Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's first quarter 2019 results conference call. Today with us, we have Mr. Mariano Bosch, CEO, Mr. Charlie Boero Hughes, CFO, and Mr. Juan Ignacio Galeano, 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. Should any participant need assistance during this call, please press star then zero to reach the operator. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Adecoagro 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. I would like to 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 2019 first quarter results conference. As you may have seen in our release, we continue delivering strong financial and operational results while we complete the final development of our growth plan. In such a complex and changing global context, these achievements are the result of our focus to increase efficiencies in our production, which in turn translates into a reduction of cost. As we always stress out, we find this the only sustainable way to be the low-cost producer and generate stable and attractive returns throughout the commodity cycle. In our Sugar, Ethanol, and Energy Business, we continue to maximize ethanol production in order to profit from higher relative prices. During the quarter, literally all the TRS produced was delivered to ethanol, considering that it traded at more than 20% average premium to sugar during the quarter.
This represents a clear competitive advantage compared to the other players. At the same time, thanks to the ongoing industrial enhancement, we expect production mix to reach as high as 80% ethanol for the whole year. Harvesting and crushing operations are moving forward as expected. Given the current moisture conditions of the plantation as a consequence of the low rainfall, we have slightly reduced the crushing pace in order to give the sugarcane more time to develop and therefore enrich in TRS content. Assuming normal weather conditions going forward, we expect to crush around the 12 million tons targeted. This will result not only in further cost dilution, but also higher energy production. Indeed, this quarter, we recorded 73 kWh per ton crushed. As for our expansion project, sugarcane availability is the critical factor, especially for our nonstop harvest system.
We have successfully secured over 90% of the total hectares needed to fully supply the 3 million tons of growth of crushing capacity. More importantly, terms and conditions were maintained, and in some cases, even improved. Moving to our farming and land transformation business, it is all set to be a strong performing year. Starting with the crops, at the end of April 2019, harvest operations are well underway. Crops are delivering good results with above expected yields. We have already up and running our brand new grain handling and conditioning facility that will allow us to maximize our efficiency. Weather conditions for peanuts were favorable, and we expect to generate strong financial results considering that after the acquisition of the processing facility, we will be not only saving 30 in agreement, but also getting higher selling prices. Regarding our dairy operation, we continue delivering strong operational results.
Cow productivity continues to be extremely high, even factoring for the new operational challenges that arise as we populate our third free stall facility. Going downstream, processing activities are fully underway and generating strong results. Our production flexibility enables us to maximize returns based on relative profitability. Most of our production is devoted to the local market, since current market conditions dictate that better margins can be achieved in the domestic market versus export. In our rice business, all the enhancements we've been attaining over the last couple of years are paying off. The mills are operating very efficiently and processing 50% more rough rice than last year. This, coupled with our commercial effort to segment the market to increase selling prices, explain the better financial performance of the business. As a summary, so far, this has been a very good start of the year.
We believe we are on the right track to conclude another solid fiscal year, generating attractive returns. Now Charlie will go through the numbers of the quarter.
Thank you, Mariano. Good morning, everyone. Let's start on page four with a brief analysis on the rains in Mato Grosso do Sul. As you can see on the top chart, weather has been dry over the last month. Indeed, rains reached 510 millimeters in the first quarter of 2019, 30% lower compared to the same period of last year. As a result, we decided to fine-tune our harvest schedule in order to maximize cane productivity throughout the year. Specifically, we slowed down the pace of crushing during the first quarter, explaining the 11% decrease in crushing activities. We expect that this strategy will allow the cane to further grow and benefit from normalized rains during March and April. It's worth noting that even though total rain was 30% lower year-over-year, effective milling days remained unchanged. This is fully explained by the frequency and distribution of the rain.
Please jump to page five, where I would like to highlight our agricultural productivity. In spite of dry weather during summer months, sugarcane yields during the quarter reached 92 tons per hectare, significantly above the five-year average yield for Brazil's Center-South region. This is the result of ongoing focus on enhancing sugarcane quality and agricultural performance. Yields fell 14.3% compared to our yields in the first quarter of 2018 as a result of above average rainfall during November of 2017 through February 2018. In terms of sugar content, TRS during the quarter reached 107 kilograms per ton, in line with the same period last year. The combination of these two effects resulted in TRS production per hectare of 9.9 tons, 15% lower year-over-year. Let's move ahead to slide six, where I would like to discuss our production mix.
