Good morning everyone, and welcome to the earnings conference call on the fourth quarter 2022 SLC Agrícola. My name is Rodrigo Gelain. I am Financial and IR Manager. Together with me, we have our CEO, Mr. Aurélio Pavinato, and our CFO and IRO, Ivo Brum. It is an honor to be here with you this morning. We would like to inform you that this video conference is being recorded, and it will be available on the company's IR website, where you can also find the presentation. Please note that for those of you who need simultaneous translation, we have this tool available in Zoom in the globe icon under the description interpretation. You will find it on the bottom of the screen. When selecting it, choose your preferred language, Portuguese or English.
For those of you listening in English, there is an option to mute the original audio in Portuguese by clicking on mute original audio. For the Q&A, we kindly ask you that you submit your questions using the Q&A icon on the lower half of your screen. As usual, your names will be announced so that you can ask your question live. At this point, a prompt to activate your microphone and camera will appear on the screen. If you do not want to open your microphone and camera live, please write no microphone at the end of your question so that I can read it aloud.
We would like to let you know that information contained in this presentation and any statements that may be made relative to 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 on information that is currently available. Considerations about the future are not a guarantee of performance because they involve risks, uncertainties and assumptions as they refer to future events, and as such, they depend on circumstances that may or may not occur. Investors should understand the general economic conditions, market conditions, and other operating factors may affect SLC's future performance and lead to results that materially differ from such considerations about the future. With this, I turn the floor over to our CEO, Mr. Pavinato, so that we can begin the presentation. You may proceed. Good morning to all.
Thank you all for joining us on the video conference call to report SLC Agrícola's Q4 2022 results. Please, let's go to slide four for some words on the cotton market scenario. The year 2022 was marked by significant volatility in cotton quotes in the international market. We can mention as notable events the mobility restriction policies in China, the uncertainty around a global economic recession, and crop losses in the U.S. and other important producing countries. According to USDA data for 2022/2023, the expectation of global cotton consumption amounts to 110.9 million bales against a production of 115.4 million bales. In cotton, an important point will be the first planting intentions report for the U.S. crop 2023/2024, which should be released on March 31, and that could indicate the price trend for coming months.
Now let's go to slide five to talk about soybean. Soybean in the CBOT spot contracts showed an upward trajectory throughout 2022, rising 13% vs 2021. The previous crop season 2021/2022 was marked by losses due to the drought associated with the La Niña event in the Southern states of Brazil and Argentina. The 2022/2023 crop is also experiencing losses in production potential due to the third consecutive La Niña in South America, impacting mainly Argentina and Southern Brazil. Production in Argentina in the 2022/2023 crop year, initially announced at 51 million tons, was recently revised down to 33 million tons, according to USDA. Globally, the 2022/2023 season, considering the latest production figures estimated by the USDA, shows that the balance between supply and demand tends to show a surplus.
But also considering the production figures for Argentina of only 27 million tons of soybean, the global balance should be negative in approximately 2 million tons, and this should continue to support current soybean prices. Going to slide six, let's turn to corn. Corn prices in CBOT spot contracts increased 15% in 2022. The corn crops in 2022/2023 in Southern Argentina and Brazil suffered from low humidity. In addition, the world is still dealing with the uncertainty related to the conflict between Russia and Ukraine. Ukraine is a major world producer. In this scenario, there is high unpredictability regarding the exports in top producing countries, which could result in high price volatility. Currently, production is lower than consumption, approximately 9 million tons, and therefore, corn prices should remain at current levels. Now I give the floor over to my colleague, Ivo Brum, who will discuss our financial performance. Ivo?
Thank you very much, Pavinato. Good morning. Can we please go to slide eight where we bring you some highlights from our P&L statement. In the year-to-date period, we are presenting in combined form the sum of SLC Agrícola data through January and the information that was disclosed for Terra Agro from January to June 2022. Thanks to the combination of business that we saw in 2021. When we look at the entire year, due to better prices in our crops, our net revenue reached the mark of BRL 7.4 billion, growth of 48.6% vs 2021. We reached, in 2022, the mark of BRL 1.3 billion in net income, a new record for the company. Net income grew 25.3% with a net margin of 18.1%. A new record in adjusted EBITDA was attained this year above BRL 3 billion, 62% increase vs 2021.
The adjusted EBITDA margin was even better than 2021, hitting 41.3%. This significant increase in adjusted EBITDA was a reflection of the improvement in margins. Let's go to slide nine to talk about the company's debt. The company's adjusted net debt ended 2022 at BRL 2.3 billion, showing a decrease of BRL 55.1 million compared to 2021. The net debt to adjusted EBITDA ratios went from 1.42x at the end of 2021 to 0.77x at the end of 2022 as a consequence of the increase in adjusted EBITDA in the period. Now in slide 10, we will take a look at cash generation. In 2022, we had strong cash generation in the last quarter of the year. Free cash generation was positive in 4Q 2022 at BRL 786 million. In the calendar year, we reached a record of almost BRL 1 billion in free cash flow generation.
