be planted in a larger area than corn in the next crop.
Thank you very much, Matheus, for the question. The next question is from Daniel Sasson, Itaú BBA. You can open your microphone and camera, no problem.
Good morning, everyone. Thank you very much for the presentation and for this opportunity. I have a question specifically about logistics. We saw that growers were concerned with the commodities outflow. What do you envision in terms of freight costs in the medium term, in terms not only of availability but also of prices? And if you could comment also your exposure to rail. Also, you have paid off a very significant share of the leases for the year, but looking to the future, do you believe that with the decreasing prices in Brazil and Mexico, of course, the situation is different. Do you think that there is more room for a decrease in leases? Do you think that some of the agreements could be renegotiated in more favorable terms to you in the coming seasons?
Daniel, about logistics, the volume of soybeans was very large this year, and we're still lagging behind in trading, but we have 70% of the production already sold. Soybean will not represent a bottleneck in the future. But corn that is being harvested right now, it's a record-breaking volume for second crop corn, and this is putting pressure on logistics costs. There is an increase in freight costs. Transportation in Brazil, we were always been able to find an outflow for our inventory. So we won't be in a chokehold. Today, Brazil, well, we have already shipped out more than 20 million tons per month. So we'll be able to ship the entire production, both for soybeans and corn, not to mention the other products such as sugar, coffee, and so on.
So in our understanding, and I was reading the report on logistics today, in the next few weeks, freight costs will be higher, but as the corn harvest is done in the fourth quarter of the year, freight costs will decline. This is the expectation. But there is a large volume to be shipped. Of course, freight will go up, but we'll be able to ship all the volume that we have produced. Ivo, would you like to pitch in?
Yes. Thank you very much. Yes. Well, in fact, we paid a significant payment of leases. We announced in the Table 24, well, of course, the reference to leases and also ag implement rentals, 50% of our soybean harvesting is outsourced, and also our yellow line, 50% is outsourced. So everything goes into this context because of the accounting rules. Payment, of course, is something that we are making very evident, and this is everything that it comprises. The expectation is that with the decrease of the soybean bag, the amount paid for leases will go down. So if soybean is declining in price, we're talking about BRL 120 for the next crop, so naturally there will be a decrease in leases as well, because this is linked to prices and currency.
In some contracts, we have renewals on a yearly basis, and in some, of course, we have a greater term for renewal.
Thank you very much.
Thank you, Daniel. The next question is from Joaquim Atie, Citibank. Thank you, Joaquim. You may proceed with your question.
Thank you very much for taking my questions. Can you tell us a little bit more about the seed business? What do you expect for the next season? Also in relation to capital allocation, you have your buyback program. How is this evolving? What about the M&A pipeline? Are there any opportunities for the acquisition or lease of new land? Just to understand a little bit more about your CapEx.
Thank you very much for this question, Joaquim. The seed business is making advances. It's the first year in which we are operating at IBS in Mato Grosso do Sul, and we have met our targets, also in cotton. We are doing very well with an expectation to continue to grow to reach the targets that have been announced. Can you comment on the buyback?
The buyback program is going very well. The shares were traded at a very low level, so we started buying back our shares with this. Once they regained their value, we decreased the pace because once the share begins to rebound in value, we slow down because the market is responding to our initiative, and we see that there is an increase in the stock price. About new businesses, at the right time, we will be disclosing this information to you, Joaquim.
Thank you very much.
Thank you, Joaquim. Our next question is from Thiago Duarte, BTG Pactual. Hello, Thiago. You can open your microphone and camera if you wish.
Hello, good morning. It is a pleasure to talk to all of you, Gelain, Ivo Brum and Pavinato. A question and a follow-up, in fact. A question about productivity. I think that the three major crops are delivering either the record historically or very close to that. I think that the highlight goes to cotton, and you have mentioned the benefits that you obtained through the process of digitalization and through the use of everything that technology can provide. Now, I would like to hear about your understanding. Is this sustainable? Have you reached, for example, in the case of cotton, 2,000 kg per hectare? Do you think that this is a good starting point for next years? Of course, there is this variable climate, which this year was also favorable, but this is in line with what you call the trend line for the future.