As you can see on the top left chart, during the first quarter of 2019, anhydrous ethanol in Mato Grosso do Sul traded at an average price of $0.157 and $0.154 per pound sugar equivalent, which represent a 22% and 24% premium to sugar, respectively. Production during the quarter was fully devoted to ethanol. Indeed, 97% of the extracted sugarcane juice was shifted to ethanol, an all-time record. This high degree in flexibility constitutes one of our most important competitive advantages, since it allow us to make a more efficient use of our fixed assets. As a result of this strategy, ethanol accounted for 87% of the total first quarter of 2019 EBITDA generation in the sugar, ethanol, and energy business, while sugar accounted for 4%. This is a significant competitive advantage since it enables us to maximize returns by selling the product with the highest margin and contribution.
Let's please turn to slide seven, where I would like to discuss quarterly sales. As you can see on the top left chart, ethanol sales volumes increased by 19.2% compared to the first quarter of 2018. Lower crushing volumes were fully offset by the 11.4% increase in the ethanol mix, coupled with larger inventory carried from the previous quarter. Average selling prices measured in US dollars, however, fell to $0.124 per pound, 20.5% lower year-over-year as a result of the depreciation of the Brazilian Real. All in all, net sales reached BRL 62.8 million, marking a 6.1% reduction. In the case of energy, selling volumes reached 115,000 MWh, marking a 60% increase, as you can see on the mid left chart.
This was related to our commercial strategy to export as much energy as possible to the grid during the first quarter of 2019 to capture higher energy prices. Cogeneration efficiency during the quarter reached 73 kWh per ton crushed. Average selling prices measured in dollars reached $73 per megawatt hour, marking a 30% increase compared to the same period of last year. Given that hydroelectric energy accounts for almost 60% of the Brazilian energy matrix, energy prices are very much correlated to rain. In this line, dry weather acted as a catalyst for prices. Sugar sales volumes were 32,000 tons, 41.2% lower than the first quarter of 2018. Average net selling prices reached $0.151 per pound, 7% lower compared to the first quarter of 2018. Lower prices are primarily explained by global supply and demand dynamics.
As a result, net sales reached BRL 10.7 million, 45% lower compared to the first quarter of 2018. Finally, to conclude with the sugar, ethanol, and energy business, please turn to slide eight where I would like to discuss financial performance. As shown on the left chart, total production costs, excluding depreciation and amortization, reached $0.086 per pound, 6.7% lower year-over-year. It was mainly explained by enhanced agricultural efficiencies that contributed to reduced harvest costs, lower industrial costs obtained from industrial operational efficiencies, lower cane depreciation, partially offset by lower crushing volumes. Unit costs measured in US dollars were further reduced by the year-over-year depreciation of the Brazilian Real. Lower costs of production, however, were fully offset by the $26.3 million difference registered from the mark to market of our commodity hedge position.
This mainly explains the 35% lower adjusted EBITDA compared to the first quarter of 2018. I would now like to move on to the farming business. Please direct your attention to slide 10. During the second half of 2018, we began our planting activities for the 2018 and 2019 harvest year. Planting activities continued throughout early 2019, and as of mid of May, we have seeded a total of 232,000 hectares. Owned croppable area reached 113,500 hectares, 9.1% or 11,400 hectares lower compared to the previous season. This is mainly explained by the sale of Rio de Janeiro and Conquista farms during the second quarter of 2018. Leased area, which varies in size on the basis of return on invested capital, has increased by 19.8%, reaching 86,400 hectares.
Let's move to page 11, where I would like to walk you through the financial performance of our farming and land transformation businesses. Adjusted EBITDA in the farming and land transformation businesses was BRL 31.9 million, BRL 13.1 million or 70% higher year-over-year. Improvement in financial performance is primarily explained by the higher margins in our rice and dairy businesses. In the case of the rice business, higher margins were explained by cost dilution following the depreciation of the Argentine Peso, higher selling volumes as we carried stocks from the previous quarter, coupled with enhanced agricultural and industrial efficiencies. Regarding our dairy business, higher selling volumes and average prices were responsible for the increase in financial performance. Indeed, as a result of a shortage of milk due to weather-related issues, prices increased, enhancing margins. Our confined free stall system was not affected, allowing us to fully profit from higher prices.