This is the result of the right growth strategy added to operating and financial efficiency. Now in slide 11, we talk about the management's proposal regarding the distribution of dividends. The management proposal, which aims to distribute dividends corresponding to 50% of the parent company's net income or BRL 602 million, will be presented to the shareholders meeting. Of this amount we already distributed BRL 71 million as interest on equity paid on January 2023. Now, our share buyback program. In July 2020, we concluded the repurchase of 2 million shares. Shortly thereafter, we approved the new share buyback program to acquire another 4 million shares. This program is now being completed, and in the next meeting, we will also present a bonus of 10% in shares. Now let's move on to slide 13, in which we focus on some financial indicators that also show our financial evolution.
The NAV updated in the 31 December reached BRL 854 million, very significant in the comparison. Return on equity in 2022 and ROIC of 28.6%. Free cash flow yield was 10% in 2022, and dividend yield of 6.3% in 2022, considering the price of the share at the end of the year. All of these indicators show the efficiency in our efforts to add value to our shareholders. Now I will hand it over back to Pavinato, who has more information to share with you.
Thank you very much. Now we can turn to slide 14, in which we talk about recent land acquisitions. On February 23, 2023, we disclosed via material fact the allocation of 468,000 hectares of land in the state of Bahia, municipality São Desidério. The amount of the transaction was BRL 437 million, BRL 55 million for improvements, and the amount was for hectare. The value per hectare planted was. We had three installments to be paid in the end of 2025. We can now go to slide 16. As we look for sustainable practices, we strengthen our connection with future generations. With this, we have joined the Index ICO2 B3 and IGPTW B3. This demonstrates our efforts in becoming a benchmark in the agricultural industry regarding ESG. Also in May 2022, we joined the theoretical asset portfolio of IBOV, the main indicator at B3.
This was the first time that our shares took part of the index since we were listed in June 2017. In slide 17, we see some information on ESG. In 2022, we installed the statutory audit committee, which strengthens our governance in improving internal controls and risk management. Besides that, we also certified the ESG system in two more farms in 2022. The integrated management system of the company standardized our policies of ESG and count on several certification, ISO and NBR in 13 units, taking into account our headquarters and 12 farms. Besides ISO 9001 in seven farms. We also increased the number of independent board members with the inclusion of Adriana Waltrick. Now on slide 18, we will talk about the seed business for the first time in our calls, and also we will talk about our sales estimate.
The cost of production is mostly made up of the cost of grain and market price and other costs such as processing and transport. Sales expenses, which represent 37% of net revenue, are basically composed by royalty expenses that are transferred to the sales price. in 2022, the seed business added value to the company's core business, delivering an EBITDA of BRL 100.2 million, with an EBITDA margin of 22.5% and net income of BRL 57.4 million and a net margin of 12.9%. This is an additional result that was added to our traditional grain production. Now on slide 19, we indicate our sales estimate for 2023. For soybean seeds, third-party sales or domestic consumption, we estimate 1,120,000 bags. For cotton seeds, we estimate sales for third parties or domestic consumption of 121,500 bags.
We can now move on to slide 20, where we would like to share with you that the SLC Sementes brand will host an event called Seeds for Tomorrow. It will take place on March 22 at Paiaguás Farm with the inauguration of the new seed processing plant in partnership with Kothe Logística in the state of Mato Grosso. Another important step that is achieved through the execution of our strategy. This fully refrigerated project will add to the production capacity over 1 million bags of soybeans in coming years, establishing SLC Sementes as an important player in one of the main soybean-producing states of the country. Now in slide 22, we will talk about the current harvest status and estimates for the next. Up to March 28, we have already harvested most of the. Well, the soybean cycle increased in 10 days because of climate conditions.
Cotton is 100% planted, and second crop, cotton, is now planted 89% and should conclude in a few days. Our estimate is to deliver the project in terms of productivity, since we have an outlook for rain at the end of April. Now, in slide 24, we talk about the inputs for the next harvest. For the 2023/ 2024 crop that will start being planted in September 2023, we have already started to purchase the fertilizers. We have set 60% of demand for phosphate, 50% of potassium chloride and 41% of nitrogen, both with price decreases in relation to the 2022/ 2023 crop. We have already purchased 50% of the total glyphosate needs for 2023/ 2024 at a good price level vs the 2022/ 2023 crop. Thank you very much. With this, we will open for the Q&A. Rodrigo Gelain?