I would love to hear your views on that. As for the follow-up, going back to the first question about costs for next year, since you have already acquired most of the inputs for the next crop year, I know that you usually prefer to give guidance on costs to the market in the end of the year. But can you tell us anything at all? I am not really sure from the answer you gave, if you can imagine costs per hectare close to stability, but I assume that you have a good perspective on the variation for next year.
Thank you, Thiago. I will answer firstly about costs, because we have made a lot of progress. We have bought most of the crop protection. We are just waiting for the biocides. Last week also, we were revisiting the costs of each farm. We have 20,000 farms and we have benchmarks. We know exactly what is the harvesting cost. All processes are very well identified and we are finishing this study. What is yet to announce to the market in terms of the cost per hectare for the next crop year, what is keeping us from doing it is that there will probably be a mix in crops, a change of mix. We are going to migrate, for example, more to second crop cotton and corn.
This changes the balance, so we were not able to finish this process yet. But we expect that by the end of September, we will have concluded this exercise. We expect a negative cost because there were also very significant reductions in crop protection. But let us not forget that we are replenishing the volume of fertilizers that we did not apply last year. I would just like to make this warning that we applied less fertilizer and we achieved record production. The decision taken in the past was the correct one.
Thank you very much for this question, Thiago, on productivity. In this quarter, I think that the most relevant and striking fact in the announcements that we are making today is the company's operating performance. This is measured through two indicators, the yields of our crops and the production cost reduction of 1.5% against budget, which is very expressive when you think of the cost reduction in relation to budget. This year, we were able to reduce costs. What I want to emphasize in relation to this quarter is that our operating performance and our efficiency has improved greatly and has led to a reduction in production costs.
In relation to each of the crops, if you remember, those of you listening to us, what we have discussed in previous meetings, we said that our performance was according to expectations in soybeans, producing 12%- 13% above the national average, but that we were still lagging behind in cotton, in which we were closer to the national average in relation to, and also below the target of reaching at least 10% above the national average. This year, we were successful in management as always, and climate helped, and that's why we have a record yield. This has another meaning because we have production units that are on a much higher level than the historical level. This gives us the certainty that we will be able to stabilize or continue to grow at a higher level in the comparison with previous years, specifically in cotton.
I think that the signs are very positive. The trend line for cotton was virtually stable. It was not going up. Now, starting last year, as I mentioned in previous conferences in the regions where we did not have a shortcoming of rain, we are producing the same. In the areas such as Bahia and Mato Grosso, we did not have good production. This year, there was no lack of rain anywhere, so we have good yields in all regions, and this is helping us reach record production. I believe that we are evolving to a higher level in cotton, of course, with the interference of climate. When we look at the trend line, I think that we are definitely moving to a higher level and also in relation to corn.
Depending on how much you invest in technology for corn, the lower price, you start really calculating the kilos of nitrogen to make sure that you are maximizing the economic efficiency. This is our expectation in terms of yield and productivity.
Thank you.
Thank you, Thiago. Our next question is from Pedro Fonseca, XP. Good morning, Pedro. Please open your microphone.
Hello. Thank you very much for taking my question. Well, I would like to go back to two of the answers you gave in relation to previous questions. Firstly, about costs. We had discussed in the past that we were expecting an increase of 20% in the amount of fertilizers year-on-year because of the right decision that you made to reduce the volume of fertilizer in the last season. I would like for you to confirm this. And if all other conditions remain equal and if the second crop, cotton and corn, continue to make sense, how much can you have in terms of conversion for the next crop year? Secondly, another question. Going back to logistics, I would like to know, not only in terms of outflow, but in terms of inputs.
I think that there will be pressure in logistics, of course, affecting the outflows of the production. But are you of the opinion that the fact that since trading is sluggish and do you believe that once the input is sent to the fields, could there be any delays? With this, could you miss an ideal planting window? Is there a risk of that happening, or have you already addressed this possibility?