Lastly, during January 2019, we completed the sale of Alto Alegre Farm, located in Tocantins, for BRL 16.8 million to be paid in seven installments. This transaction generated an EBITDA of BRL 9.4 million. Let's move to page 12, where I would like to walk you through our land transformation business. As previously mentioned, during January of 2019, we completed the sale of Alto Alegre Farm, located in Tocantins, Brazil. The aggregate selling price reached BRL 16.8 million for a total of 6,080 hectares, from which 3,065 are croppable. I would like to highlight that the farm was sold at a 33% premium to the latest Cushman & Wakefield independent farmland appraisal. Over the last 12 years, we've been able to generate gains of over BRL 200 million while strategically selling at least one of our fully mature farms per year.
Monetizing a portion of our land transformation gains allow us to redeploy the capital into higher yielding activities, enabling us to continue growing and enhancing shareholder value. Let's now turn to page 14, which shows the evolution of Adecoagro's consolidated operational and financial performance. Net sales in the first quarter of 2019 reached BRL 154 million, 4% higher year-over-year. This is mainly explained by the combination by high-yield sales on the rice and crop businesses, as a result, higher selling volumes, partially offset by lower sugar and ethanol selling volumes, coupled with lower sugar and ethanol prices measured in US dollars. Adjusted EBITDA totaled BRL 58.7 million, marking a 6% decrease compared to the same period of last year. As previously explained, the good performance of our crops and rice businesses were primarily the result of enhanced agricultural and industrial efficiencies, coupled with lower production costs measured in US dollars.
These positive results were more than offset in our sugar, ethanol, and energy business, mainly driven by the BRL 26 million lower gain registered from the mark-to-market of our commodity hedge position, coupled with lower crushing volumes. To conclude, please turn to slide 15 to take a look at our net debt position. As you may see on the left chart, our gross indebtedness as of March the 31st of 2019 stands at BRL 886 million, while net debt stands at BRL 729 million, 13% higher year-over-year. The increase was mainly driven by high-end investments in our farming businesses, specifically the acquisition of industrial facilities, both dairy and peanut, which were mainly financed with cash from operations. Net debt ratio reached 2.34 times, 6.8% higher year-over-year. I'd like to mention that our debt was structured in the long run with an average maturity of over six years.
Thank you very much for your time. We are now open to questions.
Thank you. The floor is now open for questions. If you have a question, please press star then one on your touchtone phone at this or at any time. If at any point your question has been answered, you may remove yourself from the queue by pressing star then two. Questions will be taken in the order they are received. We do ask that when you pose your question, that you pick up your handset to provide optimum sound quality. The first question today comes from Roberto Braun with Morgan Stanley. Please go ahead.
Hi. Good morning. Thank you for the question. My first one actually is on the smaller businesses that are gaining more importance. I just wanted to understand what can be the recurring level of EBITDA in a year from rice and dairy. In rice, it will be interesting to understand how much of the EBITDA in this quarter came from the actual higher processing capacity and how much from the sales of inventories that came from last year. In dairy, if possible, to get an update on how the SanCor acquisition is evolving, the turnaround of the assets, and what we can expect on that division as well. My other question would be on CapEx. The first quarter was a bit more intensive than we expected. Just wanted to get an update on the expectation for the year. Thank you.
Hi, Roberto. Thank you for your question. Number one on rice, that was your question, how much of the EBITDA coming from the previous year and how much for the specific quarter. As we mentioned in the fourth quarter of 2018, we will use EBITDA of rice, and we were selling part of the stocks in the first quarter. I would say that half of the EBITDA is coming from the previous year, and the other half has been generating during this quarter. As we've mentioned, all this enhancement that we've been doing on the rice operation is making us more profitable on this segment and consistently more profitable. We should continue to expect improvements quarter by quarter in this specific segment of rice, where we are some kind of optimistic or it's doing well.
On your second question, in terms of the dairy operation, as we explained in our five-year plan, we have our production operation, and in terms of the production, we are doubling our production capacity. If you look at our numbers in 2017, we can expect to double that situation once we finish our five-year plan. If you remember, in 2017, we made $12 million of EBITDA in the dairy segment. We can expect in 2021 or 2022, when this is finished, to double that EBITDA capacity generation. That would be talking about $24 million or $25 million of EBITDA coming from the production only. That is in line with what we shared at the Adecoagro Day. We have these plants that we just acquired. As we explained in our previous call, we expect to generate once in
Full capacity on our expected capacity, this $10 million to $12 million of EBITDA, that is for 2021. How are we doing today on that projection? We are taking over the plant at a better situation than what we originally expected. We are being able to control costs, that was our first focus, very well, and we are also obtaining this flexibility that we expressed or was part of our strategy to be able to either export or use the processed milk for the domestic market. As you know, we have these two plants, where one of the plants is in the center of the dairy basin, that is mainly to produce powdered milk and cheese, where powdered milk is mainly for export and cheese is both, either export or domestic market.
