Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome you everyone to the Atacogro Third Quarter 2020 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO Mr. Charlie Barroque, CFO and Mr.
Juan Ignacio Galliano, Investor Relations Manager. We would like to inform you that this event is being recorded and all participants will be in listen only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer section. At that time, further instructions will be given. Before proceeding, let me mention that forward looking statements are based on the beliefs and assumptions of Adequegro's management and on information currently available to the company.
They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Adecoagro and could cause results to differ materially from those expressed in such forward looking statements. Now, I'll turn the conference over to Mr. Mariano Bosch, CEO. Mr.
Bosch, you may begin your conference.
Good morning, and thank you for joining Adecoagro's 20 20 3rd quarter results conference. The company has been performing really well despite the pandemic. All our operations are working under very strict protocols to guarantee the safety of our people and contractors. We are seeing signs of partial economic recovery, but we cannot relax since the pandemic is far from over. Moving on to the results of our businesses.
In our Sugar, Ethanol and Energy business, the strategy we adopted during the Q2 of 2020 to slow down our crushing pace in light of the pandemic allowed us to transfer sugarcane into the 2nd semester of the year and benefit from better price outlook. As a consequence of the greater cane availability, during the Q3, we were able to maximize our crushing pace, reaching 4,400,000 tons, a record high for the quarter, and at the same time, capture higher prices of sugar and ethanol. Also in this quarter, we diverted 44% of the TRS content to sugar production compared with 13% during the same period of last year. This 30% increase shows the high flexibility of our assets, a very important competitive advantage, especially on the sudden changes in the market outlook of our products. Our flexibility was also seen in our ability to increase our mix of unhydroethanol to profit from its high prices and recover demand.
In fact, during the Q3, 41% of the ethanol produced was anhydrous compared to the 31 produced in the same period of 2019. We are proud to announce that we were the 1st company to start commercializing carbon credits under the Renovavio program. So far, we have sold 245,000 at an average price of BRL 41 per Seville. We are optimistic about the development and increasing liquidity of such market providing us additional sources of income. Our 3 mills have been certified to issue Ciballos and were awarded at a score which place us in the top 10%.
As an example, in any given year where we would maximize ethanol productions, our mills could produce as much as 750,000 cubic meters of ethanol, which results in the right to issue approximately 1,000,000 CVAOs. Moving to our Farming and Land Transformation businesses, our adjusted EBITDA both during the quarter and year to date were more than 50% higher year over year. This is a clear proof of the consolidation of the fiber plant investments we made in our crops, rice and dairy businesses, together with our focus on efficiencies. Our peanut processing facility is reaching full capacity. Our dairy processing facility hit production records during the peak of the pandemic.
Our rice meals, parvoil plant and snack facilities allow us to offer higher margins. Our storage and conditioning facilities continue to improve our land quality and reduce handling costs just as much as having our own seeders and harvesters in our different productions. These are just a few examples that make us proud of the work we are doing and excited about what is coming next. Let me also point out that our businesses have a strong focus on export market, which is very favorable in this current context. At the present time, all of our teams are fully focused on the planting activities for the 2020, 2021 harvest year.
So far, crops are developing under good soil and weather conditions. We hope that the weather continues to be favorable over the coming months, that is a period in which most of the yields are defined. As every September, Cusman and Wakefield conducted an independent appraisal of our land portfolio and valued it in line with last year. We continue with our strategy to sell part of our mature farmland at a premium to our valuations, as was the case with the plot of the Abalengo farm in Argentina. I would like to remember all that our 5 year plan is in its final stages.
As a result, and despite of the pandemic, this year we will be free cash flow positive and become a real turning point in the company. To conclude, I would like to express my gratitude to all the operational and management teams. It's impressive the commitment and hard effort of all of our people during these difficult times. I am convinced that we were following the right strategy to generate good returns and values for our existing shareholders. While we reframe our discipline of being low cost producers, enhancing our efficiencies and taking care of our people.
I will let Charlie walk you through the numbers of the quarter.
Thank you, Mariano. Good morning, everyone. Let's start on Page 4 with a brief analysis on the range in Mato Grosso do Sul. As seen on the top charts, rains in our cluster during the Q3 of 2020 were only 4.7% below the 10 year average, but almost 2.5 times higher compared to the Q3 of 2019. The increased rainfall was concentrated in a handful of days rather than being distributed throughout the quarter, which enabled us to rapidly resume crushing activities as it can be seen in the following slide.