Thank you very much, Pedro, for your question. Well, use of fertilizers. Yes. We are now. I do not know exactly the percentage, but it is around what you said in terms of increasing the amount of fertilizers. As for the mix, it is just as Ivo said, we are still making a study to see whether it is convenient to replace one crop by the other, but we do not know exactly the numbers, the number of hectares. As for inputs, when I consider the amount of fertilizers that have already been shipped to Brazil, there are no delays in fertilizer imports for the year. The logistics from the ports to the production units is indeed a little bit of a bottleneck. So some of the companies are facing some difficulties.
But we are still in August, there is still September. We start planting mostly in October. So I believe that, a lot of the production is still being shipped to the ports. The trucks will be empty to take the inputs back to the production units. So it is challenging, Pedro, but I think there will be no shortage. In our case, it is even easier because we had already procured these volumes, in advance, for example, for phosphorus. We are now applying. We have actually applied most of this. So we have really no concerns at all in relation to receiving the inputs in our farms.
Well, I do not want to overstay my welcome, but what about the volume of biofertilizers? This has not been purchased yet, right? Can you explain to us the strategy behind this? Is there a logistics issue involved? Or is there a price expectation?
Well, there is a large volume of bioproducts that we make on farm, so we buy it in concentrate. So that is why we do not need to make such an advanced purchase. There is no price volatility as we saw with chemicals. So that is why, of course, we are starting to negotiate, but we have not closed the deals. In the last two months, we were really closing the deal on chemicals, and it was just the right time, in fact. Today, Brazilian growers are really doing their procurements in advance whenever possible, and this, of course, puts a little pressure on prices. So, it is part of our timeline of acquisition of inputs, and we are feeling very comfortable about the timing for the purchase of biologicals.
Thank you very much, Pavinato.
Thank you, Pedro. Our next question is from Lucas Ferreira, JP Morgan. Good morning, Lucas. Can you please open your microphone? You may proceed.
Hello. Well, thank you for taking our questions. Is El Niño a risk for the company? I think that in the long-term analysis, you said that in general, El Niño is not a risk for you, but I would like to know whether your opinion has changed. When you work on the budget and the yield estimates for next year, will there be an impact of El Niño, especially considering the Northeast and cotton? My second question is, I would like to find out more about your costs. Just a quick follow-up on this recent increase that we saw, especially in nitrogenated products, especially as a result of natural gas and oil prices, because this has an impact on chemicals. Secondly, do you think that lower fertilizer prices, is it something that makes pasture conversion a possibility for you considering the current input prices?
Thank you, Lucas. Yes, it's confirmed. We are now under the El Niño influence, and the models show that there is a 90% probability that we'll have an El Niño year next year. This will affect the whole world. Now, about yield expectations, we analyze our history. Of course, it really depends on the year, a stronger El Niño or a slower El Niño. A second year of El Niño usually creates more consequences than a first-year El Niño, like we saw in 2016. Considering that this is the first- year and that the El Niño will not be that strong, the waters of the Pacific will increase in temperature 1.5 degrees. We expect normal yields in our farms. In Bahia, we suffer a little bit, but in the other states, in fact, it's actually beneficial production growth. So we expect a normal crop. This is part of our planning.
We avoided using a less resilient variant. We have considered, well, okay, it will rain a little bit less, so we can use less crop protection. This was also an adjustment to Unium. We now have the vision that it will be a normal year as regards yields. Not a record-breaking year, but a year in which we'll be announcing you the forecast considering this trend. Costs. Chemicals in the international markets are being adjusted upward. Even glyphosate, which is the commodity of chemicals. Well, it hit bottom, and then it was adjusted up. It really depends on supply and demand and how the market positions. But this is no scenario for adjustments. The international scenario is trending back to normality. Even in nitrogen, those are temporary adjustments upward and of course, as a consequence of natural gas prices, et c.
We have also the prices of Mexico and also the negative premium. Sometimes it's more expensive because of demand, and sometimes it's the other way around. Fertilizers in domestic market could be cheaper than international market. We went through a good moment where the domestic market had pretty much the same prices as the international market. Now demand is coming on strong and the domestic market is making some adjustments. I think that the price adjustment was $20 more expensive in the last few weeks. In relation to pasture conversion, well, under normal prices, what is the perspective for Brazil is to continue converting pastures. In the next 20 years, many hectares will be converted to agriculture.