The other plant in Quilmes near the main consumption center of Buenos Aires, that is devoted to fluid milk. Today, in the month of May, we are maximizing the domestic market. Within our flexibility, we originally thought that because of the weakness of the peso in Argentina, we were going to be more export driven, but the domestic markets are paying more, we are maximizing the domestic market and getting a premium. Today, the month of May, we are going to be positive EBITDA. This is the first month that we are not reaching our expected capacity. We are processing 400,000 liters per day, while we expect to go to 1 million liters per day. With only 40% of what we are expecting, we are already at EBITDA positive. These are clear good news in terms of all our strategy on the dairy business.
As I just explained, the overall dairy segment is becoming relevant and will become relevant as part of this five-year plan expansion as we explained before. Finally, on the third part of your question, that is this CapEx that we are doing, and it's a heavy CapEx during this first quarter, is as we expected, part of this CapEx and the closing of these two dairy plants were expected for the end of last quarter. We ended up closing at the beginning of this year. That's why the CapEx is higher to what some people expected, but not to what we were expecting. It's clear that we are exactly in line to what we were projecting. In terms of CapEx, what we are doing is pretty much in line with all our five-year plan.
Very clear. Thank you, Mariano.
The next question.
Thank you.
The next question comes from Fernanda Tanno with Citibank. Please go ahead.
Hi, good morning, everyone. I have two questions. The first one is a follow-up of Roberto's question on CapEx. As far as I recall, your CapEx for the year is a total of BRL 250 million. What surprised me was the amount of maintenance CapEx spent in this quarter. You spent around BRL 90 million of maintenance CapEx in the first quarter, while last year, for the full year, you only spent BRL 150. Can we expect any run over the maintenance CapEx, or by the next quarter, we should reduce that drastically? I'm just wondering whether we should maintain the budget of BRL 250 million of CapEx for this year.
A second question on this point is, if you're maintaining a CapEx of BRL 250 million for this year, in order for you to achieve a net debt EBITDA around 2x, EBITDA would need to grow at least around 10%. This number sounds right. Also, at 2x, can you talk about capital allocation and shareholders return? The third question, sorry, I have one more. Can you comment how much was the cost per pound recurring effect year-over-year? We have this first quarter devaluation effect and also sugarcane price is coming down. I'm just wondering whether this 6.7% drop, how much it would actually be on a recurring basis based on your initiative on improving efficiency. Thanks a lot.
Hi, Fernanda. Thank you for your questions. Char will answer your first and your second question regarding the CapEx and the net debt to EBITDA.
Hi, Fernanda. Regarding the maintenance CapEx, we are still forecasting our $110 million-$115 million for the 2019 year. You know that seasonality impacts more in the first four or five months of the year, especially on the sugar and ethanol business. We do all the maintenance of the boilers and the industry during the first four months. This specifically year, as we explained in the release, because of a little bit drier weather than normal, we are pushing forward the sugarcane crush into the year. Taking advantage of more days that we are not working to advance a couple of months the expenses on maintenance CapEx. That's why you see a higher figure in this first quarter compared to 2019. To finalize the answer of your question, we continue also to forecast the $240 million-$250 million of maintenance CapEx and expansion CapEx for this fiscal year.
Thank you, Charlie. If those two first questions are clear, I'm going to ask Renato to answer the cost of the sugarcane.
The other question I had on CapEx was around, does it seem right? It seems that stronger EBITDA growth for you to maintain two times net debt to EBITDA level. Can you comment on how can we expect shareholders return for this year in terms of dividend and share buyback? If I may, just on your comment, you said maintenance CapEx for this year is around $110 million-$120 million. Can you explain what drove down year-over-year this maintenance CapEx?
Well, basically, Fernanda, maintenance CapEx, it's 90% related to our sugar and ethanol business. I need to say that 96.7% of all these expenses are in domestic currency, in Brazilian reais. As we've been seeing some devaluation of the local currency, when we show the maintenance CapEx this year compared to last first quarter of 2018, there is a dilution in terms of US dollars. That's what explains mainly the difference in reduction.
