Earnings Call Transcript - AGRO Q2 2020

Operator, 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 of 2020 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO, Mr. Charlie Boero Hughes, CFO; and Mr. Juan Ignacio Galleano, Investor Relations Manager. 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 conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Mariano Bosch, CEO

Good morning, and thank you for joining Adecoagro's second quarter results conference. As we all know, this quarter was marked by the spread of coronavirus disease and the global economic slowdown. In such difficult times, our main concern was to continue running all our operations while ensuring the safety of our people by imposing strict protocols to provide a hygienic and secure working environment. After all the measures taken, we were able to continue operating all our businesses on a regular basis despite the pandemic. We were in a solid position to cope with this challenging macroeconomic context, thanks to having a diversified broad portfolio. The quality of our assets, the flexibility to adapt to changing scenarios and our constant focus on being local producers, all this has allowed us to maintain profitability even under current circumstances. It has not been easy, but all the hard work put in by our teams in the field every day has paid off. In our Sugar, Ethanol and Energy business, the impact of the disease led to a significant drop in the demand and prices of ethanol and energy, presenting a very challenging scenario for the industry. We rapidly reassessed our strategy to adjust to the new context, starting by switching our product mix towards maximizing sugar, which traded at a premium to ethanol. Indeed, we diverted 54% of the TRS to sugar production compared with 25% during the second quarter of 2019. In addition to this, we reduced our crushing base, sized down our operations in tandem with a lower volume, implemented cost reduction initiatives and postponed uncommitted expenses. Our rapid response, especially under such a sudden change in market conditions, allowed us to continue selling our products with the highest marginal contribution and make a more efficient use of our fixed assets. In addition, this pace reduction has improved the conditions of our sugarcane plantations to be milled during the second semester of the year. To give you a hint, we resumed our milling pace and reached record-high milling crushing capacity in July. In our Farming and Land Transformation business, in particular, in Argentina, the mandatory lockdown presented many challenges from a logistic and operational point of view. However, we were able to efficiently complete harvesting activities for our rice and most of our crops, and transport our production across 10 different provinces. This was only possible, thanks to the commitment of our people, many of whom were put in quarantine in order to guarantee their safety and that of their families while they were performing their tasks. I would also like to point out the fluid communication we maintained and the good work we did alongside governors, mayors and public entities to successfully bring our products to the consumers in every corner of the country, as well as in export markets, in the middle of the pandemic. Another great accomplishment we achieved during the quarter was the sale of a farm in Argentina, which provided us additional liquidity. Our financial strategy of strengthening our cash position was another pillar to successfully sail throughout the pandemic. As an example, we entered into an 8-year loan of $100 million with the IFC, which, together with the results of the company, puts us in a very liquid position. To conclude, I would like to express how proud I am of the work that we, as a company, have been doing to overcome the effects of the pandemic. This work did not start a couple of months ago, but years ago. And I'm very grateful to every single member of Adecoagro for their ongoing commitment to the company, for their willingness to come to work every day, and for their continuous confidence and support. I know that we still have challenges ahead of us, but I am convinced that we have the right people and that we are following the right strategy to generate good returns and value for our existing shareholders. Now more than ever, we need to remain focused on being low-cost producers, enhancing our efficiencies and taking care of our people. So now Charlie can walk you through the numbers of the quarter.

