Good morning, everyone. Welcome to the second quarter earnings conference call of SLC Agrícola. My name is Rodrigo Gelain. I am financial manager and investor relations manager. We have here with us Mr. Aurélio Pavinato, our CEO, and our CFO and IRO, Ivo Brum. It is a privilege to be with you this morning. We would like to inform you that this video conference call is being recorded and will be available on the company's IR website together with the presentation. For those who need simultaneous translation, we have this tool available on Zoom, globe icon, with the description interpretation located on the lower part of the screen. When selecting it, please choose your language of choice, English or Portuguese. For those of you listening to the video conference in English, there is the option to mute the original audio in Portuguese by clicking on mute original audio.
For the Q&A, we advise you to send your questions via the Q&A icon at the bottom of your screen. Your names will be announced, and then you can proceed and ask your question live. At this point, a prompt to activate your microphone and camera will appear on the screen. If you do not wish to open your microphone and camera, please write no microphone at the end of the question so that I can read it out loud. We highlight that the information contained in this presentation and any statements that may be made during the video conference relative to the business prospects, projections, and operating and financial targets of SLC Agrícola constitute the beliefs and assumptions of the company, as well as information currently available. Forward-looking statements are not performance guarantees.
They involve risks, uncertainties, and assumptions as they refer 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 may affect the future performance of SLC Agrícola and lead to results that differ materially from those expressed in such forward-looking statements. With this, I turn the floor to our CEO, Mr. Aurélio Pavinato, who will start the presentation. Mr. Pavinato, you may proceed.
Thank you very much, Gelain. Good morning. We would like to thank you all for participating in our earnings conference call on the second quarter 2022 for SLC Agrícola. Please, let us move on to slide three, in which we will comment on the cotton market scenario. The second quarter of 2022 was marked by the drop in cotton prices on the international market.
This resulted from the adoption of a risk-averse stance by market agents, since there are many fears that the impact of a global recession could impact fiber consumption. According to USDA data, global cotton consumption for 2022 and 2023 is expected to reach 119.9 million bales, with production forecasted at 120.1 million bales. These are factors that have contributed to the global balance between supply and demand. Demand by the end of the 2022/2023 crop could be close to equilibrium. A marginal surplus of approximately 236,000 bales is expected after two consecutive crops where consumption exceeded supply. However, the scenario for the 2022/2023 crop year shows a high degree of uncertainty because the United States, which is the largest global cotton explorer, is currently experiencing water scarcity and high temperatures in its main cotton-growing region, the state of Texas. This could cause a reduction in production.
Now, we can go to slide four to talk about soybean. Soybean quotes in the CBOT spot contracts and prices paid for the oilseed in the Paranaguá CEPEA base showed significant volatility throughout the second quarter of 2022. With the 2021/2022 crop year marked by losses resulting from the negative climate scenario in the southern states of Brazil, as well as in neighboring countries such as Argentina and Paraguay, soybean production in South America had losses of approximately 31 million tons, that is 20%, as compared to the initial estimates for the region. Globally, the negative balance of the 2021/2022 harvest was 10.4 million tons. For the 2022/2023 crop year, production should outstrip consumption by approximately 13.7 million tons. The results and development of the American soybean crop is of fundamental importance. However, we are in the midst of a scenario of worsening conditions in the fields.
On slide five, if you please, we turn to the market outlook for corn. Corn prices in the CBOT spot contracts and in the Brazilian domestic market were adjusted downwards during the second quarter of 2022, owing to the high uncertainty and adoption of a risk-averse stance by market agents. At the same time, this was coupled with the worsening of the farming conditions for the American crop. The combination of a smaller planted area in the U.S.A., followed by a deterioration in farming conditions, could impact the grain's global outlook. In the balance between supply and demand, production volume should exceed consumption by approximately 6.1 million tons. Now, I would like to ask you to please to turn to slide seven to discuss the outlook for the 2021/2022 crop year. In this slide, we present our current annual yield estimate for all crops.