Okay. I'm going to pass the word to Renato to answer the cost of the sugarcane and what we can expect of the cost of producing the sugar.
Sorry. The net debt, the other part on the net debt for EBITDA levels. Can you comment on that?
Yeah. Actually, if you look at the net debt as of the end of the first quarter, from a seasonality point of view, it's a quarter where we have the most level of leverage as a consequence of having the crops, most of them at the field, not being able to harvest because of the seasonality. We start the highest peak is in the second quarter for corn and soy mainly, and peanuts. That requires working capital. We have not been harvesting, selling, and collecting. You have also to consider that this is the quarter where we have the lowest pace of sugarcane crushing, as we said, and the highest maintenance CapEx expenses concentrated in the first four to five months.
Particularly, during this first quarter of 2019, we have to add the cash that we spent for the acquisition of the two processing plants, which also implies additional working capital as we are selling the already value-added products produced into the market, and the payment of the acquisition of the peanuts processing plant, together with a significant increase on the peanuts crop area that moved from 6,000 to 10,000 hectares. All of this obviously is within our five-year plan, as Mariano was explaining. Although we are presenting today at 2.3 times net debt to EBITDA ratio, we expect that we will be finishing the end of the year at levels of around two times.
Okay.
Is it okay, Fernanda Tanno?
Yes. It is okay.
Now we go to the expected cost of production on our sugarcane production.
Regarding the production cost, we expect a cash cost net of energy between $0.09-$0.095 per pound.
Okay. Thanks a lot, guys.
Okay, thank you.
The next question comes from Thiago Duarte with BTG. Please go ahead.
Hi. Good morning. Good morning, Mariano, Charlie, Renato. Good morning, everybody. I have two quick questions, actually, on the sugar, ethanol, energy business. The first one is, it is actually very clear why you delayed the crushing phase in the first quarter, and if I understood correctly, you still have the same expectation towards the full-year crushing volumes in spite of the delay in the first quarter. Actually, just if you could remind us what is your expectation for the full-year crushing volumes and your expectation for next year once you complete the vast majority of the CapEx for the expansion of the Ivinhema mill. The second question is regarding mix. Just like the rest of the industry, Adecoagro also focused on increasing the production of ethanol at expense of sugar last year. We have seen over the past few months an increase in oil prices globally.
Ethanol is proving to be very resilient in the beginning of the crop as we look into prices of the last few weeks. My question to you would be whether you still expect to increase the sugar mix, or the recent movements would suggest that we could still see a maximization of ethanol output at expense of sugar in this year. That would be my two questions. Thank you.
Thank you, Thiago. Good question. I am going to ask Renato to elaborate more on those questions.
Hi, Thiago. As it was mentioned by Charlie, the decision to slow down the crushing pace was taken to help the development of our sugarcane fields, which improved the sugarcane outlook for the rest of the year and increased our ethanol mix in the first quarter. The delay represents only three effective crushing days, which can be easily eliminated. Therefore, considering a normal weather from now on, we should be crushing about 12 million tons in the whole year. For next year, we expect to crush 12.5 to 12.7 million tons of sugarcane. Regarding the mix, considering that the TRS content increase in the coming months and we will be speeding up the crushing pace, it is very difficult to maintain the same ethanol mix of the first quarter. However, we are positive that we will achieve an ethanol mix of about 80% in the year.
It represents an increase of 5% compared to last year, it's much higher than the Brazilian average of 64%. I think this is a very good news because we are very positive with ethanol view. We are very constructed with this view because of the combination of the higher hydrous market share, increasing Otto cycle demand, and stagnant production should lead to a tight S&D in 2019. In our view, parity at the pumps will need to stay above 2018 levels to curb demand and will consequently lead to a higher ex-mill prices and better profitability to the mills. In addition, a more positive oil scenario already led Petrobras to increase gasoline in more than 25% since January, helping to support our positive view.
Thank you, Renato. Very helpful. Just if I could, a follow-up question on your crushing numbers. You said next year, you could expect to be crushing between 12.5 million-12.7 million tons, if I understood correctly.
Yes, this is correct, it's still too early to say a number because it depends a lot on the weather and more things. That is the initial idea.
On the planting.
Yeah, just first go ahead.
Thiago, if I can add, on the planting, we are doing pretty well. That's why we are so optimistic on our future production.