Charlie Boero Hughes, CFO

Thank you, Mariano. Good morning, everyone. Please turn to Page 4. Where I would first like to take a moment to comment on how the dynamics of the Brazilian Sugar, Ethanol and Energy business have been impacted during the second quarter of 2020, as it will be instrumental to understand the decisions we've made throughout the quarter. During this period, the Brazilian ethanol business experienced a decrease in prices and demand, mainly explained by the fall in international oil prices, caused by the oversupply of oil generated by the geopolitical conflict between Russia and the Kingdom of Saudi Arabia. This translated into a decrease in the price of ethanol due to the correlation they maintained and by the reduction of people circulation in Brazil as a protective measure in response to COVID-19, which led to a natural decline in the demand for fuels and biofuels, such as ethanol. The impact of these factors caused the industry to experience a challenging second quarter of the year. April was defined by uncertainty regarding the extent of the COVID-19 impact. Indeed, estimates pointed to a 50% year-over-year decrease in demand for ethanol. Actual figures, although less negative, still painted a challenging scenario. On a year-over-year comparison, ethanol demand in Brazil declined 28.6%. Ethanol prices experienced a 25% decrease and international oil prices experienced a sharp decline as well. In addition, ethanol stock levels were high due to carryover from 2019. Mills across Brazil switched their mix to maximize sugar, which presented higher relative prices, thus limiting the supply of ethanol. During May, international gasoline prices experienced a recovery, and there was a 21.8% month-over-month increase in demand for ethanol in Brazil due to a less restrictive lockdown than originally thought, although year-over-year demand was 27.9% lower. By June, there were signs of recovery. For instance, the year-over-year drop in ethanol demand stood at only 10.5%. Ethanol prices denominated in Brazilian currency were 1.6% higher year-over-year on the account of a favorable FX rate, higher gasoline prices and a lower supply due to mills diverting their production to sugar, which price in Brazilian currency was at historically high levels. During July, ethanol's fundamentals pointed to a recovery as seen in an 11% month-over-month increase in demand, and only a 9% year-over-year decrease according to UNICA's latest report. Towards year-end analyst estimate, a tight supply and demand scenario for ethanol, pointing to a price recovery. This is so because the decrease in demand is expected to amount to 4.9 million cubic meters, while the decrease in supply caused by the generalized shift towards sugar production is expected to stand at 5.5 million cubic meters. As a side note, I would like to briefly mention that in June 2020, we officially became the first company to commercialize carbon credits under the RenovaBio program, marking a milestone in Brazil's biofuel policy. We are proud of this achievement, which shows our commitment to sustainable operations, and we are confident in the positive impact RenovaBio will have in the industry. Now let's move to Page 5 with a brief analysis on the rains in Mato Grosso do Sul. As seen on the top charts, rains in Mato Grosso do Sul during the second quarter of 2020 were 12.5% below the 10-year average but doubled compared to the second quarter of 2019, which registered very dry weather. The distribution of rainfalls, however, was not even throughout the quarter. The rains mostly concentrated in the month of May, improving the outlook for the following quarters. Let's continue with Slide 6, where I would like to discuss our sugarcane crushing. As mentioned above, we have been following closely the evolution of factors impacting the Brazilian Sugar, Ethanol and Energy business and rapidly reassessing our strategy to adjust to the changing scenario. This is why at the beginning of the quarter, we decided to slow down our crushing pace and reduce our level of operations in tandem with a lower volume. In addition, we implemented a cost reduction plan, which included, among others, the temporary suspension of employees under Provisional Measure 936/20, thus allowing us to maintain the workforce sized to our operational needs. However, in light of the signs of partial recovery in June and favored by the dry weather registered in the cluster region, we began the process of revamping our operations and accelerating our crushing pace again. On a quarterly basis, we crushed 2.9 million tons, 28% or 1.1 million tons lower compared to the same period of last year. Our strategy to slow down crushing was evidenced in a 10.1% year-over-year decrease in effective milling days and a 19.9% decrease in milling per day. On a 6-month basis, a total of 4.2 million tons of sugarcane were crushed, 21.6% or 1.2 million lower tons lower than the first 6 months of 2019, fully explained by the second quarter's dynamic. We expect to recover this lower crushing volume during the second semester. Indeed, during July, we reached a record high of 1.7 million tons of sugarcane crushed, which on a year-to-date basis, reduced the gap versus last year to only 700,000 tons. This improvement in our operations, coupled with a positive outlook in terms of productivity, will allow us to take advantage of the recovery in ethanol's fundamentals. Please jump to Page 7, where I would like to walk you through our agricultural productivity. Working yields during the second quarter