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Adecoagro S.A. (NYSE:AGRO)

Q2 2012 Earnings Call

August 15, 2012, 11:00 a.m. ET

Executives

Hernan Walker – Investor Relations Manager

Mariano Bosch – CEO

Charlie. Boero Hughes – CFO

Walter Marcelo Sanchez - CCO

Analysts

Isabella Simonato – BofA/Merrill Lynch

Giovana Araujo – Itau BBA

Alessandro Baldoni – Deutsche Bank

Rodrigo Mugaburu – Morgan Stanley

Martin Garzaron – City of London Investment Management

[Inaudible] – HSBC Securities

Thiago C. L. Duarte – BTG Pactual

Pedro Richards – Raymond James

Operator

Good morning ladies and gentlemen and thank you for waiting. At this time we would like to welcome everyone to Adecoagro’s second quarter 2012 results conference call. Today with us we have Mr. Mariano Bosch, CEO, Mr. Charlie Boero Hughes, CFO and Mr. Hernan Walker, Investor Relations Manager. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Adecoagro’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 call over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Mariano Busch

Good morning everyone, and thank you for joining Adecoagro’s second quarter ending results call. During this quarter, we started [inaudible] season. We finished [inaudible] of main annual crops, and we are preparing the company for our next agricultural season. On the sugar and ethanol business, because of the high amount of rainfall, we have not been able to crush the amount of cane we expected during this period. Nevertheless, the cane is still in our fields waiting to be harvested. Under normal weather conditions, we should [inaudible] our remaining season, compensating the lower volumes crushed during the second quarter.

On the farming business, we have almost completed the harvest of 2011-2012 crops, and as anticipated in our previous calls, adverse weather has impacted significant parts of our production, reducing our yield, but mitigated by benefits of our geographic diversification and best practices applied in our farms. During the month of June, we started with planting activities for 2012-13 harvest year under very good conditions. We have already assembled all our contractor teams, and we completed the planting of wheat. In addition, we have already purchased our most important imports for the summer crops, minimizing our exposure to the fluctuation of our costs.

As you may know, the main productive regions of the United States have suffered from one of the most severe droughts of the last 20 years, and production forecasts have dropped significantly. This situation has driven commodity pressure to reach record levels, which we believe South American producers will be able to capture in the next harvest year. Also, we sold San Jose farm in Argentina at a 31% premium [inaudible] independent appraisal. We continue to be fully committed to our discipline of monetizing the value creating off our land transformation activities, and we allocate our capital in investments that provide more effective returns.

I would also like to make the following remarks with regards to our [inaudible] project. The construction of Ivinhema, our [inaudible] mill, is developing according to [inaudible]. The mill’s suspected to commence test runs during November, 2012, and start commercial operations during 2013. At the same time, we have advanced steadily with the planting of sugarcane in our fields, and during the first semester of 2012, we have almost doubled the amount of hectares planted when compared to the same period of the previous year. This is very important in order to assure the supplying of cane of our mills, which constitutes a key component of the recent [inaudible].

Second, the construction of our second free stall dairy facility is completed and we are ready to start milking. We also started processing rice in the new plant in Franck, and also continue transforming land, increasing the total area of owned croppable land. Finally, I would like to highlight the achievement of our team that obtained the Bonsucro certification for our sugarcane collector, which confirms our commitment to the sustainable production model without losing focus on profitability. Having said this, I will ask Charlie to present the update of the quarter. Charlie, please go ahead.

Charlie Boero Hughes

Thank you, Mariano. Good morning everyone. I would like to walk you through a few slides that reflect the main operational and financial highlights of the quarter. As you may see on page two of the presentation, as of June the 30th of 2012, 206,000 hectares were successfully harvested. The harvest of wheat and sunflower had been completed and reported during the first quarter of 2012.