Okay, we will now start our Q&A. We kindly ask you to ask your questions in writing all at once and wait for the company's answer. Please remember that to ask questions, you should submit them via the Q&A icon on the bottom of the screen. As usual, your name will be announced so that you can ask a question live. At this point, a prompt to activate your microphone and camera will appear on the screen. If you do not want to open your microphone or camera live, please write, "No microphone," at the end of your questions that I can read it aloud. Our first question is from Gabriel Barra, Citi. Good morning, Gabriel. Please open your camera and microphone to ask your question.
Good morning. Can you hear me? Yes, we can, Gabriel. Good morning. Ivo, Aurélio, Gelain, thank you very much for taking your question. I have just two questions, in fact, so I'll just focus on these two. The results were great. Congratulations. Very strong performance. My first question, when we look at the prices set for the new harvest and in comparison with last year, we see that the prices were set at levels below when we look at inputs purchase is not so different from what we saw last year. This is my question. What can we expect? Why did you make this decision? Are you expecting higher prices, as you said in relation to ESG? CONAB was just released, a little more sluggish than USDA in relation to commodity prices. Is that the reason why you are not as hedged?
Are you expecting commodity prices to rebound? This is the first point I would like to address with you. Secondly, we saw, and please correct me if I am wrong, but I think that the speech in relation to capital allocation changed a little bit. We had been talking about fruit, planting, a little more conservatism in terms of land acquisition, and even though the area has not expanded at the same time via leases and to maintain the healthy mix that you have been talking about to the market. I would like to hear a little more about capital allocation, what we can expect. The seed business has been growing significantly. You almost doubled capacity based on the numbers. It is a very relevant business.
What to expect from now on in relation to CapEx? Are you going to invest in land acquisition, in seeds? Or are you going to distribute the earnings to the shareholders via dividends with a very robust dividend distribution?
Thank you very much, Gabriel, for your question. I will start answering about hedging. When you look at the comparison with previous years and the prices set, we are slightly behind, but it is not something that is against our policies. We have a policy that defines the minimum levels and maximum levels per quarter, and also in relation to the purchase of inputs. I think that in 2018 and 2017, we were also a little behind. Why we did not fix 2023/ 2024 yet? We have almost nothing fixed yet because yes, there is an expectation that prices will increase. Today, the price for soybean is $12 per bushel and for May, BRL 78, there is a very significant difference, and we see that the scenario or the outlook in Argentina is deteriorating. There is a large gap between current prices and future prices.
We believe that the gap will probably shorten. When you look at cotton for December 2024, it is $0.79 . Considering corn and soybean prices, United States should also increase the area for soybean and corn and reduce the cotton area. We are still waiting for the intentions to plant, and this will materialize the price trend. There is no reason why prices should fall because there is several pillars sustaining the current prices. But we respect the current hedging policy that we adopt and KPMG this year revised the application of our policy and submitted the results to the Board. We are in full alignment and we expect prices to improve and after that, we will start fixing more quickly.
Okay. Gabriel, I will answer the second question about capital allocation. Our strategy is still going strong in that area. We are looking for business opportunities that will drive great results. We were able to deliver a return on equity and on investment to our investors at a very attractive level. Our return on equity in the last five years was around 28%, and our strategy this year was 30%, and will continue along the same lines. Capital allocation in the last year, we allocated in the share buyback program because we envisioned that this would create value, almost BRL 200 million in 2022, and land acquisition in Paysandú Farm, Bahia is also very important. It is part of our strategy to have 1/3 of own land in our portfolio.
In the case of Paysandú Farm, we acquired this land where we have the warehouses and the headquarters, and this is how we will control the entire farm. Following the same market logic, we seek opportunities. It does not make much sense to buy land at a premium. In this case, we had a very attractive price. We also want to allocate our capital in land acquisition. That is why we will continue leasing more land, and we believe that the current scenario is favorable for that. In summary, payment of dividends, we pay a very expressive amount and our dividend yield is at around 6.3% in the past year. The return is very attractive. New projects, diversification. We are keeping an open mind. We are looking at fruit projects.
We could not find the right project yet because it does not make sense to go into a new project or business if the project will not generate returns for our shareholders at the levels that we can generate in the other business lines. We keep an open mind. We are looking out for innovations, but at the same time, we are seizing the existing opportunities in our current business because the world needs more corn, more soybean, not as much with cotton. We invest just to keep our productivity levels. We are keeping, however, an open mind for other opportunities. This is how we view our business in a strategy of generating at least 20% of return on invested capital or return on equity updated by Deloitte in the next few years.
Very clear. Thank you very much.
Our next question is from Henrique Brustolin, BTG Pactual. Good morning, Henrique. You can open your microphone and camera.