reached 81 tons per hectare, 1.5% lower than the second quarter of 2019. In terms of sugar content, TRS during the quarter reached 126 kilograms per ton, in line with the same period of last year. The combination of these two effects resulted in TRS production per hectare of 10.3 tons, 2.2% lower year-over-year. Year-to-date, yields reached 75 tons per hectare and TRS content, 117 kilograms per ton, 11.4% and 4% lower year-over-year, respectively. This is explained by the fact that during the first quarter of the year, to profit from very attractive ethanol prices and in order to secure cane availability for 2020, we maximized the harvest of hectares with low productive potential. This strategy allowed the sugarcane with the highest potential to continue growing and recover from the impact of the adverse weather conditions in 2019, resulting in a negative impact in both yield and TRS content, which resulted in lower TRS production per hectare. Let's move ahead to Slide 8, where I would like to discuss our production mix. As you can see in the top left chart, during the second quarter of 2020, ethanol prices experienced a sharp decline and hydrous ethanol in Mato Grosso do Sul traded at an average price of $0.103 and $0.095 per pound sugar equivalent, marking a 4.7% and 11.7% discount to sugar, respectively. In this context, all our efforts were focused on maximizing sugar, the product with the highest marginal contribution to which we diverted 54% of the TRS. During the first semester of 2020, we diverted 41% of the TRS production to sugar compared with 20% during 2019. I would like to insist that this high degree of flexibility constitutes one of our most important competitive advantages since it allows us to make a more efficient use of our fixed assets and sell the product with the highest marginal contribution. As a result of this strategy, during the first semester of the year, sugar accounted for 36.6% of total EBITDA generation in the Sugar, Ethanol and Energy business, considering other operating income, while ethanol accounted for 55%. Let's please turn to Slide 9, where I would like to discuss quarterly sales. As you can see on the top left chart, during the second quarter of 2020, ethanol sales volumes decreased by 52.3% year-over-year. This is explained by the lockdown measures adopted by some states in Brazil, which negatively affected demand for fuel. Indeed, hydrous ethanol sales were the most impacted, dropping by 67.3% compared to the second quarter of 2019 as liquidity for the product remained limited, and there was no clear market price reference. And hydrous ethanol sales were 29.8% lower compared to the same period of last year, driven by lower gasoline consumption. Average selling prices for ethanol were lower, both measured in reals as well as U.S. dollars, standing at $0.103 per pound, representing a 32.8% year-over-year reduction and marking significant discounts to sugar. All in all, net ethanol sales during the quarter amounted to $23.2 million, 70% lower year-over-year. In the case of energy, selling volumes reached 259,000 megawatt hours, marking a 17.9% decrease year-over-year, explained by our commercial strategy to postpone energy sales in the spot market in light of the low prices observed during the quarter. Average selling prices were lower, both measured in reals as well as in U.S. dollars, standing at $35 per megawatt hour, marking a 28.6% decrease compared to the same period of last year. Overall, net sales were 41.9% lower compared to the second quarter of 2019, reaching $9.1 million. Lower sales volumes during the quarter reached 134,000 tons, 48.6% higher year-over-year on the account of the maximization of sugar production. This was partially offset by average net selling prices measured in U.S. dollars, which dropped by 11.4% to $0.109 per pound, although prices in reals were at their historical maximums, explaining why Brazilian producers continued maximizing sugar. As a result, net sugar sales reached $31.9 million during the quarter, a 20% increase year-over-year. Finally, to conclude with the Sugar, Ethanol and Energy business, please turn to Slide 10, where I would like to discuss financial performance. Adjusted EBITDA during the second quarter of 2020 was $45.4 million, 44.4% lower compared to the same period of last year. This was mostly explained by lower net sales, partially offset by cost dilution following the depreciation of the Brazilian real, lower selling expenses as we renegotiated sugar freight costs and paid less taxes in line with the lower ethanol sales, and lower general and administrative expenses, both on the account of currency depreciation as well as genuine savings as part of our cost reduction initiatives. I would now like to move on to the Farming business. Please direct your attention to Slide 12. As of the date of this report, 92.7% of our total planted area was successfully harvested and presented good yields. The remaining hectares are expected to be harvested by early August. Let's move to Page 13, 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 during the first semester of 2020 was $64.8 million, 52.9% or $22.4 million higher year-over-year. This increase is fully explained by the dynamics of the second quarter, which generated an adjusted EBITDA of $40.2 million, 4x higher year-over-year. In our Land Transformation segment, during the second quarter of 2020, we generated a gain of $10.1 million from the sale of 811 hectares of our farm in Argentina, representing our first farm sale in Argentina in 5 years. On a