During the second quarter, we continued with the harvest of soybean, corn, cotton, rice and coffee. The harvest of the soybean crop was substantially complete by the end of the second quarter. Average yields were in line with the last year, but below our expectations, primarily as a result of the summer drought experienced in the humid Pampas region during November, 2011 through early January, 2012, coupled with the lack of rain that the northwest of Argentina experienced during the months of March and April of 2012.

In the case of soybean second crop, the lack of moisture in the soil prevented the timely planting of the crop, which follows immediately after the wheat crop harvest during December, 2011 and early January. Although the crop experienced adequate rains during the growth cycle, the late planting reduced the yield potential. In addition, the drought suffered in the northwest of Argentina during March and April, 2012 also had an adverse effect on the crops’ development. Despite these adverse conditions, the average soybean yield was slightly below last year.

As of the end of the second quarter, 59% of the corn was harvested, a 10% lower yield compared to the previous harvest year, as a consequence of the summer drought just mentioned. A considerable portion of the crop was still pending to be harvested as of June the 30th, as a result of a [inaudible] decision of planting 50% of the area, with late corn varieties to diversify climate and water risk. These late varieties will continue to be harvested during the early third quarter of 2012. We expect final yields for the corn crop to remain in line with the current average yield.

Half of the planted cotton was harvested as of the end of the second quarter. Almost all the harvested area corresponds to cotton planted in Argentina, which has a lower yield potential than Brazilian cotton. The cotton in Argentina was also negatively affected by the summer drought. We expect average yields to improve as the Brazilian farms continue to be harvested throughout the third quarter of 2012.

As of June the 30th, we had completed the harvest of our rice crop. As mentioned in the first quarter of 2012, below average temperatures during the initial stage of the crop, coupled with high temperatures and lack of rain during the flowering stage, reduced the crop’s yield potential.

It is clear that due to the climactic difficulties experienced, most crops’ yields decreased compared to the ones obtained in the previous harvest year. However, we believe that the geographic diversification of our farms, together with our sustainable production model [inaudible] have partially mitigated the negative impacts of the drought. The main impact on corn production is a good example. Argentina corn production is expected to fall over 30% from initial production estimates of 29 million tons to current estimates of 19 to 20 million tons, whereas the impact on our production versus our initial yield expectations is 20%.

Moving on to slide three, you will find the financial performance of the farming business. Starting on the left, we may see the financial performance of our crops’ segments. As a result of the 22.5% increase in planted area year-over-year and higher commodity prices, gross sales of the segment were 41% above the first semester of 2011. However, adjusted EBITDA for the segment decreased by 34%. This lower year-over-year performance is primarily explained by lower crop yields as a result of the summer drought, and a 7.4 million loss generated by the mark-to-market of corn and soybean hedge positions as a result of [inaudible] in grain and oilseed prices since the beginning of the year.

Moving on to the right, you may observe that our rice segment has underperformed compared to the previous year. As mentioned in the previous slide, the lack of adequate climactic conditions, in addition to low international rice prices, reduced our adjusted EBITDA to a loss of 1.2 million. Nevertheless, we strongly believe the northeast region of Argentina has optimum soil and weather conditions and other competitive advantages which make it one of the best places in the world to grow rice. We are currently in the process of transforming additional hectares in order to expand our rice planted area for the 2012-13 harvest year.

In the case of our dairy segment, milk production has increased by 10.4% compared to the first half of 2011, which has increased our sales by 4%. However, adjusted EBITDA was negative and below our expectations due to lower milk prices resulting from a fall in international whole milk powder price, higher feeding costs as a result of the summer drought and the corn price [inaudible] and higher label costs. Due to the seasonality of the business, we expect adjusted EBITDA to become positive during the next two quarters, as a result of better weather conditions which benefit cow comfort and increase cow productivity.

On a consolidated basis, sales for the farming business increased by 30% as a result of the increase in production and higher crop prices, while adjusted EBITDA decreased by 38%, primarily as a result of the climactic difficulties experienced during the harvest year.