In this year, there was not much conversion, but for next year, we believe that, well, it will depend on the price of commodities and margins, because the margins, if they are squeezed, then conversion will be more expensive than using mature land. The speed of conversion in Brazil depends on margins. With tighter margins, less conversion. If margins are bigger, more conversion. I believe that it seems that we will go back to normal levels, and we will continue to convert the pasture to fields.
Thank you, Lucas. Our next question is from Julia Rizzo, Morgan Stanley. Good morning, Julia. Please open your microphone and you may proceed with your question.
Hello, good morning. Thank you very much. I have a question about, considering all of your land, all of your hectares, especially speaking of second crop in relation to corn, I think there were 138,000 hectares. How much can be converted to cotton, and is there a time for that for the next crop year? In relation to the hedging for next year, I think that cotton is a little behind. What can you tell us about this in terms of cotton hedging? Finally, for Ivo. Ivo, can you please remind me of the expected CapEx, including M&As and expansion, I am thinking mostly of cash disbursements.
Thank you, Julia, for your question. About corn, the problem is not the quality of soil. Also in Mato Grosso, we have soil that is well prepared for planting. The issue is our production capacity. We need to harvest. The cotton harvester is a very specific machine, so we have an internal volume. We need to identify how much we will be able to buy. If we cannot buy, of course, our first option is to lease the agricultural implements. We also need to check the cotton gins. This is also a process that we plan ahead in the year in which we harvest, because we do not want the cotton to be exposed for a very long time. Probably processing will happen in January or February 2025.
All of this, of course, needs to be very carefully analyzed and just to make sure we will have enough production capacity and also processing capacity. As for the hedging, you are right, we are a little behind in cotton. Why are we lagging behind? Because we see that, we expect cotton to increase, to grow, and the climate scenario in the U.S. for cotton and also in China are not being favorable. Cotton has already rebounded. When we think of cotton 2024, it was at $0.77, and now it is at $0.79. We expect that we will reach $0.80. Then we will start to sell at this level, which we think is very feasible. We are talking about an 18-month timeline, and we have more than enough time for optimization.
For CapEx, BRL 600 million, this is what we have announced for machines and crop inputs. We still have to see if there will be a growth for the 2024/2025 crop year, because sometimes we need to refurbish or also adopt correctives. We are still working on this projection and CapEx, of course, is a decision that requires a lot of visibility on what we will have on a 2024/2025 crop year. BRL 600 million is the number confirmed for CapEx and for 2024, we still have to hold on to see the planted area scenario.
Are there any payments in addition to the BRL 600 million?
Yes. We have to pay for the Fazenda Paysandu acquisition, but this is not going to affect CapEx.
But how much is it? Can you please remind me?
I'm thinking of cash mostly. BRL 200 million. BRL 110 million this year to be paid off in December for Fazenda Paysandu . We have declared BRL 780 million. This is 100% of the CapEx for the acquired land. We still have BRL 110 million, which will not affect CapEx for the year.
Okay. Thank you. Just to understand acreage for cotton. The bottleneck is not soil or location, it's a matter of equipment, of machinery. What about the time? Is there enough time to expand land for next year or there is no time for that?
No, we're talking about planting in January next year, right? There is enough time to get everything moving. I think that the critical point is the cotton harvesters and the cotton gins, and we will only need this for June, July, August next year, so there is enough time. Of course, we need to check whether the machinery is available, if the cotton gins can process all of the cotton that will be harvested, how much it means, and because we usually close in December, so it means that I have to start in January and February. With this comes additional costs. I need to hire the labor for that. We need to organize all of these aspects so that we can take the step, but we're working on it.
Besides the planting window, the sooner we plant soybeans, the sooner we start to harvest in January, and the greater the potential to plant cotton and to exchange corn by cotton. We are planning still on the planning phase, but we'll only have confirmation after soybean is planted.
Thank you very much.
Thank you, Julia. Our next question is from [Guilherme Ziliotto]. I'll read it. How concerning are the attitudes of the European Union restricting agricultural imports under the pretense of ecology or sustainability?