year-to-date basis, this gain marks a 7.6% increase compared with the $9.4 million results registered during 2019 from the sale of Alto Alegre farm in Brazil. Adjusted EBITDA in our Farming business amounted to $54.7 million in the first semester of 2020 and $30.1 million during the second quarter, 3x higher year-over-year. The impact of COVID-19 generated an increase in the demand for rice and milk, which we were able to capitalize. During the second quarter of 2020, the Crops business generated an adjusted EBITDA of $17 million, $14 million higher compared to the same period of last year. This increase is mainly explained by higher average prices, driven by a greater participation of higher-value crops, such as peanut and sunflower; and year-over-year increase in harvested area, in particular, in the case of corn, which increased by 22,000 hectares, generating a $4 million gain in changes in fair value; an increase in the mark-to-market of our commodity hedge position; and cost dilution following the depreciation of the Argentine peso. The Rice business generated an adjusted EBITDA of $8.3 million during the second quarter of the year, $5.2 million higher year-over-year. This was driven by an increase in sales generated by higher demand, both in the domestic and export market, driven by countries rebuilding their stocks and increasing consumption, coupled with higher average prices as export prices increased and we pushed the sale of higher-margin products in the domestic market. The increase in adjusted EBITDA was also due to an increase in the mark-to-market of our biological assets and lower costs in dollar terms. The Dairy business generated an adjusted EBITDA of $5 million during the second quarter of the year, mainly driven by higher selling volumes on account of increased demand in the domestic market and achieved efficiencies in our vertically integrated operations, including high productivity at the farm level and the flexibility of our industrial assets, which allowed us to benefit from the spike in demand. Let's now turn to Page 15, which shows the evolution of Adecoagro's consolidated operational and financial performance. Net sales during the second quarter of 2020 reached $181 million, 13.7% lower year-over-year. This is fully explained by the performance of the Sugar, Ethanol and Energy business, which received the greatest impact from the coronavirus pandemic, which translated into lower prices of sugar, ethanol and energy, measured in U.S. dollars and lower selling volumes for ethanol and energy. Adjusted EBITDA totaled $81.2 million, marking a 6.6% decrease compared to the same period of last year. On a year-to-date basis, net sales reached $332 million and adjusted EBITDA $142 million, 8.5% and 2.1% lower year-over-year. Please turn to Slide 16 to take a look at our debt amortization schedule. I would like to highlight that it was not only from an operational and financial point of view that we adapted our strategy in response to the pandemic, but we also worked on an integral risk management program to improve our liquidity position in light of such an uncertain scenario. As you know, we started 2020 with a cash position of $219 million. Throughout the year, we reassessed our cost structure, put on hold some uncommitted capital expenditures and raised credit lines to strengthen our cash position and meet our financial obligations and working capital needs. Indeed, during the second quarter, we increased our short-term debt position by 23% quarter-over-quarter by raising short-term working capital lines. It is worth mentioning that much of this debt was raised as a precautionary measure due to the uncertainty in the macroeconomic scenario, and that due to the seasonality of our business, our sales haven't been collected yet. As can be seen in the bottom graph, our pro forma debt amortization schedule improved considerably compared with March 31, 2020. This is mostly on the account of the $100 million loan agreement we entered with IFC this time for our Argentina operations, which almost doubled the average life of our debt to 6 years. We are proud of this major achievement, especially given the current global economic situation as it is a reflection of our hard work, solid reputation and the stable outlook of our business. Having received this green loan also validates our strong commitment to environmental sustainability. To conclude, please turn to Slide 17 to take a look at our net debt position. As you may see in the bottom left chart, our net debt as of June 30 of 2020 reached $742 million, $30.2 million or 4.2% higher than the previous quarter, driven by a $31 million increase in gross debt, which amounted to $978 million, 3.3% higher than the previous quarter and cash and equivalents flat at $236 million. On a year-over-year basis, net debt was 4.3% lower compared to the second quarter of 2019 on the account of higher cash and equivalents, mostly 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 75% having a long-term tenure. Our net debt ratio reached 2.45x, 6.2% higher than during the first quarter of 2020 but 17.4% lower year-over-year. At the same time, our liquidity ratio shows the full capacity of the company to replace short-term debt with cash balance without raising external capital. As of June 2020, the ratio, which is calculated as cash and equivalents plus marketable inventories divided by short-term debt reached 1.22x. This number is significantly higher once we included the IFC loan. Thank you very much for your time. We are now open to questions.