As you may see on slide four, we are already working on the 2012-13 planting plan. Our initial estimates show a total planted area of 222,000 hectares. Following the trend of the past five harvest years, we expect owned planted area to increase by 9%, or 11,000 hectares, to a total of 134,000 hectares. This growth is mainly driven by our land transformation activities, and farm acquisitions completed in 2011. On the other hand, we expect the second crop area to decrease from 48,000 to 34,000 hectares. This decrease is the result of higher expected margins per hectare for soybean first crop and corn first crop, vis a vis the expected margin for wheat plus soybean [inaudible] crop. As a result of this, as you may see on the top right chart, we have completed the planting of wheat and reduced planted area to 29,000 hectares, compared to the 43,000 last season.

Lastly, we expect leased area to slightly decrease compared to the previous harvest year, primarily as a result of higher [inaudible] rates that the company has set for leasing farms. Therefore, although overall planted area is expected to decrease by 5%, we believe this plan will allow us to maximize our returns and margins.

On the next slide, we may observe two charts which display the evolution of soybeans and corn prices, together with both world and U.S. stock-to-use ratios from 2004 to date. The chart shows that there is a strong inverse correlation between stock-to-use ratios and commodity prices. We believe that the current drought that is affecting corn and soybean yields and production in the main producing regions across the United States, coupled with the recent poor harvest year in South America, will result in historically low stock-to-use ratios, both at the U.S. and world levels. We believe this situation may lead to a period of extended high prices at least during the next 12 months. We believe that the combination of high commodity prices and good yields as a result of favorable weather conditions will result in an excellent 2012-13 harvest year for Adecoagro.

One of the highlights of the second quarter was the sale of the San Jose farm. Let’s move to page six for a brief summary. San Jose is a 7.6 thousand hectare farm, which was purchased by Adecoagro in 2002 for a total of $700,000. At that time, the farm was being used exclusively for cattle grazing. Following the acquisitions, Adecoagro implemented a sustainable production model that allowed it to grow row crops over a portion of the farm and to increase the productivity of the pastures used for cattle grazing. The farm was sold fully-developed 10 years later for $9.2 million, generating $8 million of capital gains. The selling price was 31.4% higher than Cushman & Wakefield’s independent appraisal dated September, 2011 of $7 million. Considering the purchase price, the capital expenditure incurred for transforming the land and increasing productivity, the operating cash flow generated by the farm and the selling price, this transaction delivered an internal rate of return of 31.8%. This farm sale reflects Adecoagro’s ability to monetize gains generated by land transformation and commodity appreciation, as well as its focus on maximizing return on invested capital. As you may see on the bottom chart, during the last seven years, Adecoagro has sold 10 of its fully-developed farms, generating capital gains for over $111 million.

I would now like to move on to the operating performance of the sugar, ethanol and energy business on slide seven. On the left side of the page, you may observe a chart which illustrates the monthly rainfall at our Angelica Mill in Mato Grosso do Sul. The green columns represent the rainfall corresponding to the current year, while the orange columns represent the 15-year average range. As you may see, rainfalls during the months of April, May and June of 2012 have been well above historical averages, which generated numerous complications and disruptions of harvest activities. When the soil remains wet after rainfall, harvest activities are put on hold until soil dries, in order not to damage the sugarcane roots and soil structure with the heavy agricultural machinery. As a result of these excess rains, as illustrated on the right chart, our two mills, Angelica and UMA, crushed an average of 40.4% less cane during the second quarter of 2012 compared to the second quarter of 2011. Despite the underperformance of the business in the second quarter of 2012, normal weather conditions going forward will enable our mills to crush all the sugarcane left in our fields and compensate for the poor crushing in the second quarter of 2012. As shown on the left chart, weather conditions have already improved significantly during July. This has allowed our mills to crush at full nominal capacity throughout the month, and partially catch up on crushing volumes.