In the name of transparency, we have revised our estimates once more as the harvesting is advancing. The weather conditions that occurred in the 2021/2022 harvest, such as the water deficit in part of the states of Bahia and Mato Grosso, in addition to the low temperatures, including frost formation in Mato Grosso do Sul, hampered production potential, or cotton and corn. This scenario made us adjust our yield estimates for cotton and second-crop corn crops. Please let's advance to slide eight. The slowdown in yield, however, resulted in savings if you consider the variable production cost, especially chemicals. So we are also updating our estimate of the cost per hectare with an increase of 14.1% as compared to 16.1%. This represents a reduction of 2 percentage points in relation to the previous version.
Now, I'll hand it over to my colleague, Ivo Brum, CFO and IRO, for his remarks on the main financial indicators during this quarter.
Thank you very much, Mr. Pavinato. Good morning to everyone. Can we please move on to slide 10, where we present some highlights of our income statement for the second quarter of 2022? To maintain comparability between the periods, the data for the second quarter of 2021 and the first half of 2021 reflect the combination of data released by SLC Agrícola and Terra Santa Agro in these periods. We had record-breaking net revenue in the second quarter and the first half, totaling BRL 1.7 billion and BRL 4.1 billion respectively, up 33.8% and 64.9% respectively. Higher unit prices invoiced in both periods and higher volume, reflecting high soybean yield, drove the unprecedented numbers reached in both periods.
Adjusted EBITDA in the quarter amounted to BRL 820.3 million , growing 66% compared to 2Q 2021. In the semester, we reached a record-breaking adjusted EBITDA, surpassing the mark of BRL 2 billion , an increase of 113.7% versus first half 2021. The main factors contributing to the growth of adjusted EBITDA in the quarter and in the first half were increased margins and invoice volumes, driven by the high yield of soybean. In the quarter, net income increased 15.3% compared to 2Q 2021, reaching BRL 486 million . In the first half, net income was record-breaking at BRL 1.28 billion, up 68.8% versus the previous half. The increase in gross profit was the main driver behind the increase in net income for both periods. If we can please advance to slide 11, we will discuss the company's net debt.
Adjusted gross debt closed the second quarter with the following profile, 63% long-term and an average cost of 14.3%, since almost all of our credits are linked to the CDI. As for the adjusted net debt, it represented BRL 3.3 billion , an increment of BRL 874 million compared to 2Q 2021. The increase in working capital related to the payment of ag implements, leases, and dividend payout impacted our net debt. The impact during this period, however, is expected and part of our financial cycle. Net debt over adjusted EBITDA was down compared to 2021, going from 1.42x at the end of 2021 to 1.09x in the second quarter 2022. This demonstrates that increase in adjusted debt was fully offset by the adjusted EBITDA in the period. In slide 15, we have the updated hedging position of the company.
On average, we are 80% hedged for the three crops, considering both price and FX variations. As previously announced, we expect solid margins for 2022. Now I'll turn it over back to Pavinato, who will talk about the main highlights and prospects for the 2022/2023 crop year.
Going to slide 10. We closed in July, concluded the buyback of 2 million shares, a program that was approved in 2021. On July 13, 2022, the board of directors approved a new buyback program representing more than 4 million shares. Also in July, we announced the new valuation of the land owned by the company, as you can see on slide 15. The valuation was carried out by Deloitte, and the current value of our land portfolio reached the amount of more than BRL 9 billion , BRL 9.3 billion in fact.
With this further appreciation, the net asset value represents BRL 55.31 per share. The current value of the average arable hectare owned by the company amounts to BRL 48,229 . The appreciation representing 34.7% in this portfolio validates that we were correct in investing in land in Brazil. On May 18, we paid out dividends in the amount of BRL 504.4 million to our shareholders. We distributed 50% of the parent company's net income, which corresponds to approximately BRL 2.43 per common share with a dividend yield therefore of 4.8%. Please, let's go now to slide 17, where I will make some comments on the outlook for the 2022/2023 crop year. As expected, there was a reduction in the prices of inputs in the second quarter, and this made it possible for us to make progress in acquisition of these inputs.