Good morning, Pavinato, Ivo Brum and Gelain. Thank you very much for answering my question. First of all, I would like to talk a little more about the seed business that you disclosed a contribution of BRL 100 million in EBITDA in 2022. There is 1 million bags more that will be added through the Mato Grosso project. My question is, how big is your ambition in this segment? How much more can you grow in this business, whether soybean seed or cotton seed or other types of seed? Is there an operating model that will follow pretty much what you have been doing, which is to outsource the industrial part and you run the fields? Now, a question about growth in lease land, where we see a change in profitability level for the crops, especially in the double crop.
Do you see any changes in relation to the last agreements, 17 bags-18 bags per hectare? Is the price going to be maintained globally? Or do you think that the new level of profitability will lead to changes to reflect the new profitability of the business?
Thank you very much, Henrique. The seed business today is very synergistic in relation to our production. We have a unit in Bahia that is now outsourced. We have in Minas and now the new unit, the most modern in South America in Mato Grosso do Sul. With this project, we reach 2 million bags of soybean seeds. How big a large seed producer should be? Around this level, two million, three million. The question about our ambition is, we want to be one of the biggest and one of the best in soybean seed production. This is our target.
We will ensure our growth in this project in Mato Grosso, and there is more space for new projects. Together with soybean, we have cotton. Cotton is easier to produce the seed, and we have several fields that we can select. The process of processing is more centralized. We do not have many cotton seed production units in Brazil, just three. This makes it easier for us to take the seeds to all farms. The size of the cotton market is much smaller. We plant 7 million hectares of cotton and 43 million hectares of soybeans. As you can see, the potential for soybean is much higher than cotton. Following this logic and considering the synergies between SLC Agrícola and SLC Sementes, we envision that we can be one of the largest in the market and add value through our seed production.
Now, about the leases. Historically, leases is something that takes up part of the cash of producers. As productivity increases, leases also increase. There is a limit because it is also something that depends on the commodity cycle. In the case of Mato Grosso and of Brazil, in which we have double crops, and in the Midwest of Brazil, we have this possibility, and also in the South, in fact, we also plant two crops a year. Leases will probably increase until we reach a level that makes the business sustainable for the operator. This is our vision. Those increases, they follow cycles. We are now enjoying a commodity high price cycle. At the same time, in Brazil, we have the benefit that the leases are established based on soybean bags.
If the prices go down, there should be price adjustments based also on demand and supply in the world. The price adjustments are reflected in BRL. Adjustments only take place when there is a major crisis in the industry. This is the perspective for leases adhering to this logic that the market is self-regulated and a long time. The return for the owner of the land is adequate and the more mature the market, the lower the return, the lower the interest, and the return for operators is also adequate, which is our position. That is why we have been investing in this strategy.
Considering that there is also appreciation of the land that increases the value of the assets tremendously and we have invested capital that is much lower in the assets and our return on invested capital is also better, even if we have to pay higher leases in the near future.
Thank you very much, Pavinato.
Continuing, the next question from Pedro Fonseca, XP. Good morning, Pedro. He is going to ask the question just on the audio feed.
Good morning. Thank you very much for accepting my question. Congratulations on the results. I do not want to be repetitive, but going back to what Rodrigo said about the seed business, can you share with us, please, a little more about your sales structure and how much of third-party seed goes to ag resellers, and what is the strategy of your sales channel? Going back to Barra's question, how does the seed business interact in terms of capital allocation? Are you thinking of inorganic growth? Do you envision a consolidation of the seed business? Finally, how do you view the land acquisition dynamic? You made a very good acquisition. What do you expect in relation to the balance sheet? Is it in line with the market? Are there any other land acquisition opportunities that could interest you?
Thank you, Pedro, for the questions. In relation to the sales channel for seeds, 1/3 was used in internal consumption and 1/3 in verticalization partners who buy the seeds and sell them to the end producers, the producers, and 1/3 were direct sales to producers. Now, as the business grows, we will see an increase in direct sales to producers and also the sales channel could be used to make sales to resellers, who will then sell to the farmers. Those are the two major channels for growth. Of course, the internal channel is used to drive our own production. We have practically allocated no capital in seed production. All of the units are third parties. We did not allocate any capital, so that is why the return on this business has been very interesting.
Obviously, we do not dismiss the option of investing capital in this business in the medium term. We are now covered for a period of three to four years through these units. After that, we can think of other projects. I think it is wise to project that we will continue not making investments depending on how profitability grows. It is something that we will think about, whether it is good to invest in this business. Now, land acquisition. Land in Brazil shows price volatility in relation to the investor market and the operators who will plant on this land. We have been saying to our shareholders that we do not discard the option of investing in land, and also now and in the near future, considering, of course, projects that make sense.
Sometimes you have to think whether it is best to just lease two or three areas or just buy. Land prices went up expressively in recent years, and now corn and soybean prices are now being revised downwards. For example, now we are not at 180 anymore, but rather at 150. It is only natural that the price of land will also accommodate based on the commodity price fluctuations. This is what we believe we are thinking of investing capital, but if the project makes sense for the company and if it will add value to shareholders while mitigating risks, because owning land today is something that also is part of our risk mitigation strategy. If you think only on return on equity, we would not own any land.