On slide eight, you may see the financial performance of the sugar, ethanol and energy business. As a result of the 40% drop in sugarcane milling volumes and reduced sugar content in cane, gross sales decreased from 100.1 million to 58.8 million, and adjusted EBITDA decreased from 49.4 million to 13.5 million. Adjusted EBITDA margin also decreased compared to the second quarter of 2011. This is primarily explained by two main reasons. Firstly, the lower amount of cane milled, resulting in higher unitary production costs, which consequently decreased the adjusted EBITDA margin. And secondly, EBITDA margin in the second quarter of 2011 had been extraordinarily high as a result of extraordinary high and [inaudible] ethanol prices. If the range normalizes during the second half of the year, Adecoagro expects to compensate for the lower sugarcane crushing volumes and related financial performance during the third quarter and the fourth quarter of 2012.

On slide nine, you may observe two charts that resume our sugarcane planting activities. The planting of sugarcane for the expansion and renewal of our plantation has proceeded according to plan,. Despite adverse weather conditions, Adecoagro has been able to plant 11.7 thousand hectares during the first half of 2012, almost doubling the amount of sugarcane planted in the first half of 2011. This aggressive planting plan has allowed our sugarcane plantation to grow from 65.3 thousand hectares as of the end of 2011 to a total of 76.5 thousand hectares as of June the 30th of 2012, representing a 17% expansion in only six months. The growth of our sugarcane plantation will allow us to reach full nominal crushing capacity in Angelica Mill next year, and to begin the first year of crushing at the Ivinhema Mill.

Moving on to slide 10, you may see some photographs that show the construction progress of the Ivinhema greenfield mill in Mato Grosso do Sul, 45 km south of Angelica. The construction is moving ahead as planned, and on schedule. We expect the first phase of the mill to be completed by November, 2012, reaching a nominal annual crushing capacity of 2 million tons of sugarcane. We expect Ivinhema to undergo test runs in late 2012 and start commercial milling operating at the beginning of the 2013 harvest.

Page 11 shows the evolution of Adecoagro’s consolidated operational and financial performance during the last five years. Consolidated adjusted EBITDA for the first six months of 2012 stands at 31.6 million, compared to 75.9 million in the same period of 2011. As discussed during the previous slides, this is primarily explained by the delay in the sugarcane harvest due to excess rains, which will be compensated during the third and fourth quarters, and to a lesser extent, as a result of the lower yields obtained in our farming business. We expect Adecoagro’s production volumes and financial performance to continue growing in line with the tendency of the last five years, mainly driven by the transformation and acquisition of farmland, the construction of the Ivinhema Mill and the increase in operational efficiencies in each business.

Finally, on page 12, our net debt as of June the 30th of 2012 has increased to 202 million, driven by a 30 million increase in total debt and a 49 million decrease in cash, primarily in order to finance our capital expenditures related to the Ivinhema Mill.

Thank you for your time. We are now open to questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question will come from Isabella Simonato of Bank of America/Merrill Lynch. Please go ahead.

Isabella Simonato – BofA/Merrill Lynch

Good morning everyone. I have two questions. My first question is related to weather conditions in the South America. We have been hearing that El Nino might happen in the next season, so I would like to better understand from you guys what you’re seeing in terms of you in 2012, 2013. Harvesting season, what kind of improvements we should see compared to this year. That would be my first question. Thank you.

Mariano Bosch

This is Mariano to answer the question. Number one, whether El Nino or La Nina will happen, we still don’t have a clear view. We do expect El Nino, but never the less, what we expect in terms of the weather, we should look at the average yields that we had the previous year, not this year. And even that year was not a normal weather event. So if we do have a normal weather event, we should expect higher yields than both of the years that you can see in the presentation and in our earnings release. So that’s in terms of what should we expect in terms of normal weather conditions or according to historical yields coming from the different farms that we have.