I would like to briefly comment on the weather in the center south region of Brazil. The region which accounts for approximately 85% of Brazilian sugarcane production has been experiencing dry weather for a prolonged period of time. We believe that this will result in a longer than anticipated in the harvest period and will lead to a tight supply and demand scenario by year end, which in turn will put pressure on prices. It is worth highlighting that we will continue to crush cane year round and produce both sugar and ethanol during the inter harvest period. This is because we are based in a region that has a different weather dynamic and because we operate under a continuous harvest model.
Let's continue with Slide 5, where I would like to discuss our sugarcane crushing. During the Q3 of 2020, a total of 4,400,000 tons of sugarcane were crushed, 19.1% or 700,000 tons higher than the same period of last year. Indeed, during July, we reached a record of 1,700,000 tons of sugarcane crushed. The increase in crushing was favored by greater cane availability following our decision to temporarily slow down our crushing pace during the Q2 of 2020 in light of the COVID-nineteen pandemic and advantageous weather to carry out harvesting activities. Enhanced efficiencies at the industry level resulted in a 20.4% year over year increase in milling per day as they enabled us to crush a higher volume in 1.1% lower effective milling days.
On a year to date basis, a total of 8,600,000 tons of sugarcane were crushed. This represents a decrease of 5.1 percent or 500,000 tons compared to the same period of last year. However, milling per day increased by 5.6% year over year, which shows a significant recovery from the slow 1st semester. Please jump to Page 6, where I would like to walk you through our agricultural productivity. During the quarter, sugarcane yields reached 81 tons per hectare, 20% higher compared to the Q3 of 2019.
The year over year gap is fully explained by 20 nineteen's weather dynamic. Indeed, the adverse weather conditions that hit our cluster last year negatively impacted yields in the Q3 of 2019 as most of the harvested area was still below optimal growth stage. However, TRS content in the Q3 of 2019 was in line with the 142 kilograms per ton registered in the current quarter. This is explained by the fact that the impact in the TRS content driven by 20 19 dry weather was observed during the Q4 of 2019, not the third. The combination of these two effects resulted in TRS production per hectare of 11.6 tons, 19.3% higher year over year.
Year to date, yields reached 78 tons per hectare and TRS content 130 kilograms per ton, resulting in a TRS production per hectare of 10.2 tons, 0.7% higher year over year. Let's move ahead to Slide 7 where I would like to discuss our production mix. As you can see in the top left chart, during the Q3 of 2020, anhydrous and hydrous ethanol in Mato Grosso do Sul traded at an average price of 0.11 8 dollars and $0.1008 per pound sugar equivalent, representing a 4.1% and 12.3% discount to sugar, respectively. However, current prices evidence a recovery compared to the previous quarter of 2020 when they traded at $0.10 3 $0.095 per pound respectively. In light of the improved outlook on prices and in order to take advantage of the favorable weather and clean availability, our strategy during the quarter was to maximize crushing.
Our efforts were focused on maximizing sugar, the product with the highest marginal contribution. Indeed, we operated our sugar kitchen at full capacity through the quarter. With a TRS content of 142 kilograms per ton, the maximum volume that could be processed into sugar was 44%. This represents an increase of almost 4 times compared to the Q3 of 2019. When we diverted only 13% of TRS to sugar production.
I would like to insist that this high degree in flexibility constitutes 1 of our most important competitive advantages since it allow us to make a more efficient use of our fixed assets and sell the product with the highest marginal contribution. In terms of ethanol, during the quarter, we diverted 56 percent of the IRS to the ethanol distillery compared to 87% during the same period of last year when our strategy was to maximize this product. We also increased our mix of anhydrous ethanol to benefit from the higher prices and demand from 30.7% in the Q3 of 2019 to 40.7% this quarter. Year to date, sugar accounted for 39.4 percent of total EBITDA generation in the sugar, ethanol and energy business, considering other operating income, while ethanol accounted for 51.7%. Let's please turn to Slide 8, where I would like to discuss quarterly sales.
As you can see on the top left chart, during the Q3 of 2020, ethanol sales volumes decreased by 40% year over year. This is explained by a decrease in the volume available for sale cost by a 26.4% reduction in ethanol production since the current mix has a lower incidence of ethanol compared to the Q3 of 2019 and 31% lower inventories carried from the previous quarter as production mix shift to sugar maximization at the peak of the pandemic. In addition, the decreases in ethanol sales volume is also explained by almost a 10% increase in carry in relative terms to benefit from higher expected prices. Average selling prices for ethanol were higher measured in reales, but lower in U. S.
Dollars, standing at 12.5 per pound insured equivalent, representing a 21% year over year reduction. On account of the lower selling volumes and lower average prices in U. S. Dollars, net ethanol sales during the quarter amounted to $37,600,000 53.8 percent lower year over year. In spite of the lower results, I would like to mention once again that the ethanol prices experienced a recovery throughout the Q3 compared to the Q2 of 2020 and so did domestic ethanol sales, which increased 26% according to Unica.