Maybe we would be fully asset light, but having a land bank makes sense because it mitigates the operational risks. It is important to strike a balance between the two approaches so that we can keep our business healthy for a long time. This is how we view our land bank, and we could also sell some land as well, depending on the opportunities available in the market. We could sell, for example, some land to buy more land that could make more sense to the company.
Thank you very much, Pavinato, for the explanations.
Our next question is from Matheus Enfeldt , UBS. Good morning, Matheus. Could you please open your microphone and camera? You may proceed with your question.
Good morning to all. Ivo, Aurélio, and Gelain, congratulations for the results. I think it is pretty early on, but if we could help us understand the decrease in inputs with the outlook for 2023 and 2024, with prices resuming the levels of 2021 and thinking of variable costs, is it going to go back to what we saw in 2021 and 2022? In this scenario, combining inputs with commodities still rallying, can we think of margins at historical levels? Thinking of 2021/ 2022, I know that last year was exceptional. Now, going back to what Pavinato said in the previous answer, with the focus in land leases and mitigating risks, as you said, with the acquisition in Bahia.
After this pause in which you did not grow this year, do you think you will go back to the growth level we saw in recent years with 35,000 hectares for the next crop year? Do you think we can expect that?
Thank you very much, Matheus. Well, inputs. Fertilizers. When we look at our fertilizer basket in Brazil, also as a result of the war in the Ukraine, levels had increased 200% in 2022 in the comparison with 2021. Now international prices are at 52%- 50%. Also in the comparison with the historical levels, excluding any outliers. We purchased inputs for 2023/ 2024. We enjoyed the best points in the curve. For example, for phosphorus, when the curve was down, then we made the purchase, and the market now has increased $80 per ton in relation to the purchase price. We are looking out for opportunities in which we can fix the production cost for 2023/ 2024 at the lower level. There will be some expressive adjustments in the 2023/ 2024 crop year.
Now, in relation to cost formation, it is a combination of prices and quantities. We still have not mapped out yet how much our production costs will vary in 2023/ 2024 because we have lower prices to speak of. At the same time, an amount that we are still crunching numbers. We used a smaller amount of fertilizers and also aiming at maximizing our efficiency. I think that this was a strategy that paid off because we envisioned 2023 and 2024 with high productivity, even at high costs. We got this right in 2021/ 2022. In 2023/ 2024, there will be a revision downwards. In the case of SLC Agrícola, we will know for sure how much our production cost will vary for the next crop year in some more time. We are looking for the right opportunities to fix 2023/ 2024.
Also, in terms of FX, we have fixed part of the FX for 2023/ 2024, and this will ensure that we have positive perspectives. We want to maintain high profitability in 2023 and also in 2024 in the scenario of cost reduction and prices at higher levels. When we look at the demand-supply ratio, in cotton, there was a downward price adjustment. It is now being traded at a lower level. We continue to invest in cotton because we are very efficient in cotton, even at lower prices. Soybean and corn, when you look at the world demand-supply ratio, there is no excess production. Prices should remain at the current levels. Climate events have been happening every year in different locations. This affects production and supply. That is why prices are now being traded at higher levels.
There is still a lot to wait for in 2023, but we expect that we will have also good margins in 2023/ 2024. In relation to growth. Growth. We have reported that we want to continue growing. Our financial indicators give us the support for that. Last year, we had planned not to grow, just to consolidate the results in 2022/ 2023. It is only natural that now we will put our efforts to continue growing. Growth opportunities are never linear and never given, but we are doing our best so that we can continue growing in future years.
Thank you very much.
Our next question is from Lucas Ferreira, JPMorgan. He will ask on the audio feed. Please open your microphone.
Sir, good morning. I have two questions about the current crop. What are the risks that you detect for the second crop? You said that the climate should be okay, but what do you see in terms of risks? It seems like the world is migrating to an El Niño. Wouldn't this dry up the climate, especially in Bahia? Also to understand the cotton acreage, we saw some land recovery. You have higher productivity expectations for this year. Could you explain to us why not plant more cotton? Is it because the planting window is tighter now? Why not plant more cotton for 2022/ 2023?
Thank you very much for your questions. Risks. Second crop. What happened in 2022/ 2023, soybean, we planted early in Mato Grosso, and then the cycle lengthened, and the harvest was not early. It was a normal harvest in Mato Grosso. With excess rain in the harvest period, this lengthened the period a little more. This led us to change 10,000 hectares from cotton to corn in Mato Grosso and in Maranhão. Then we planted cotton according to schedule. In Mato Grosso, we plant cotton in January through the first week of February, and this is what we did. Obviously, the objective from the strategic point of view is to have all the planting take place in January, and everything was prepared for that, but there was this event with rains during the harvest period.