Isabella Simonato – BofA/Merrill Lynch

That’s perfect and my second question will be on sugar methanol, do you plan any acquisition in Brazil going forward? We haven’t seen that a lot of assets are for sale and multiples have been going down. What’s your expectation on that? Thank you.

Mariano Bosch

I agree with you that we also are seeing a lot of assets for sale. We are very disciplined in our return investment analysis. We can buy or continue with accelerating our growth projects in our cluster. We do whatever we find our best return of capital, so we are going to be analyzing. But we cannot comment that we will be buying or not buying.

Isabella Simonato – BofA/Merrill Lynch

Okay, that’s great, thank you very much.

Operator

Our next question is from Giovana Araujo of Itau BBA. Please go ahead.

Giovana Araujo – Itau BBA

Hi, good morning. My first question is about the decent environment analogy we feel effects controls and higher bureaucracy. What’s your view, Mariano about that? How the environment could impact the quality of operations in your business plan? That would be my first question.

Mariano Bosch

Good morning Giovana. As we’ve discussed many times before, particularly in our business, we are not seeing a lot of changes in terms of the environment in Argentina. We are continuing operations more or less on the same level. And we are continuing generating same returns that we have in the past. We don’t see many changes that have impacted our business when we are thinking on all these Argentinean issues.

Operator

Our next question comes from Alessandro Baldoni of Deutsche Bank. Please go ahead.

Alessandro Baldoni – Deutsche Bank

Good morning Mariano and Charlie. I have two questions. First one on the San Jose farm, who was the buyer of this farm? I wanted to understand the profile of the buyer and if the price negotiations were impacted in any way by this land restriction law in Argentina.

Mariano Bosch

Good morning, Alessandro. The buyer of the San Jose farm is a businessman from the province of Santa Fe. He lives in the city of Santa Fe. He has a business there that he’s making good money or his savings there. And that’s many Argentineans like to have his savings in assets, and so he was willing to buy our farm. He went to see this farm. He liked it, and there is where we started the negotiations. It was a negotiation that took nine months, so it’s long negotiations. It was affected by all the different discussions that happened in Argentina, but we reached a very good price. And very similar to what we were asking at the beginning to what we thought it was possible to obtain for a farm like that if you have the right buyer. And this guy was willing to buy this farm, and that’s what we realized since the very beginning of the negotiations. That’s why we were sure that he didn’t cover a better option for this specific amount of money that he was investing.

That also completes Giovana’s question that on our specific business, we are not seeing a lot of changes because of the environment in Argentina.

Alessandro Baldoni – Deutsche Bank

Okay, and then the second question on the sugar methanol, we saw all of them suffering from this harvest condition this quarter so all the results were bad. But there could post a higher drop in [inaudible]. Is there any specific reason behind that?

Mariano Bosch

Yes, Alessandro. The main difference comparing to the market is that last year’s first quarter in our specific case was extraordinarily high because we had comments meeting ten days earlier because we were not absolutely confident with the meeting. It was our first year of meetings, so much again, we started meeting with some discussion. This year we started meeting in the right moment where we thought we would be able to take the most advantage of the sugar cane that we have in the fields. That’s why last year first quarter was slightly higher or that’s why last year’s was higher. That’s one reason.

The other reason is that in April of last year, we were able to capture a very high price on it and hydrous ethanol. That hydrous ethanol we sold it for the current price of $.42 of sugar. I don’t remember exactly the number. I know it was something like that. Like the price in one specific moment. So that’s why there is a very important difference specifically for this quarter in our sugar ethanol comparing to the rest of the market. Going forward, that should accommodate and the difference should be compensated.

Alessandro Baldoni – Deutsche Bank

Okay, great, thank you.

Operator

Our next question is from Rodrigo Mugaburu of Morgan Stanley. Please go ahead.