Perfectly. Yeah, my follow-up question was just going to be on your nominal crushing capacity. I have in mind that after the completion of the brownfield expansion, we should be working with something closer to 13 million tons as a nominal crushing capacity. Just want to make sure if that, looking two years ahead or three years ahead, you still see this number as feasible. I see you expect to be coming very close to that next year, but just to make sure we are working with the right crushing curve here.
Yes, this is the right number for Mato Grosso do Sul cluster, and then you have to add one million tons of Usina Monte Alegre. The total is going to be 14 million tons. That is going to be reached in 2022.
Great. Thank you.
It's going to be reached according to the amount of sugarcane that, or the availability of the sugarcane. That is the key factor that we are planting today.
Thanks.
Thank you.
Thank you, Thiago.
Again, if you have a question, please press star one. The next question comes from Gustavo Alvero with Banco Santander. Please go ahead.
Hi, guys. Just a follow-up of previous question. I didn't get the answer exactly. What's the target of net debt should be done by end of this year? Can we expect the company to announce a dividend policy eventually in the second half, given the investment cycle is almost concluded? It'd be very helpful if you could give me some color on these two topics. Thank you.
Thank you, Gustavo. As Charlie mentioned, around the two times EBITDA is what we expect by the end of the year. That is also within our target. That is what we expect. As regarding the dividend policy, we clearly explained last quarter that on top of the five-year plan, we don't have any specific plan to continue with the heavy investment. We plan to return money to shareholders, once we have the free cash flow positive, that is not going to be in 2019. It's going to be very well expressed in 2021, 2020 is the year where we turn into cash flow positive. In the second half of this year, we are currently discussing within our management and board what is going to be our policy and how to return this capital to shareholders.
By the end of this year, we can be talking to the market on how is it that we are going to be distributing this cash to our shareholders. We need to have this clarity of 2020 and how we move into the 2021, where the numbers are very clear to be free cash flow positive.
Very clear. Thank you very much.
The next question is a follow-up from Roberto Braun with Morgan Stanley. Please go ahead.
Yes. Thank you for taking my another question. I just wanted to understand is the fact that you have no hedges for sugar for this crop, is more related to your ethanol mix or it's more strategic in terms of waiting for a recovery in your view on prices? Thank you.
Sorry, Roberto, just to clarify. You are asking about the hedges of 2019 or 2020? For the next year or for this year?
For this year.
Okay. This year we have 60% already hedged that has been previously hedged. That is for 2019 harvest that is happening. For 2020 harvest, we already have 10% already hedged at $0.14.
Okay. I just see in the release that for the 2019, 2020 harvest, at least as of the close of the quarter, there was nothing hedged, right? Now, I understand you advanced a little bit.
Yes, that's right.
Thank you. Good. The fact that there's not as much volume hedge is really related to the focus on ethanol. Since you're going to be doing such a strong ethanol mix, it doesn't make sense to advance too much in sugar. That could be a risk, depending on also on weathering and agricultural yields, right?
Yes, Roberto, you are right in what you are saying. I would like Marcelo Sanchez to share our view on sugar prices specifically. Marcelo.
Hi, Roberto. Just to clarify the hedges. We have hedged 2019, 60% already at level of prices of $14.70. We have hedged, as of today, 10% of 2020 at $0.14 per pound level. Regarding the sugar price view, we expect that it will trade within a range of $0.11 and $0.13 per pound for the short-term. This is because the sugar prices rally as Center-South Brazil will be switching into sugar production, increasing the global surplus and pressuring prices. On the other hand, the downside potential should be relatively limited as funds are holding a very large short position and the growing risk of a poor monsoon in Asia should curb their interest in increasing their position much further. For the medium term, in the Q4, we are more price-friendly.
The perspective of lower crops in India, Thailand, and the European Union will mean tighter S&D and creating a more favorable environment for sugar prices. That's the way that we are looking at the market as of today.
Very clear. Thank you, Mariano and Marcelo.
Thanks, Roberto.
This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Bosch for any closing remarks.
As you have seen in our report, we have had a good start of the year. We have a lot of challenging projects ahead that will continue to contribute to our growth and enhance our production efficiency. Before we close the call, I would like to reiterate my gratitude to all the operational and management teams. It is thanks to their daily effort and hard work that we have become one of the lowest cost producers in the entire world, while at the same time generate attractive and sustainable margins for our shareholders. Thank you for your support and confidence. Look forward to seeing you in the upcoming IR event.
Thank you. This concludes today's presentation. You may now disconnect your line at this time, and have a nice day.