Well, the European Union, in terms of concern with sustainability, they cannot really do that because there is a serious limitation, which is the energy basis for the European Union is not sustainable. However, they are ahead of us in terms of awareness. That's why the European Union is always advocating this cause. When you look at Europe as a block, they are importers of grains. They import around 660 million tons of grains, so they are not self-sufficient. In the last decades, they didn't invest in biotechnology such as GMOs, so productivity has not increased as in other countries, and as in the average in the world. They are increasing productivity by 0.5% a year. That's why they are in a deficit in relation to grain.
Of course, there is the issue of sustainability, and at the same time, they are dependent on agricultural products from the other countries of the world. For example, this requirement that they will approve this restriction on importing agricultural products from areas with deforestation. This will affect Brazil, but at the same time, in Brazil, we see a pressure not to use deforestation, or the traders will not be buying from areas with deforestation. In the case of the European Union, this will take place in 2020, and we have to comply with the European requirement, because in 2021, we did not open any more land on the forested land in 2021. The environmental pressure is strong. It is there and it is really a necessity because global change is a reality. The energy transition to reduce emissions is something that will take place.
Brazil, instead of expanding operations in native land, will use degraded pastures because these are areas with low carbon stocks. With this, by planting in those areas, we will increase carbon stocks. The environmental issue in Europe is something that is not sufficient and that will not prevent or. They need to import grain. This is how we view the situation. When you look at the globe, Europe is a small region, if you consider demand levels with a decreasing or declining population. Growth in population takes place in Asia and in China and in Africa as well. Our customers in the future will not be the Europeans. They will be Asian. In fact, they are very important clients today.
Of course, I do not want to say that the environment is not important. It is very important because we have to reduce global warming, and this is only done by reducing our carbon emissions.
Okay. We would like to remind you that if you want to submit a question, you can use the Q&A icon on the screen. If you do not want to open your microphone or camera, just write "No Microphone" so that your question can be read. We received a question from [Gabriel Bunte] from [ Various Research]. I will read it. "Good morning, everyone. Congratulations on your performance. Since the previous quarter, we saw that short-term debt is higher than the cash of the company. I understand that corn and cotton come in the second half of the year. But what can you say about the short-term debt in the comparison with your cash?"
Yes, Gabriel. Yes, this is indeed a fact. With the change of government, there is always some oscillation. We had debt maturing along the year, and we decided in the beginning of the year to roll the debt over to the second half also to go through the transition in government. Now the spreads are much lower. We have some very appealing credit lines. You have seen the second half that with the positive cash generation, which is something that we always have now that we have paid off all the inputs and we have two important crops being harvested, and the sales will take place in the second half, boosting our cash. We will see also the impact with the lengthening of the debt term.
We decided to make this decision, and it was a valid decision because now spreads have come down, and we will be able to renegotiate our debt at a lower cost.
Thank you, Ivo. We have one last question from Lucas Santiago de Oliveira, an Investor. Good morning. I would like to know if you plant in the off-season with an oilseed, for example, linseed, to increase nitrogen for the pre-corn. This, of course, could help with fertilization for corn.
Thank you, Lucas, for this question. We have been investing in regenerative agriculture with biologicals as much as possible. No tillage, soil coverage. How does the system work today? We do not have time to cover the soil after cotton, but where we plant soybean and corn, we can have coverage after soy or together with corn. For this, Brachiaria has been working very well and some other legumes. We are testing several crops to see which one has the better fit with our operations. We have been using a mix of crops. We also have been using irrigation. For example, we harvest the corn, and then we use Pamplona in Goiás. We have also been using wheat with 134 bags which were before at 90. We are looking at the different crops using turnip or pearl millet to see which species are better for crop rotation using this interval.
For example, in the state of Maranhão, in the pre-planting phase, we can cover the soil in corn. June, July, we see early rain in October, and then you can cover the soil to plant cotton in December. In the different production units, we are doing everything we can to cover the soil the best we can, and when possible, we are using legumes for better fixation of nitrogen for corn.
If there are no further questions, the Q2 2023 conference call is closed. The Investor Relations department will be happy to take your questions and clarify any points. Thank you.