Rodrigo Mugaburu – Morgan Stanley

Thank you very much. Hi, Mariano. Hi, Charlie. I have two questions. One on the farming we see with area going down almost 14,000 acres versus last year. That area, would you say it will go more to soybean than to corn or can you give us an idea of how much more or less of the area will go to those two crops?

And the other one is related to sugar ethanol. We’ve seen the mix changing last year from more ethanol to sugar, more ethanol than sugar, and this year more sugar than ethanol I guess given from the relative profitability. But given what happened with corn and ethanol price in the U.S., should we expect can diverted to ethanol during this next quarter due to exports to the U.S.?

Mariano Bosch

Okay, I'm going to answer the first part of the question and then I will let [Inaudible] to answer the second part of the question.

On the first part of the question, the area will be replaced by soil consistent and corn. I would say that in similar amounts or in similar portions, maybe today we have slightly better margins on soybeans, but we also maintain the rotation. That is very important. That’s why corn is so important, so the differences are too small in order to prioritize the earnings of this year rather than the long term gains that is sustainable [inaudible] of what we are always talking about.

Rodrigo Mugaburu – Morgan Stanley

Okay, and just to follow up on that one. Do you have vision on Argentina as a whole corn area? I mean we’ve seen the stock exchange reducing the area a week ago or so. And there are also some numbers out there saying it could increase. Do you have a vision, a personal visit if we’re going to see in Argentina increase on corn area besides last year or staying flat? That would be important for corn prices worldwide.

Mariano Bosch

Okay, I will ask Marcelo Sanchez, our commercial director to take this part of the question.

Walter Marcelo Sanchez

Good morning. Yes, we are in the confrontation. We are thinking that we will be seeing an increase of at least 25%, 30% over last year’s planting. That will be giving us a figure approximately of 4 million tons, I'm sorry, 4 million [inaudible] just for grain production. You’re right.

And the other part of the question that was remaining to answer was regarding the ethanol exports to the U.S. taking advantage of the corn situation in the U.S. You are right. Last year, the production of ethanol was higher. Twice ethanol was higher than this year in the local market. But this year even though the export prices are $115 or $120 higher than last year, the export prices, we still have more profitable sugar production in the local market in the sugar market.

Then we are going to be taking advantage on the opportunity window that the U.S. has given to the industry. Let’s say in our case by June 30, we had booked 30,000 cubic meters of ethanol for exporting taking advantage of our specification by the APA. And at the end of the year, I think we will be achieving around 50,000 cubic meters. That is much higher than what we did last year in terms of exports. And most of that export is going to the U.S.

Rodrigo Mugaburu – Morgan Stanley

Great, thank you very much.

Operator

(Operator Instructions). And our next question will come from Martin Garzaron of City of London Investment Management. Please go ahead.

Martin Garzaron – City of London Investment Management

Hello, Mariano. Many of the questions that I had in mind have already been responded, but I was curious about what type of cash management are you guys applying at this stage when you’re basically receiving pesos for your crap sales and I assume that you would also receive pesos for the farm sale, for enough that you buy most of your inputs, raw materials or fertilizer, et cetera for $50. But there’s obviously going to be accidents, cash accidents and I was curious about that. So what are you going to do with that? Are you going to leave it in pesos? How are you hedging inflation and so on?

Mariano Bosch

Hi, Martin. Good question. All the money that we get and the money we are expensing or most of the money that we are expensing on the operations in Argentina are in pesos, but dollars [inaudible] most of them when we are selling crops and when we are buying land for sale. So we follow the official rates of the dollar. That’s [inaudible] for clarification. And going straight to your question on what is it that we are doing with [inaudible] in Argentina, as you know through the different growing projects that we have in Argentina, we were willing to bring more money into Argentina but today we are only using the money that we generated in Argentina to this growth project. And we are [inaudible] this growth project to that money that we are generating within the scope.

Martin Garzaron – City of London Investment Management

Great. Thank you very much.