Operator, Operator

The first question comes from Pedro Soares from BTG Pactual.

Pedro Soares, Analyst

I have two questions here on my side. But the first one on sugar and ethanol. Could you provide a bit more color on your sugar hedge strategy going forward? We saw hedges for the current crop ramping up this quarter, right? So we're still a little bit below what we imagined it would be. So it would be nice to hear how this has been evolving already in July and August? And also, and maybe even more importantly, it will be interesting to hear about hedges for the next crop with the 2021, '22 harvest as well. We've been seeing a lot of discussions on how Brazilian millers have been accelerating hedges for the next year as well. But the thing is that Adeco hasn't started yet. So should we take from that, that you guys are confident that there is still room for sugar prices to go much beyond where we are today, at current sugar price levels? Any color would be great there. And the second one on your capital allocation. CapEx is obviously down year-to-date, probably due to all of the initiatives taken, as you guys said, by the company to address the pandemic and its impacts. But also, there is a part of this reduction, which is probably related to the fact you guys were already entering the final phase of your 5-year expansion plan, right? So how much of this reduction should we assume as a recurring basis? And it would be nice to have a sense of what should be the cruising speed for CapEx for the next quarters for the group as a whole?

Mariano Bosch, CEO

Thank you, Pedro, for your questions. I will first address the second part of your question and then turn to Renato for your first question. Regarding capital allocation and the lower CapEx you are observing, this aligns with our structural plan that we have discussed over the past 3 to 4 years, focusing on our 5-year plan. The year 2020 marked the conclusion of this plan, with most of the growth investments finishing in that year. This reflects our ongoing focus and strategy. Moving on to your first question about sugar and ethanol and the hedges, I will let Renato provide you with more details on that.

Renato Junqueira-Santos Pereira, Executive

Hi Pedro, we are positive for sugar prices, and this is because there are some countries that are important suppliers of sugar that are facing some problems. So we have dry weather in Thailand, we have the yellow virus in the European Union, and we have a drought in Brazil that can be partly compensated by the high TRS, but not fully compensated. On the other hand, we have increased demand from China, Pakistan, and Indonesia; demand that no one was expecting. And if you consider that the demand for ethanol will recover next year, this is going to reduce part of the 10 million tons of sugar that Brazil had this year. So we have been progressively increasing our hedging according to the opportunities that we have had in the last two weeks. So far, we have currently hedged 80% of the 2020 season at $0.123 per pound and 16% of the 2021 crop at $0.127 per pound.

Operator, Operator

Next question comes from Lucas Ferreira from JPMorgan.

Lucas Ferreira, Analyst

My first question on the sugar and ethanol. Your strategy of doing sort of a lower crushing in the first quarter of the season, I think was very different from what we saw in general for the Center-South, which actually had a very strong start of the season. So I was wondering what was the strategy there? And I suppose that obviously, the crushing is accelerating a lot. So wondering if that changes anything for the full year? If you can comment on this? And the second question was about the land sale in Argentina. If you can quickly discuss the valuation of this land relative to the typical assessments and the appraisal you guys do every year. And if you still expect to sell more land this year? How is the liquidity in the market? Do you think that was kind of just a one-off thing, or do you feel that the market is improving and that could open opportunities for you to do more land sales in the next few quarters?