But then we changed 10,000 hectares to corn because we make a calculation of the contribution margin of the planting of that week. So in February 5, how much cotton I have to plant to reach my production and contribution margin? I make the comparison, in fact, between corn and cotton. That is why we decided to have 10,000 hectares from cotton to corn. And then harvest went very fast, and we were able to plant all of the corn in February in Mato Grosso. There was just a little piece left. So we planted corn in a very good time, ideal time, which is February.
Now in Mato Grosso do Sul, lots of rain in February, which was bad for the harvesting, and we still have not finished planting corn because Mato Grosso do Sul and Maranhão, those are the two states where we had some delays in harvesting soybean and also in planting corn. Now in relation to climate risk, if the climate is okay, we will reach our productivity in corn and double-crop corn, cotton. Now, if the weather is dry in April, probably second crop corn will suffer and with this drought in early April. Based on climate models, we see consistent rain probably in Maranhão, so the risk is higher. It is lower in Maranhão because we have climate risk in April and May, and further south, there should be less rainfall. This is the current model, but unfortunately, the models did not get much right recently.
So there was no forecast for drought last year in the south, and we had it. So there is, of course, a little higher risk in corn because it was planted a little later. For cotton, as I said, the decision to plant less or more, we make this comparison per farm, per agricultural unit, what crop will create more protection and also contribution margin, which is the line before payment of overhead. So our planning area decided, that is why we have now 10,000 more hectares in corn because of delay in planting. Also connected to prices, and cotton was hardest hit last year from $1.20 per pound that it was, $1- $1.25, went to $1.18. So the cotton was the crop with price decline. Corn is now competitive in the double crop in Mato Grosso, depending on how much you will plant and your yield.
Our objective is always to maximize results per hectare planted, and that is why we chose this breakdown. Also we did not. We see the energy crisis in Europe, and this has increased the demand for fiber. Today, cotton is at prices almost historical levels. It is not being traded at high prices as corn and soybean, but it is still profitable for us, but this is the rationale in other words.
Thank you very much. I ask you because there is a forecast of growth in acreage of 4%-5% in Mato Grosso. I do not know if this is your own decision or do you think that this number is too high?
Yes, there was a recovery in acreage. Last year, we had lost some acreage. The effective acreage will be a little lower than forecast because several other growers did what we did. They reduced the cotton area in the last minute. It is going to be a little under 1.7 million hectares, which was the initial forecast.
Thank you very much.
Okay, continuing our next question, Julia. She is from Morgan Stanley. Julia, could you please open your microphone and ask your question?
Good morning. Thank you very much for taking our questions. I have three questions. I know that you were talking about the cost for 2023/ 2024 crop year, but since you have purchased from 40%-60% of your fertilizers in this package, while compared to the same 60% of last year, how much below it is in relation to the purchases of last year? I understand that you have higher volumes, but I would like to know in terms of cost levels, how the two crop years compare. Another question. I can ask the three questions at once or one at a time. What do you prefer? Okay. Okay, one at a time then.
Julia. It depends on the product, because we have phosphorus that we purchased cheap last year. Our cost 2022/ 2023, when we consider what we paid and what the market paid, we were really below market cost. That is why our cost variation year-on-year will differ from the market cost variation, because in 2022/ 2023, we were really not as high as the rest of the market. Our average cost increased 20% in BRL in the comparison 2022/ 2023, 2021/ 2022. The rest of the market saw increases of more than 30% in the same period comparison. Fertilizers, potassium, we had bought it for 2022/ 2023 before the prices rallied, and now it is a little above what we paid for in the past. Now phosphorus, the reduction, well, there was a reduction of 30%- 40% in relation to the previous crop year.
When you consider the package, the reduction will be very significant. We still need to purchase half of our needs, so it will depend on the balance left to buy and the dynamics of the market. This is what we predict for 2023/ 2024. Chemicals will see a downward adjustment, especially commodity products such as glyphosate. Glyphosate is now being traded at half the price last year in the international markets, $13- $14 per kilo in glyphosate. It is now half price. We will see an important adjustments of chemicals. We have negotiated only part of our glyphosate so far, so it is important to wait a little longer to know exactly what the cost adjustment will be.
It is very likely that you will find nominal costs in BRL per hectare that were lower in 2023. What is the order of magnitude?
I think it is very difficult. The average cost will have nominal prices below the current cost because of inflation. Inflation was high, and some products saw no downward adjustments such as seeds. Think of fertilizers that went down together with chemicals. Those are the two group of inputs that we will have a reduction of costs in BRL. This is the scenario we see.