Operator

Our next question comes from [Inaudible] of HSBC. Please go ahead.

[Inaudible] – HSBC Securities

Hi. Good morning, guys. I had a couple of questions on the sugar and ethanol sector. Do you see an upside to [inaudible] expectation for the cane crushing, especially given the normalized conditions in the second half of the year? And secondly, do you expect a hike in gasoline prices in Brazil in the short term?

Mariano Bosch

Okay, I’m going to ask Marcelo Shanchez to answer this question.

Marcelo Shanchez

We are seeing that [inaudible] expectation of 509 million tons of crushing is still in line with what we’re expecting. I think that given, even though we had very good crushing within those last two weeks and we still think that August is going to be a very good crushing month, we’re still thinking that the state of the crops, the state of the sugarcane fields in Brazil are not [inaudible] an increase of what you’re expecting. That I the first part of the question.

The second part of the question is we are expecting an increase in the price of the gasoline. As you may be aware of, in June, [inaudible] increased the diesel and the gasoline by [inaudible] percent and we are still thinking that the Minister of Energy [inaudible] last Friday, we’re going to be there when – they’re expecting that prices will be increased before the end of the year. That will be positive for the [inaudible] given that for instance a 6% increase in the gasoline that is what is expected now would be brining consumption of ethanol because of improving the [inaudible] of 3 to 4% more than what it is forecasted for the rest of the year.

[Inaudible] – HSBC Securities

Perfect. Thank you so much.

Operator

Your next question comes from Thiago Duarte from BTG. Please go ahead.

Thiago C. L. Duarte – BTG Pactual

Hi, guys. Good morning. I’m just wondering when you say that you got offering to buy sugar ethanol in Brazil, I’m just wondering if you could disclose what is the – what is a range of price that sellers are asking right now?

Mariano Bosch

Hi, Thiago. It’s very difficult to answer that question because each mill is a totally different thing. It will always depend on the quality of the assets, on the amount of farmed sugarcane, on the amount and the quality of potential growth. There are so many factors involved in the analysis of the returns of one mill that we don’t like to talk about those types of [inaudible]. Those are the things that we don’t fully comfortable to talk about. We only talk about the IRFs generated through the full analysis of all the CapEx that needs to be run and only the replacement that we are planning for that potential acquisition.

Thiago C. L. Duarte – BTG Pactual

That’s perfect. I was just wondering if – on a more [inaudible] basis if you could share your thoughts on if prices have actually been declining this past year or so based on the fact that the sector is undergoing at least [inaudible] financial difficulties and things like that?

Mariano Bosch

No, going to your question, there is more available. We do expect things to happen. We still don’t see an important difference in the prices mainly because replacement costs haven’t changed a lot and that’s why many times building new is better than what is offering in the market.

Thiago C. L. Duarte – BTG Pactual

Perfect. That makes sense. And lastly, also talking about [inaudible] and acquisitions in Brazil in this case, specially related with the farming business, so just if you could share your thoughts on how you see the land market in Brazil and how’s [inaudible] planning to growth and regarding prices and opportunities in the land market in Brazil? Thank you.

Mariano Bosch

[Inaudible] that we’ve seen in Brazil, we’ve seen it in Greece, in [inaudible]. We’ve seen some reports of an 18% increase in [inaudible], that means 4% increase in dollars. As an average, that may make sense but the problem with our plants in Brazil increasing [inaudible] Brazil is that all what we are analyzing, we still don’t get the positive rates that we are looking for, so we still haven’t achieved anyone that we were ready to close. We are in negotiations, we are with many things going forward in the pipeline, but we haven’t been able to complete anything yet.

Thiago C. L. Duarte – BTG Pactual

Perfect. Thank you.

Operator

(Operator Instructions). And our next question comes from Pedro Richards of Raymond James. Please go ahead.