We have acquired 84% of our needs for potassium chloride, 100% for phosphates, 85% of our nitrogen, and 93% of the pesticides we will need. At the same time, we also made progress in hedging the 2022/2023 crop year, as you can see on slide 18. The hedging for the 2022/2023 crop year also shows increased prices, both as regards commodities and exchange rates. Compared to the previous crop year, we saw an increase in prices denominated in BRL of 16% for cotton, 10% for soybean, and 14% for corn. We have already secured 40% of our commodities requirements and the prices are locked, representing also 20% of the exchange rate variation. Based on the information already disclosed, the company estimates that good margins will be maintained in the year 2023. Thank you very much. Now, let us open for our Q&A.
Thank you very much, Pavinato.
We will begin now our Q&A session. We would like to ask you to please ask your questions all at once and to wait for the company's answers. To ask any questions, please submit them by using the Q&A icon at the bottom of your screen. Your names will be announced and then you can proceed and ask your question. At that time, a prompt will be shown for you to open your camera and microphone. If you do not wish to open your microphone and camera, please write, "No mic," at the end of your question. Like this, I will read it aloud. We have a question from Gabriel Barra, Citibank. Gabriel, can you please open your camera and microphone and ask your question? Gabriel, are you with us? You may open your camera and microphone, and then you can ask your question.
Okay, we will try to solve this technical glitch, so let us continue. We have another question from Lucas Ferreira, JP Morgan. Lucas, please feel free to open your camera and microphone and ask your question.
Good morning to all. Can you hear me?
Yes, perfectly.
Thank you very much for allowing questions. I have two questions, in fact. First of all, I would like to clarify your comment on the yield outlook for the 2021/2022 crop year. You expect margins that are in line with the historical margins. So what can we guess, 35%? Is this the level of profitability that you expect? Does this represent a reduction in the second half because you had 51% in the first half? I know that there are seasonal effects involved, but I would love to hear your comments.
Along the same lines for 2022/2023, in the last quarter, you have announced a margin from 31%-39%, and you have talked about fertilizers. If you can give us some more info on what you have already acquired and the variation of fertilizer prices from year- to- year, and also your hedged positions. What do the changes in prices for certain commodities cause as an impact for this margin between 31% and 39%? Are you continuing to uphold that belief?
Thank you very much, Lucas, for your question. Well, in practice, it is just like you said. In the first half of the year, soybean is sold, and we also have the cotton from the 2021 crop year that is shipped until June. So we have outstanding margins during the first half, as you can see in the results.
In the second half, we have cotton coming in together with corn, and then margins probably will shrink, and they will go back to historical levels. The recent historical levels, that is. We gave you guidance recently, a few months ago, between 31%-39%, and we expect that the results will be along these lines. If you compare productivity or yields between the farms or ag production units. For example, in Maranhão, we have great yield for cotton, and in Mato Grosso, yield suffered a little bit. So depending on the invoicing ag unit, and this depends on the context, you might have more or less profitability and a bit of margin, but we won't be far from the margins that we have announced. In the second half, our margins are expected to be lower, but within those parameters, 31%-39%. Pavinato, would you like to comment?
Thank you very much for your question about 2022 and 2023. We have made progress in buying implements for this period, and today, fertilizers overall. Prices had increased 240% in comparison to historical levels. Now they are at around 150% above. So we are able to buy at lower prices, and there will be moments in 2022/2023. Also, we know that chemicals, pesticides, and herbicides are more expensive than in the past, but the selling prices for the 2022/2023 crop year are higher than in the 2021/ 2022 year, and we expect that we'll have a normal crop year in 2022/ 2023. We had 20% of losses between cotton and corn. We expect a normal year, and as such, we will continue to operate at good levels.