Mariano Bosch, CEO

Thank you, Lucas, for your question. Renato will give you more color or will give you the color on your first question and why we took that strategy. So Renato, can you go in-depth there, and then I will take the land sales again.

Renato Junqueira-Santos Pereira, Executive

Okay. Thank you, Lucas. As a consequence of last year's dry weather, we have reduced the crushing pace in the second quarter. Considering the impact of the COVID-19 and ethanol demand and price, we thought it was an appropriate time to do it, giving more time to the sugar cane development and to reduce our harvesting costs, adopting the MP 936. We think it was a good decision as ethanol prices and sugarcane yields improved, and we'll revert to those measures, reaching an all-time monthly crushing in sugar production record in July, as was already mentioned. The sugarcane yield has also recovered to levels much higher than the same period of last year. I think this strategy is different from most of the other mills in Brazil because Mato Grosso do Sul has its own weather dynamics. This is the reason we have the continuous harvest model. So we have not been affected by the drought that is currently occurring in other regions right now. We had dry weather in Mato Grosso do Sul last year, which also affected the first semester sugarcane yields. However, the normal range we had this year, we will have a better second semester with certainly better yields than the same period of last year. Different from last year, we will have a slow first semester and an intense second semester in terms of production, as we have already seen in July.

Mariano Bosch, CEO

Thank you, Renato. Lucas, regarding your question of the land sale. As we mentioned, the land sale has been at a price that is 23% above the Cushman valuation; that is an independent valuation that is being done every year. But more relevant or the more relevant thing is that we are seeing that the market has become much more active. We are receiving visits to our farms from different interested parties and we believe that this trend will continue during the next semester. So we will continue seeking to execute more sales.

Operator, Operator

The next question comes from Fernanda Cunha from Citigroup.

Fernanda Cunha, Analyst

I have a question regarding your strategy to increase crushing rates in the second half. What level of ethanol do you expect to reach in that timeframe for your strategy to be effective? Additionally, considering that many mills in the Center-South may end their crop earlier, do you anticipate any upside risk to ethanol prices because of that? Also, you sold a very small portion of your farm, correct? Was this land unused, or will you need to consider leases in other areas or asset sale-leasebacks for the land sold? I'm curious about the reasoning behind selling this small part of the land now. Lastly, regarding capital allocation, it seems like this year may be challenging in terms of paying dividends. When do you expect shareholder returns in the form of dividends to happen?

Mariano Bosch, CEO

I will begin by addressing your last question and then delve into the other two inquiries. On the topic of capital allocation, as we have discussed in previous years, our current focus is on returning capital to shareholders. This has been the approach outlined in our five-year plan since 2020. This year, we anticipate reaching a neutral free cash flow position, with 2021 projected to be significantly positive. We have consistently indicated that 2021 would mark the year we become free cash flow positive. Given the pandemic circumstances and our current navigation of these challenges, as Charlie detailed, our emphasis is on present liquidity. While today's focus is on current conditions, our projections suggest that 2021 will be promising, at which point we can further explore plans for returning capital to our shareholders. Regarding your second question about the land sale, we sold a small portion at a very attractive price. This aligns with our strategy regarding capital return from that land. The internal rate of return we expected from maintaining that piece was not compelling, leading us to reallocate that capital elsewhere. We sold 800 hectares in that area, while we still lease over 30,000 hectares, so this sale does not significantly impact our overall production mix. The buyer was willing to purchase that specific land for a price that was appealing to us, prompting our decision to sell. This transaction reflects a more active market than we've seen in the past four years. Now, I will turn it over to Renato to provide more insight into our strategy for milling sugarcane, the expected ethanol price, and other related aspects.