At, soba and hydro ethanol are at pre pandemic levels, such as low cost by the lockdown was fully offset by an increased demand from the Northeast region of Brazil as import parity favored domestic consumption. This increase in demand coupled with a lower supply from the Central South region should lead to a tight supply and demand scenario by year end. In the case of energy, selling volumes reached 311,000 megawatt hour, marking a 8.4% year over year decrease. Average selling prices were lower both measured in dollars as well as in U. S.
Dollars standing at $35.9 per megawatt hour, implying a 33.9% decrease compared to the same period of last year. However, dry weather in the Central South region of Brazil, coupled with the economic recovery, contributed to an improved outlook for energy prices, evidenced in an increase of more than 3x between September October. All in all, net sales in the Q3 of 2020 were $11,200,000 39.4 percent lower compared to the previous quarter. Sales volume during the quarter was down slightly below the Q3 of 2019, sitting at 250,000 tons, driven by an increase in production mix and volume. Average selling prices in U.
S. Dollars fell by 10.7 percent to $0.116 per pound due to the fact that the price also includes forward contracts fixed in previous periods. All in all, the higher selling volume offset the decrease in prices, resulting in net sugar sales of $64,000,000 during the Q3 of 2020, 2.1x higher year over year. Finally, to conclude with the sugar, ethanol and energy business, please turn to Slide 9, where I would like to discuss financial performance. Adjusted EBITDA during the Q3 of 2020 was $86,400,000 1.5 percent higher compared to the same period of last year.
This was explained by enhanced efficiencies, which allowed us to reduce costs, greater fixed cost dilution on account of the higher crushing volume and the depreciation of the resilient real, which positively impacted costs, expenses and the mark to market of our biological asset, especially harvested sugarcane. Year to date, adjusted EBITDA stood at 172,700,000 at EUR 12.7 million, which is explained by the dynamics in our financial results. I would like to move on to the farming business. Please direct your attention to Slide 11. At the end of the 3rd quarter of 2020, we began our planting activities for the 2020 'twenty one harvest year under adequate weather conditions.
We expect to plant 266,000 hectares, 11.4% higher than the previous harvest season. This increase is mainly driven by an increase in wheat area and an expansion of 12,000 hectares of peanuts surface area, almost doubling last year's planted area. As of the end of October 2020, a total of 113,000 hectares or 42.4 percent of the target area has been seeded. We expect to continue planting rice until mid November and corn and soybean until early January. Let's move to Page 12, where I would like to walk you through the financial performance of our farming and land transformation businesses.
Year to date, adjusted EBITDA in the farming and land transformation businesses reached €85,500,000 53.3 percent or €29,700,000 higher year over year. The increase was driven by an improved year over year performance in every segment, but it was mostly explained by the dynamics of the 2nd quarter during which we experienced an increase in the demand for basic food products and we conducted a farm sale. In the Q3 of 2020, adjusted EBITDA in the farming and land transformation businesses reached 20,700,000 7,300,000 or 54.5 percent higher year over year. The increase was attributable to the farming business since no farm sales were conducted neither during the quarter nor in the Q3 of 2019. The Crops business generated an adjusted EBITDA of $8,200,000 in the Q3 of 2020, 13.6% lower compared to the same period of last year.
This decrease is mainly explained by a decrease in selling volumes, which will offset higher average prices and the increase in commodity prices, namely soybean and corn, which generated a negative impact in the mark to market of our derivatives and of our forward contracts. Conversely, the increase in commodity prices generated a positive impact in the mark to market of our biological assets, which partially offset the result, while the depreciation of the Argentine peso led to a dilution of costs in U. S. Dollars. Adjusted EBITDA in the rice business was $6,100,000 during the 3rd quarter, 13x higher year over year driven by an increase in sales generated both by higher volumes and higher average prices in the domestic and export market and lower costs in dollar terms as a result of the depreciation of the Argentine peso and enhanced efficiencies at the farm and industry level.
The dairy business generated an adjusted EBITDA of $6,400,000 mainly driven by higher selling volumes due to increased demand in the expo market and achieved efficiencies in our vertically integrated operations, including productivity of the and the flexibility of our industrial assets. Let's now turn to Page 14, which shows the evolution of Adecoagro's consolidated operational and financial performance. On a year to date basis, net sales reached $580,000,000 and adjusted EBITDA of $244,000,000 7.3 percent lower and 2.4% higher year over year. During the quarter, net sales reached $232,000,000 in line with last year, while adjusted EBITDA totaled $102,000,000 dollars marking a 9.2% increase compared to the same period of last year. To conclude, please turn to Slide 15 to take a look at our net debt position.