Our margins were high in 2021/2022, and we believe that 2021/2022 will be at high level and the same goes for 2022 and 2023. So prices will be maintained. At the current levels, we believe prices had decreased, but they are still at a level that is sustainable in our belief, considering the balance between supply and demand worldwide. Even cotton had plummeted to $0.74, and now we are back to the outlook we had discussed in the previous quarter, cotton at $0.90-$1.00 per pound. So in the long term, $0.85 is the price. So we believe that cotton in the futures, not thinking of spot, is what will ensure that our margins for 2023 remain healthy.
Thank you very much. Let's continue. We have a question from Daniel Sasson, Itaú BBA.
Daniel? Please feel free to open your camera and microphone to ask your question.
Hello. Thank you very much. I hope that you can see me and hear me. My first question is about cash generation and capital allocation. Your cash generation is very strong, and it should increase also with the reversal of the working capital requirements. You have recently announced the buyback program of 4 million shares for July. So in your view, what is the preference between paying extraordinary dividends or having a more robust buyback program? How do you view the two options? In terms of capital allocation, have you considered partnerships, for example, for producing corn, ethanol, or other expansion projects that might make sense to you?
And also on the topic of opportunities for future growth, do you believe that you can still grow your acreage, or are you going to try to boost yield? We know that there are climate conditions that are beyond your control, but you might have initiatives in the area of grain, verticalization of the chain, or other acquisitions in your radar in the medium term.
Thank you very much, Daniel, for your question. Our strategy is very clear. We have four strategic pillars, and we have been working always based on those pillars. Asset-light growth is one of our pillars. We are making progress in that direction. Also growth through new businesses. We have started the new seed business for cotton and corn, and it is already sizable, and it is expected to double in size in coming years. We have also operations being built in Mato Grosso.
We are also intensifying our integration between agriculture and cattle ranching. We are now creating the fourth product, seeds, and the fifth product which will be beef, and generating more cash per hectare that we operate. Our strategy continues, therefore, to be asset light, always focusing on efficiencies. Efficiencies and yield, this has been our focus for this year. Yesterday, in the board meeting, we discussed the decreased yield in cotton and corn, and they all agreed that it was climate-based. So we expect that in the next crop year, we will resume our productivity levels. In soybean, we have seen steady yearly improvements, and this is expected to continue. So our efficiency pillar is something that we continue to pursue, and we are getting good results.
The third pillar is consistent financial indicators that are robust, and we have also been delivering a very safe debt level, which is, of course, something very very sound, maintaining your net debt and your debt levels, especially if you operate in agriculture, which is a very volatile area. So you need to be able to weather tougher times, and financial health is essential for that. Our fourth pillar is ESG. It is something we have been really giving a lot of emphasis. So in relation to your question about capital allocation for growth, we will continue to be based on those four pillars. Share buyback is an opportunity. Today, we have 2/3 of our operations on leased land, 1/3 on our own land, and the market is pricing our company too low.
We should be worth more than the EDG, that is 2/3 of our shares is on leased land. So, the stock buyback program is an opportunity to add value to our shareholders. So we can also cancel some shares or use them to drive new projects. So we see that efficient capital allocation is also an opportunity for our shareholders. As for new projects, we will continue growing our leases, and there is an opportunity for some acquisitions in new projects that make sense to us. We would like to reaffirm that our vision today is to stop selling land and buying some properties that will strengthen our portfolio and this proportion, 1/3, 2/3. This is what gives our operation so much stability. So through JVs or mergers, well, these are all based on specific projects. We are always looking forward projects that will increase our efficiency, first of all.
Opportunities are never linear. They do not appear every year. In a moment like today, we have high interest rates. What is the message that the market is giving investors is take it easy, go slow on your investments, because, of course, with high interest rates, this is a moment for you to generate cash and to enjoy opportunities when interest rates go down. This is how we interpret the current scenario. If you think of our macro strategies, we haven't changed anything. Investing in new products and new businesses. With our current business, we have a high efficiency level, and this really makes us stand out in relation to the average of our business. New businesses is something that a new business is something that will maintain the same strategy. Otherwise, it just doesn't make sense to diversify.