Pedro Richards – Raymond James

Okay, good morning. Hi, Mariano, Charlie, thanks for the call. My question is related to the catch up of the [inaudible] crushing activity in Brazil. How do you do to catch up crushing and if you could give an estimate on how many days delayed [inaudible] extending the crushing period. That’s my first question. Thanks.

Mariano Bosch

Okay, I’m going to answer you and if I make a mistake, Marcelo will correct me but I’m going to try the answer because this is something that we discussed many times. This is one of the things that we follow more closely.

If we compare to last quarter, the information that you have, it’s a difficult comparison because we started ten days earlier the last quarter compared to the – sorry, to last year because we started ten days earlier last year as I previously mentioned. So comparing to last year’s quarter, the difference is like 28 days or something like that. But the most important thing that we follow is the difference to our current budget or to our original budget. And so when we compare to our original budget, at the June 30, we were 18 days below or 18 days delay. Today, [inaudible] has been an excellent year and we also shared with you the range there, so we were even better than our budget. We covered – recovered seven days. So today we are 11 days below. I think during all this, we’ve also recovered some additional one or two days. So today, I would say that we are less than ten days behind and thinking on the full season, we also have some room to extend that to December 20, or we’ve already crushed it up to December 20. We feel very comfort that the amount of cane that [inaudible] the fields will be crushed. We have [inaudible] to be able to crush those amounts.

Pedro Richards – Raymond James

Okay. Thanks. And my second question is related to the slide five of the presentation, which you mentioned that you forecast 12 months of firm commodity prices based on current [inaudible]. My question is, how much of the current high prices is due to [inaudible] and how much is due to historically high net loan position of non-commercial players? And if it’s likely to see another 20% drop in prices as we saw in September of last year when [inaudible] funds were used here in these commodities?

Mariano Bosch

Okay, thank you. I’m going to ask Marcelo Shanchez to address your question.

Marcelo Sanchez

It’s a very good question. I don’t – really, I don’t know what the real aspect compounded in the prices are without [inaudible]. But I would say that there’s a huge difference between the placement last year and this year. I mean, we have really the type of situations that the market has in mind for the corn and corn – and you know that from the first estimation of the USDA, corn production was 1800 million tons for the U.S. That is bringing a really, really complicated position for next year commercially. And of course, prices of corn are helping corn [inaudible] in favor of planting corn for next crop and that’s extremely positive for the soybeans taking into consideration that we haven’t seen any of the [inaudible] starting planting. It’s a pretty complicated situation. We are very positive on price and that’s the main reason we think that fundamentals prevail this time.

Pedro Richards – Raymond James

Okay, thanks, Marcelo. And one question in the same issue, what could trigger and what could make funds [inaudible], for example, a global slowdown or a high planting in the northern hemisphere next year? What could make these funds go out of commodities?

Marcelo Shanchez

I think the main aspect that we should be considering in a worldwide situation is the economic situation worldwide and how Europeans [inaudible]. That’s the main driver for funding.

Pedro Richards – Raymond James

Excellent. Thank you.

Operator

Our next question is a follow up from [Inaudible] of HSBC. Please go ahead.

[Inaudible] – HSBC Securities

Hi. Thank you for the follow up. I just wanted to ask, are you looking at land acquisition in countries other than Brazil and Argentina? For example, Columbia or Paraguay? If so, what is the trend in land prices that you see in those countries?

Mariano Bosch

We are looking at the different counties in South America. We [inaudible] to those countries, but particularly those two that you mentioned. We are seeing a development in those countries. Trend prices are going up and as we’ve always said, even though trend prices are going up, we are asking for the same or even higher returns that we’ve been looking for in Brazil, [inaudible] Argentina we already acquired. So we are very interested on those countries but we are asking same or higher returns independently on the trend that is coming up, of course.

[Inaudible] – HSBC Securities

Perfect. Thank you.

Operator

(Operator Instructions). This concludes our question-and-answer session. You may now disconnect.

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