As you may see in the bottom left chart, our net debt as of September 30, 2020 reached BRL 711,000,000, BRL 30,300,000 or 4.1 percent lower than the previous quarter, driven by a $53,000,000 reduction in gross debt, which amounted to 925,000,000 dollars 5.4% lower than the previous quarter. The reduction was mainly explained by higher cash generation during the year as we continue to ramp up operations. On a year over year basis, net debt was 5.6% lower compared to the Q3 of 2019 on account of higher cash and equivalents driven by a positive free cash flow during the last 12 months, which fully offset the higher gross debt. We believe that our balance sheet is in a healthy position not only based on the adequate overall debt levels, but also on the term of our indebtedness with approximately 78% having a long term tenure. As of September 30, 2020, both our net debt ratio as well as our liquidity ratio improved compared to the previous quarter.
Indeed, our net debt ratio reached 2 point 29x, 6.7 percent lower than the Q2 of 2020 and 16.5% lower year over year. At the same time, our liquidity ratio, which is calculated as cash and equivalents plus marketable inventories divided by short term debt, reached 1.49 times compared to 1.23 during the Q2. This ratio shows the full capacity of the company to repay short term debt with cash balance without raising external capital. Thank you very much for your time. We are now open to questions.
Thank you. The floor is now open for questions. The first question is from Guilherme Paojes of Bank of America. Please go ahead.
Good morning, everyone. Thank you for taking my question. I just want to touch bases on your commodity hedging. We do see the company accelerating its volume hedged as well as prices for the 2021 harvest season and for the next one as well. So if you could provide some color on what is your rationale here?
And do you expect to continue production to be leaning towards sugar rather than ethanol in the coming crops as well? Thank you.
Thank you, Guilherme, for your question. I'm going to this is Mariano, and I'm going to take your question. First of all, I would like to mention that we have a hedging policy. This hedging policy contemplates how our crops evolve and so how our production of the different commodities that we produce evolve and according to that evolution is that we start hedging the future production. That's how what is contemplated in our hedging policy.
This hedging policy has maximum or minimum levels in which we move according to our different views. Today, we have a clear view on all the different commodities that we are producing that is a bullish view. So according to this bullish view that we can discuss in each one of the commodities that is basically related to the supply and demand is that we are hedging on the lower levels of this policy that we currently have. That's the general strategy that we are taking in each one of these commodities. Particularly between sugar and ethanol.
Today, the sugar is paying more than ethanol, and that's why we are maximizing sugar. And also within ethanol, the anhydrous ethanol is what's paying more and that's why we are maximizing anhydrous in the ethanol side. I don't know if I don't know, Guilherme, if your answer is if your question is answered or do you want more clarification?
The next question is from Santosh Sesharathi of HSBC. Please go ahead.
So my question is basically on your capital allocation policy. You have been emphasizing on return of cash to shareholders in the previous calls. So can you provide some color on how you are planning to execute that? Are you thinking of any minimum threshold levels? And since you're expecting positive cash flow by the end of this year, is there any possibility of distributing dividends from current year profits?
Thank you. [SPEAKER
UNIDENTIFIED COMPANY REPRESENTATIVE:] Thank you for your question. And here I would like to mention that as we've been talking, most of the relevant CapEx of our 5 year plan has already been done. In 2020, our expansion CapEx is less than half than in 2019, and this trend will continue for 2021. So as I mentioned in the introduction, despite of the pandemic, this 2020 will become a free cash flow positive for the 1st year since we started with this investment. So this is a turning point and it makes the beginning of a path where we start to generate free cash flow on a simplified way, as you were saying.
So this combination of increasing results and decreasing CapEx would we start or we continue to commit ourselves to return capital to shareholders. So in 2021, going directly to your expectations and assuming normal weather conditions and current commodity prices, we will be in a position to start returning some cash to our shareholders on the second half of this coming year.
This concludes our question and answer session. At this time, I would like to turn the floor back to Mr. Busch for any closing remarks.
So before ending the call, I just wanted to thank you all again for joining. This COVID-nineteen pandemic has introduced additional challenges to our businesses and even to our lives. The company, and I mean the people who make Adecoagro, has proved to be up to the level of the circumstances, And we feel absolutely proud of the way we have handled the current situation, which, as I said before, is far from over. Our operations are in great shape to fulfill our strategy even in such a complex environment. The market outlook is looking promising and expect obtaining attractive results in the short term.
Hope you all stay safe and sound. And in the case we don't see or speak, we wish you all a very nice and healthy end of the year. Thank you.
Thank you. This concludes today's presentation. You may now disconnect your line at this time and have a nice day.