Since we have opportunities and there is a need for more ag products in the market, we can continue to expand our business with the current makeup. We are open to assess more business opportunities, but we don't want to lose focus, and we want to continue expanding our current business. I hope I was able to answer your question.
Thank you very much. It was very clear.
Thank you, Daniel. We have a question from Gabriel Barra, Citibank. He has a problem in his microphone, so I'll read his question. There is an increase in the fertilizer and chemicals that were acquired between the first half and second half. Looking at the prices, it seems that you were able to acquire these inputs at very attractive prices by using a sense of opportunity.
How can we envision cost in relation to CapEx, and also making a comparison with the average of the market?
Gabriel. First of all, I think that there are not enough comparative data in relation to market averages. As the crop year advances, then we start getting more reports from the market, and we can make the comparison. Our sentiment is that we were able to make the acquisitions at the right time. For example, potassium, we had purchased 18 months ago at a very attractive price, lower than the market average. We are almost certain that our cost in potassium will be lower than the average market cost. The same for phosphorus. We purchased most of it before the war in the Ukraine, before they started skyrocketing. It was also a very timely acquisition.
What we have done in the last few months was just to wait and see, and prices went down. We didn't buy at peak prices. We believe that the price formation for the coming crop year will be below market average, and since the market was very active while prices were high, we expect that our production costs will be indeed below the market average. As for ag chemicals, pesticides, and herbicides, they do not show so much variation. If you make the comparison with other market players, this is our understanding. We're still unsure how much prices will go up. We are still working on the numbers. By September, we'll have the numbers, and we'll disclose them to you about how much our production costs will increase.
Our expectation is that considering the price increase we will have in BRL, and considering also the recovery in cotton and corn, we will maintain very good levels.
Thank you very much. Pavinato, our next question is from Patrick Conrad from Western Asset. Patrick, please feel free to open your microphone and camera. Patrick, do you hear us? Can you please open your microphone and camera?
I apologize, my camera is not on. Well, in relation to yield and the effect on margins, you have already answered. This was one of the questions I wanted to ask. Now, what about the perspective for the United States? You said that there is a decrease in the expectations for excellent or good crops, also as an effect of the water shortage and in the Midwest, and especially in Texas.
What do you think in relation to the timing, is there an upside for prices? Could this be an important source for sustaining commodity prices at the current levels?
Thank you very much, Patrick. Well, the market reacts more to hearsay than to facts. The water shortage has already affected prices. Chicago was at 13.5%, and it is now at 14.5%. It was below 15%, and it is now spot prices at 17%. The effect on the market, the effect of this water shortage and deficit is already being observed in the market. The fact that we will not have the full harvest, does it create a positive effect for us? Yes, of course, it is because there is a reduction of the overall crops. This, of course, reinforces an expectation that prices will be higher. This is the positive effect of constraints in supply.
With constraints in supply, restricted supply, well, this has been one of the major causes for increases in prices. Of course, the war in the Ukraine bumped prices up and prices went down, basically. The effect, however, is now being felt through the reduction in crop because the supply is not as abundant as before. For example, for soybean in Brazil, it was a full crop. And cotton in Europe, we also have the heat wave that is affecting the corn crop in Europe, which will be even further reduced. The supply constraint caused by climate events are the main reason for the pressure on ag commodities in the past two years. In the medium and long term, and especially thinking of next year, we will have a chokehold on supply.
This, of course, and in Brazil, we will expand our operations to expand further because high prices, this is the message. In Brazil, we expect to have the La Niña effect, and the La Niña is positive for Brazil. In fact, we had an exception. It was a La Niña that turned around in the middle of the year, and this created an unfavorable effect in Mato Grosso do Sul and Bahia. But La Niña has a negative effect on supply, and because the crop in the south and in Argentina is affected. There is a perspective of crops in South America not matching the high levels of the past. This is what, of course, drove prices. Our high prices today come from a break in crops. This is the crop failure effect.