Also in relation to costs, what is your perspective for logistics costs in the crop year? There's a little bit of anxiety because there is a lot of expectations for both corn, soybean, and also sugar in relation to this crop. Could you tell us a little bit about the logistics in relation to the previous crop year?
Well, I think that there will be much more demand in terms of logistics because we'll have record-breaking crops for the three products. Costs will increase in logistics. So far, it hasn't really increased that much. We're still shipping soybean, but soon we'll start shipping other products as well. Starting in the second half, we'll see a lot of demand for soybean, corn and sugar, and cotton as well. It's only natural to expect that logistics costs in 2023 will surpass the costs of 2022.
Thank you. I think my last question, something that caught my eye was the price you paid for this last land acquisition, this last farm. It seems very attractive, but I would like to understand, because I imagine that it's a good farm and how was it sold at such an attractive price because you already operate it. Do you think that the expected drop in soybean bags was factored in? Because what I'm trying to glean from this information is how does this impact the assessment of the land bank of SLC Agrícola in the next round of audits?
Well, historically in Brazil, land prices never go down. Either they remain flat or they go up. There are some cycles in which they are flat and others in which they go up significantly. Our expectation in terms of appraisal and appraisal is that the numbers will be higher than last year. We don't expect any decreases because when Deloitte performs the appraisals, they don't take into account the peaks. They look at the history of transactions so that they can appraise the fair value of the asset. We don't expect land prices to go down now that agriculture is doing so well. It's only natural that prices will increase. As I said before, this was a deal. The buyer and the seller came into agreement.
There was interest on both sides, and the asset was attractive to us because of the structure of this farm. It's a farm with four parts. We bought one part and control over the operation, and this was very convenient for us in combination with the attractive land price. This deal will add a lot of value to our operations.
Thank you very much.
You're welcome, Julia.
Continuing now, our next question is from Daniel Sasson, Itaú BBA. Good morning. You can open your camera and your microphone, please.
Hello, Pavinato, Ivo, and Gelain. Congratulations on the results. A quick question, in fact, about seeds. You were talking about your sales strategy. The volume for the resellers and for the pharmacy and consumers should increase because your own consumption is taken care of. Is it reasonable to expect that your margins, because of this sales mix, should increase in relation to the 25% EBITDA margin in this business? Or do you think that this level is sustainable, thinking of the future? What do you think?
The seed business, well, it's the same story as always. It adds a lot of value. This level of profitability that we had was very good. We know that we will have better years, worse years, but even by increasing our direct sales, we do not believe that we will have better margins in the near future because the business structure is like this. It is a business that does not require much invested capital. You see price being added because of the ROI that you add to the grain you produce. So there is revenue that is high per kilo produced. You can multiply it by four. So when you think of margins, well, indeed the revenue is much higher than that.
So this is the logic and also commerce is something that does not have the same high margins as production. So it is only acceptable that we will have lower margins in this business than in production and it makes all sense, in fact. So we will have margins. We do not believe that it will be the same level of margins as in our ag production. No, it does not make sense. No, in the seed business, it will be different margins. It is something that we add to our ag production. Grain margin. Well, the seeds have a bonus of 8% over the grain. Because this is a managerial account for us, we do not have a separate company for seeds. It is all part of SLC Agrícola. So this is our managerial account showing the added value at seed prices.
Just to complement, Daniel, well, we are dealing with external clients, so of course there will be an increase in external clients, but the margins should be similar as if we were selling seeds to SLC Agrícola.
Thank you very much.
Let us continue. Our next question is from Guilherme Palhares, Bank of America. You may open your microphone.
Good morning, everyone. Thank you very much for answering our questions. Just a few clarifications. While you were talking about fertilizers, and you talked about chemicals, pesticides, and herbicides. So, looking at 2022/ 2023 glyphosate and how relevant is this as chemicals and besides those two main products, what do you expect in terms of prices? We see some trackings showing improvement, others with marginal cost increases. The second question is, in effect, something that I would like to clarify. The PPR, I thought it was 9% of the profit, the profit-sharing program. But when we look at profit and the PPR, they were a little bit mismatched. So why did this happen? Do you have any provisions to make because of the fantastic results of 2022 and thinking of 2023? Thank you.
Well, chemicals. We have a survey that we make, the generic chemicals package based on free market dynamics. So this package is at around 32% cheaper than it was last year. Glyphosate, as I said, is 50% down, but the whole package of generic chemicals is now 1/3 lower than last year. Obviously, the patented products, then it depends of the different companies, how they are going to adjust prices. These products did not really increase their prices so much last year. So it is natural that this year they will not decrease their prices so much. So in the package, the reduction will be expressive in prices for chemicals in 2023, 2024, in the comparison with 2022/ 2023. This is what we predict for chemicals.
Pavinato, just one point. When you talk about fertilizers, there is an additional volume that you need to buy for last year. Is this true also in chemicals or herbicides, insecticides?