Renato Junqueira-Santos Pereira, Executive

Thank you, Fernanda. So regarding the ethanol price, we think the outlook for ethanol has substantially improved through the quarter with oil prices bouncing back to $40 per barrel levels, better prospects for demand and lower production by the Center-South mills. From the peak of the restrictions in April, domestic prices have increased by almost 30% while demand improved 40% in July. In our analysis, the switch in mix towards sugar production will be responsible for reducing it by almost 6 million cubic meters, and increasing sugar by 10 million tons, which is a volume margin enough to offset the loss in demand that we are expecting. We expect a loss in demand between 10% and 12%, which is approximately 4 million cubic meters. For this region, we expect tight ethanol supply in this situation in the off-season, in part with gasoline moving from the current 64% to 7%, which should provide an upside in prices between 10% and 15%. The fact that we have slowed down the crushing pace and have had normal ranges in the second quarter has improved the sugarcane yields and crushing outlook for the second semester. This is as an example; the sugar cane that we crushed in July had more than a 20% increase in yields compared to the same period of last year. Therefore, we are confident we are going to take advantage of those good prices by the end of the year.

Operator, Operator

Next question comes from Santhosh Seshadri from HSBC.

Santhosh Seshadri, Analyst

Hi, good morning, this is Santhosh here on behalf of Alex Falcao. I'm not sure if my questions have already been answered. So I have a couple here. First, can you walk us through your outlook for the second half of the year, specifically for your Farming and Land Transformation business? I'm just looking for some color in terms of how the seasonality and changes in sales pattern, if any, would shape your first half versus second half EBITDA split? And can you also give some color on your resales or possibly your order book if possible? And my second question is on the cost side. You have done a very good job on the cost performance. Can you give us some color on how much of the cost reduction in the sugar business was a result of currency? And how much was due to your negotiation and other cost-saving initiatives?

Mariano Bosch, CEO

Okay. Thank you for your questions. Regarding the Farming and Land Transformation, for the second semester, in order to understand the cycle of the farming and land transformation business. In this semester, we are finishing all the harvesting activities. So as Charlie explained in detail, we are at the end of all these harvesting activities that were very challenging because of the pandemic, but the yields that we obtained and the ability and the cost reductions and the efficiencies that we obtained all along the chain to grow to the domestic market or the export market and also the flexibility that we have in all this farming business, including milk, including peanuts and sunflowers, rice. That flexibility that we have to go to the domestic market and to the export market gave us a great possibility in this pandemic because at the beginning the domestic market was very strong. We took advantage of that, then the export markets improved; then we took advantage of the export market. So that is part of the strategy that we defined a couple of years ago that is really paying off today. We expect that the second semester will continue more or less on the same lines, while we think on all the sales of these things that we are harvesting and that we are finishing the harvesting. So the cash generation will continue to be in line with what we've been seeing this first half of the year. But then we are starting the new harvest time; so the second semester is where we are planting and preparing for our next cycle. And that is also going very well. Everything is very well prepared. Our contractors are ready. Our people are starting to plan. So we are very positive on how it's working and for the future of the whole farming and land transformation business is that we are seeing a very important improvement, and we expect to continue to see this. And then regarding the cost reduction on the sugar and ethanol business, I would say that in general terms, we continue to focus in reals to reduce costs, and that's something that is happening. The level of reducing costs in real is relatively small in terms of percentages. But while we are reducing costs in real, all the depreciation of the real is transforming to costs in dollars. So when we look at the day-to-day operations in Brazil, it's about being more efficient with our costs in real terms, then all that is translated into dollars on the translation accounting. I don't know, Renato, if you want to add something on this.

Renato Junqueira-Santos Pereira, Executive

No, just to add that our cost in the reals. We are projecting costs in the reals this year close to BRL0.40 per pound.

Operator, Operator

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.

Mariano Bosch, CEO

Thank you. And just before we end the call, I would like to especially thank all our stakeholders and really special thanks to the people who are working on our fields, especially in these difficult times, and they are doing an amazing job. Now I would also like to remark that the pandemic is still there, and we need to continue focusing on maintaining every line of business fully operational, and that we are constantly adapting and generating new prevention measures and raising our safety protocols and procedures to keep everyone in healthy conditions. So I hope you all stay safe and healthy. I look forward to talking to you in our next meetings.

Operator, Operator

Thank you. This concludes today's presentation. You may disconnect your line at this time. Have a nice day.