This is the scenario that we envision, and climate in the last three years has not been favorable. Besides the pandemic and everything, thinking of agricultural commodities, the pandemic did not affect us. In fact, there was an increase in fertilizer prices, and there were effects in distribution. In short, the pandemic did not affect our production levels. What affected production levels was the climate events, and this is what drove prices to the levels that they are in today. We believe prices to continue, whether it is going to be 15%, 14%, or 13%, it does not matter. They are above the historical levels.
Thank you very much. Our next question is from Henrique Brustolin, BTG Pactual. Henrique, please feel free to open your microphone and camera.
Good morning. Thank you. I have a follow-up question on the prices for next year.
Could you please explain how the current price levels, and I understand that in your vision, it will continue to be high, how does this relate to the guidance on margins between 31%-39%? Or what was the price level that you were considering when you announced the guidance? The second question for the 2022/2023 crop year, thinking of the yield mix divided by different crops, can we expect a change in the land use mix?
Thank you very much, Henrique. About 2022/2023 prices and how they match our guidance, yes, there is a connection. We did not advance more in the hedging for cotton. Yes, there is a link, but in a scenario of worsening conditions in American farming, we expect especially cotton prices to go up a little more.
It has reached $0.95 for next year, and today it is between $0.85-$0.87, and we expect it to go up because the economic scenario that we design. Now, the economists are talking about something lighter than a recession. There will be a smaller effect of inflation in the U.S., so maybe the scenario is not as acid as believed before. With this, fiber consumption will probably be consistent. With the farming conditions not looking so good in the U.S., of course, probably the supply constraint will limit consumption. The prices were taken into account, but we expect prices to increase now. We are going to move up to the higher part of our curve. We are looking more at the higher numbers. In relation to the crop mix, we crunch the data crop by crop. It really depends on the region.
Mato Grosso has two crops a year. We think of the contribution margins, first of all. In Bahia, it is one crop only, and soybean and cotton. We think always of the contribution margin. Thinking of the current scenario, we believe that will sell the balance of cotton and soybean. We will be announcing the acreage in November, but overall, we maintain our strategy because it is second crop corn you plant or you do not plant, and the same for soybean. What will change is a little more cotton or a little more soybean in the different seasons. This is the variation we can make depending on the contribution margin for each crop. We believe that we will maintain the portfolio as is.
Thank you very much. Our next question is from Mateus Santana. Mateus, please open your microphone and camera.
He's saying that he— You may proceed with your question in the audio channel only.
Can you hear me now? Okay. In fact, I have two questions. The first about seeds. We know that you're expanding your initiative, and you have announced an increase in the guidance. Can you give us a little more flavor? Can we expect margins? What can we expect in relation to margin and costs? About fruits, you have announced in the past that you wanted to expand into that product. Do you have a timeline for that, or is it just something that you are evaluating? Are you thinking of any acquisitions in that regard?
Thank you very much, Mateus, for your question. This is a very good question, the one you asked on seeds.
The problem of us disclosing too much data is that we're talking about products that are sold to the end consumer, and when we hedge our things, it's thinking of the international prices. But the seeds don't have a predefined price. It will depend on so many things, varieties. When we disclose this information, we end up revealing some of our competitive advantage to the market, and this is not advantageous for us. Just like in the past, where we stopped informing the breakdown of land per production unit because we wanted to sell the land and this, of course, represented an obstacle for our negotiations. That's why for seeds, it's basically the same thing. In the next release in which we will talk about our budget, we'll try to reveal whatever we can to you. But let's sleep on it.
Let's leave it for October, please. Because we don't want to give up on our competitive advantage. I would like to ask for your understanding. Yes, and the logic of the seed business is not to create any incremental margin. Yes, we have to consider the incremental margin of seeds and our crops, and this, of course, has many synergies in relation to our business. About fruits, we are considering a few projects. We have announced that before. We are currently studying a portfolio of opportunities. But going back to the topic of diversification, maybe in the future, we will invest in fruits. This is the portfolio. Well, we have portfolio in corn, cotton, soybean, and beef, and maybe fruits will also integrate our portfolio in the future.