No. In the case of chemicals, this is not really the case. We have been buying less because of digital agriculture and accurate application. We have some leftover products in inventory because we are using less chemicals, thanks to our investment in digital agriculture. We will be buying less in quantity. This is, of course, something that we are getting thanks to localized application. But we didn't stop using chemicals. It was normal in 2022/ 2023, and we will have the same package, the normal package, with the necessary adjustments for the next crop year. The price reduction will be reflected fully in our costs.
About the second question, Palhares, about 9%. Yes, it's 9% of the profit that we distribute, but then there is another division. The percentage is paid based on results and also based on the targets of the different agricultural production units. Last year, we had some issues with corn and cotton yields. Not all targets were met in terms of unit cost, productivity. As a result of this, the sum was reduced. We are willing to distribute 9%, but it's 40% depending on targets. Since the targets were not met, then the bonus is not the same. The company results could be much better because we saw a reduction of 20% in cotton and corn, and this, of course, had an impact on the bonuses for all employees.
We are disbursing 7%-8%, depending on the year. This is something that we account for in our cost base.
Now, just to ask whether we needed a need for more provisioning?
No more provisioning.
Okay, no problem.
Continuing, we have an additional question from Regis Cardoso, Credit Suisse. He will ask on the audio feed. Regis, please open your microphone to ask your question.
Good morning, everyone. Thank you very much for taking my questions. Just two quick ones. I would like to understand the rationale for share bonuses. Also, I would like to understand when you pay the bonus in shares. In fact, you are not distributing any cash. What is the future allocation of this cash? Because you have low debt in the company, but if you are just piling up cash to drive organic growth or via M&A, is that what you are thinking, or will you distribute dividends via cash in the future? Another topic of interest, if I may, thinking of future investments, something that caught my eye was this land acquisition in Bahia, which is a little bit different from the strategy I had in my mind for SLC. But I think that you discussed this in previous questions.
My follow-up is, thinking of future investments, do you prefer a certain geography or culture? Are you going to grow more corn or cotton or specific geography such as the Northeast? Do you have any target regions for your investments?
Okay, I will answer about the bonus. Regis, thank you for your question. In fact, well, according to our bylaws, we have a reservation limit, and we were reaching those reservation limits so that we could continue have expansion reserves because it's important to have cash for expansion. Even if we are SLC, we need to buy machineries. Sometimes we need to build headquarters or when we convert pastures. It is important to have reserves. So the bonus in shares aims at resolving this issue. Since we have something that is being incorporated to our capital, we can give this advantage for investors because, for them, the cost is BRL 23 and this is something that they will gain when they capitalize on the sale of the share price of BRL 50 and then BRL 10.
They are going to get 45 - 23, so they will pay capital gain tax only on the difference. This is the advantage for them. If we did not do this, if we split the shares, they would not get this advantage. This is a tax advantage. In fact, this is the major advantage that comes from those bonuses.
Second question, Regis, about geographies and crops. Today, we are present in seven states of the Brazilian Cerrado. Our vision is that we can grow in all of those states without any preferred state, Bahia or Mato Grosso. Well, it really depends on the opportunity. We believe that our geographical diversity is very well-balanced right now. We have seen some water deficit stresses. We also saw excess rain, and we know how important it is to be diverse geographically in terms of quality and profitability. So it is important to grow Mato Grosso, Goiás, Bahia, Maranhão. We do not think that there is a new agricultural frontier in Brazil such as Amapá and Rondônia. They have some potential but also some limitations.
So we will continue to grow our land in the areas where we are already present. In relation to crops, Brazil will grow more corn and soybean acreage rather than cotton because it is only natural considering market demand levels. So we have been working for a very long time with 1/4 of our acreage in cotton will continue to maintain the share of cotton, but it is not always that it is going to be the best crop, and maybe we can grow more in soybean and corn. So this is a double bet, two crops in the same land, that generate a lot of profitability. So I believe that we will continue to be growing in the three crop spread with preference for soybean and corn based only on market demand.
Thank you very much, Ivo and Pavinato. What I understood from your answer is that you are building a buffer to eventually fund a more accelerated expansion. But there is no immediate intention to accelerate dividend distribution via cash?
Yes, we have just distributed BRL 602 million, which is very significant. This is in line what we have been doing in recent years. Our leverage is low, but we want to grow. And to grow and not going into debt, we need to have some cash to fund this growth. Last year, we prepaid an CRA that was restraining our growth. It was a relationship between liability and equity. So every time we updated the information. So this was the old CRA that we prepaid so that we can continue growing in 2023.
Thank you very much. Very clear.
If there are no further questions, our earnings conference call on the fourth quarter 2022 is now closed. Our Investor Relations department will be happy to take any of your questions. Have a great day, everyone.