Thank you very much.
Our next question is from Guilherme Palhares, Bank of America.
Guilherme, would you like to please open your camera and audio?
Good morning, Pavinato, Ivo, and Gelain. A quick question on our side. While considering this crop's and next crop's prices, the company has reduced the impact of chemicals in corn and cotton. I would like to understand how this strategy reflects in the savings of crop protection for the next crop year and also in relation to average costs, because we saw that in the last year, the prices were lower. Thinking of the stock for 2022/2023, could we expect a cost per hectare that is lower than we previously expected?
Yes, certainly, Guilherme. This carryover inventory that resulted from the draft. Well, we had a draft in Bahia and Mato Grosso affecting corn and cotton, so there was a water deficit. As such, we used less fungicide and other chemicals.
So as a result, we had excess inventory of those products. The cost in inventory will be lower than the prices that these products are currently being sold in the market. But the effect, this carryover inventory, does not really make much of a difference in the budget. Of course, it's always helpful, but—
Thank you very much, Pavinato. Just to follow up, when you look at the revision of the cost per hectare, we see some pressure coming from fuels. I think that this line is 100% related to fuel prices. Or is there anything else in relation to your ag planning? Does this have an impact, or are you just revising because of the energy crisis?
I think, yeah, price. We are now finishing area or land conversion, and this has a very high cost and an impact in CapEx and production cost.
We have to repair the soil owing to acidification. This is something we do every year. This was the variation that was felt in the last two years. Before, it was at BRL 3. Now, fuel, it's at BRL 6, BRL 7 . However, fuel costs represent 4% of our overall costs. So it's significant, but it's not a major impact. Would you like to comment on it?
Well, considering the adjustment on costs for this year, we are thinking of crop protection costs and also with less harvest, we also have a reduction in some of our costs. The numbers reflect all of those adjustments, higher fuel and also smaller volume of fuel because we're not harvesting as much, and also less crop protection costs. All of this is reflected in the costs.
In October and November, we will announce the costs for the next year. Also considering the carryover of crop protection from one year to the next.
Thank you very much. Very clear.
Thank you.
Our next question is from Felipe Ferreira, PBS. You may proceed, sir. Please open your camera and microphone. I'll read your question, Felipe. Good morning. Congratulations on your results. How do you view the news about the Chinese market in relation to future results?
Soybean meal market that has requirements in relation to higher protein content in soybean. Felipe, China is a huge market, and it's a market that is elevating its quality standards.
Before, they just wanted food and food at any cost, at any price, and now the Chinese population is not growing as much and the GDP is growing, however, so per capita income grows every year, and as such, consumers are becoming more demanding. In China, there's this Make China Brilliant model, and they are also investing in sustainability to change their reputation as a source of pollution. When you think of food, of course, somebody who's wealthier has higher demands, and this is what we see in China. We see more affluence, more people becoming wealthy. Our vision, well, there are some discussions on how much China will be able to grow its output to become self-sufficient.
Today, China is relying, is over-dependent on many markets, but China's importing more beef and meats. Also, they are starting to import corn that they didn't in the past. They have a plan for consolidation of their agriculture to remove these shortages, but they will continue to buy very strongly and source more food in the international markets. In our vision, the Chinese market of the future will be very different from the one we have today and ask for more grain. In the past, they were importing more grain. Now that they're importing more meal, this is part of the diversification and of some internal operations in China. China is also expecting to import more beef, and this is also something that's happening.
In relation to the higher protein content in the soybean, Brazil has a more favorable condition to reach those levels than other countries. The American soybean has lower protein content. A high-protein soybean, for us, this is a market niche. We believe that the market will continue to be a commodity market, the export standard grain that we export today. This is our understanding of the Chinese market.
Our next question is from Eduardo Dutra, Caixa Econômica Federal. Eduardo, you may open your microphone and camera. Eduardo, would you like me to read your question, or are you going to open your microphone? Okay, I will read Eduardo Dutra's question. Could you please comment on the ESG projects and initiatives?
Thank you, Eduardo. Let's start with the E in ESG.
We have adopted a strategy that is differentiated in the market because we are not investing in native cover areas or land. We will only expand to areas that already have human interference. In relation to our production units, we are intensifying our recycling and wastewater management in those farms. Everything that relates to environmental initiatives is something we've always invested in and will continue to do that because we want no waste, no losses. We want to recycle as much as we can. This is the logic for our E. In addition to that, we want to use strategies to offset our emissions. We are producers. We buy and we generate emissions. Now, this is one of the topics that we are discussing, how to create a strategy to mitigate or offset our emissions.
We have announced a commitment to lower our emissions by 25% by 2030. We're revisiting that strategy and thinking of how we can reach net zero, if possible, in terms of emissions and carbon capture. When we think of the businesses that are in Brazil and in other countries, Brazil makes emissions, but we also have the ability to offset and mitigate those emissions to reach the net-zero goal. This is what we expect for the environment. We have also made several investments in education. This is our S in ESG. We also extend opportunities for growth. We have trainee programs and educational programs directed to our employees. It's something that are really things we offer the employees working with us, the opportunity of going to elementary or high school. Today, we have 300 colleagues that are studying in elementary education and high schools.
We want to train our team so that they become proficient in digital agriculture. We also work with the surrounding communities, with schools, and we want also to step up those programs and achieve more integration with the neighboring communities. Governance is the most mature pillar for our company. We have very well-established governance. We continue to make progress. This is what I can tell you about ESG. I would like to say some words about our governance. We have now a board member who is a woman. We also are reinforcing our governance through the creation of more committees. As Pavinato was saying, we are always on the move, always evolving to make these initiatives. Yesterday, we have created an ESG committee at the board, and this is definitely helping us to discuss and deepen our strategies related to ESG.
Thank you very much, Pavinato. We have one more question from Victor Romano, from Bradesco BBI. In relation to productivity impacts, were there any improvements in the water deficit in July and August, and were there any improvements to the yields in the second half?
Victor, the Brazilian Cerrado has rain from the end of September until the beginning of May. When we announced in the first quarter, we had a forecast that there would be additional rains in May, and as such, we would be able to have a recovery. What happened? We already had a water deficit in April, and in May, the rain didn't come, so the drought was confirmed with losses in our yield. In June, July, and August in the Cerrado, no rain. This is something that's well-known, and this is the historical standard.
Also for cotton, we also harvest cotton, and like this, we can maintain a high quality level. For example, last week we had rain in Mato Grosso. It was something that we were not expecting. It was something that's because this creates a reduction in the quality of cotton. Now what we expect is that in mid-September, we will see the rain cycle resuming, and then we'll start planting soybean. This is when we start the planting season in Mato Grosso. This was the map of rain in the previous cycle. We are now expecting a new cycle to start in September.
We have received one more question from Mauro Henrique Santos, an investor. Good morning. Congratulations for your results. Considering costs, are you still using biological crop protection?
Yes, we are still investing in biologicals.
We have 13 on-farm production units because they have been very efficient in biological controls and it's something that also reflects our sustainability commitments and creates balance in the environment. We want to use more biological crop protection, and with this, less chemicals. There are two strategies to reduce chemicals. First of all, very localized applications, thanks to digital agriculture. We'll use less chemicals because we are just targeting better, and then biologicals. The results have been very positive in the control of pests, and this also helps us reduce consumption of chemicals. In the next years, of course, this is our strategy. We need to adjust operations. Sometimes you cannot do biological control.
You have to take a more preventative approach, to prevent a pest from expanding, and we are also preparing this by buying more sprayers, and with this, we hope to reduce our consumption of chemicals.
Any more questions? No. Very well. We close our questions for today. I would like to ask you to please fill out our satisfaction survey, and we will be very thankful if you can answer the questions. If there are no further questions, we declare the second-quarter earnings conference call of SLC closed. Our investor relations department will be happy to answer any questions. Have a great day, everyone. Thank you.