Earnings Call Transcript
Adecoagro S.A. (AGRO)
Earnings Call Transcript - AGRO Q1 2021
Operator, Operator
Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro’s First Quarter 2021 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. 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 session. 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 2021 first quarter results conference. As you may have seen in our release, we continue delivering strong operational and financial results. Adjusted EBITDA marked a new record high for the first three months of the year and an increase of almost 80% compared to last year. The results achieved prove the success of the investments we made that are driving our EBITDA and cash generation as we projected. During the past five years, we have invested approximately $400 million across all our businesses in projects that are generating returns on invested capital of over 25%. These investments have improved the efficiency and sustainability of our operations, enhanced our competitive advantages, and allowed us to be better positioned to face different scenarios. Just as important as the reconciliation of our investment is the commitment of our team, our focus on efficiencies and our strategy of being local producers. It was thanks to this that in 2020 we achieved solid results despite the challenging environment, and it is also the reason why we are now able to benefit from the improved price scenario and generate higher results. Moving on to the performance of our businesses. In our Sugar, Ethanol, and Energy business, one of our competitive advantages is the fact that we operate under a continuous harvest model. This means we can crush sugarcane non-stop year-round, even during the first quarter, which is a traditional inter-harvest period. Actually, we crushed a record high for the first three months of the year. This allows us to dilute fixed costs and capture good Sugar and Ethanol prices. Achieving this crushing volume was possible thanks to the investment we made to expand our sugarcane plantation, increase the capacity of our mills, and enhance efficiencies at every stage of production. A very relevant aspect of our product system is the high flexibility we have to switch from producing Sugar to Ethanol and vice versa. We make the decisions on which products to maximize on a weekly basis, given the changing environment. For example, we are currently maximizing Ethanol production since it is trading at a premium to Sugar, when two weeks ago we were maximizing Sugar to capture the higher prices. We believe that throughout this year, we will see healthy competition for the TRS per ton that will provide support to both Sugar and Ethanol prices. Before moving on to the other businesses, I would like to make a brief comment on the weather in Brazil. As you know, the Center-South region has been experiencing dry weather for the past month. As we are based in Mato Grosso do Sul, which has different weather dynamics, we experienced a humid first quarter. This means that our sugarcane is better prepared to endure the current drier weather with fewer implications than the Central region. In our Farming and Land Transformation businesses, every segment outperformed last year's figures by more than doubling our adjusted EBITDA. Once again, I would like to emphasize that this is a result of our teamwork and of our larger, more efficient, and vertically integrated operation. A clear example is our Rice business, which almost doubled its EBITDA. Throughout the past few years, we have focused on productivity as the key variable to minimize costs per ton, improve grain quality, and enhance efficiency throughout the value chain. With this in mind, we made specific investments that enabled us to fully turnaround the business while also improving the sustainability of our operations. This was only possible thanks to the commitment and innovative approaches of our people. They work with passion and dedication to coordinate the logistics surrounding the production of rough rice and delivery to our mills, obtaining high-quality products on time to be sold through various commercial channels. Moving to our Crop businesses, we are currently undergoing harvesting activities with yields in line with our forecast. In this segment, diversifying into higher value-added crops was key to driving EBITDA generation. This investment in our peanut and sunflower facilities allows us to vertically integrate our operations and maximize our results. In our Dairy operations, we continue delivering strong operational results and improving our productivity indicators, even as we populate our four free-stall. This higher volume of milk evidences, among other things, the importance of our fully integrated process, which enables us to offer high-quality products to customers in both the domestic and export markets. As mentioned in our past release, last year, we became free cash flow positive for the first time since 2017. Now that the results are in front of us and that our five-year plan is in its final stages, we are confident that cash flow generation will continue to increase in the upcoming years. Moreover, we have reached debt levels which we consider adequate and well-structured. Just as 2020 marked a turning point for us in terms of cash generation, 2021 will mark the year when we start distributing cash to our shareholders. This is a priority, and as you can see, we have already started doing it through our buyback program. As of today, we have already repurchased 1.5 million shares. To conclude, I would like to take a moment to reflect on our journey during these past years. During our Investor Day in October 2018, we communicated to the market that we had embarked on a five-year investment plan. This represented a huge challenge for the company. But we were confident that we would complete it successfully. Now, we are very proud of our achievements, which translate into the results we are presenting today. 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 are among the lowest crop producers in the entire world and are generating attractive and sustainable margins for all our shareholders. Now I will let Charlie walk you through the numbers of the quarter.
Charlie Boero Hughes, CFO
Thank you, Mariano. Good morning, everyone. Now let’s move to page four, with a brief analysis on the rains in Mato Grosso do Sul. As seen on the top charts, rains in our cluster Mato Grosso do Sul during the three-month period of 2021 were 60.8% higher than during the same period last year and 20.2% higher than the 10-year average. Precipitations were registered throughout the quarter but were especially concentrated in January, with the registered rains doubling the 10-year average level. As can be seen in the bottom-left chart, the frequency and distribution of rainfall caused interruptions in our crushing activities, leading to a 10.1% decrease in milling per day. However, this was fully offset by an early start of milling activities in our cluster, which resulted in an 87% increase in total milling days and a 76.1% increase in effective milling days. We were able to achieve these higher results because our teams were readily available to restart crushing activities and because, as opposed to the first quarter of 2020, we had good cane availability thanks to our strategic decision to reduce our milling pace last year. As a result of this, crushing volume reached 2.1 million tonnes of sugarcane during the first quarter of 2021, which is 58.3% or 800,000 tonnes higher compared to the same period last year. Please jump now to page five, where I would like to walk you through our agricultural productivity. During the quarter, sugarcane yields reached 75 tonnes per hectare, while TRS content reached 112 kilograms per tonne, marking a 15.4% and 14.3% increase, respectively, compared to the same period last year. The combination of these two effects resulted in our TRS production per hectare of 8.4 tonnes, which is 31.9% higher year-over-year. The year-over-year gap is explained by the strategy we adopted during the first quarter of 2020, aimed at capturing the high Ethanol prices observed during that quarter while ensuring cane availability for the rest of the year. We maximized the harvest of hectares with low productivity potential, thus allowing the sugarcane with the highest potential to continue growing and recover from the impact of the 2019 adverse weather conditions. Let’s move ahead to slide six, where I would like to discuss our production mix. In the first quarter of 2021, Sugar traded at a premium of 10.2% and 5.1% to hydrous and anhydrous Ethanol, which traded on average at $14.6 per pound and $15.5 per pound, respectively. In this context, all our efforts were focused on maximizing Sugar production, except for a few specific days when Ethanol traded at a premium. As can be seen on the top right chart, during the first quarter of 2021, we diverted as much as 40% of our TRS to Sugar, compared to 5% during the same period of last year, resulting in Sugar production 15 times higher. I would like to emphasize that this high degree of flexibility constitutes one of our most important competitive advantages, as it allows us to utilize our fixed assets more efficiently and sell the product with the highest marginal contribution. It is worth pointing out that the Sugar mix achieved marked the record high for the first quarter of the year, as the content and quality of TRS observed during the first month of the year usually favors the production of Ethanol. Despite producing a lesser alcoholic mix compared to the first quarter of 2020, Ethanol produced increased year-over-year as a consequence of the great crushing volume and TRS content, allowing us to capture good Ethanol prices. During the first quarter of the year, Ethanol accounted for 70% of total EBITDA generation in the Sugar, Ethanol, and Energy business, considering other operating income, while Sugar accounted for 28%. Let’s please turn to slide seven where I would like to discuss quarterly sales. Ethanol sales volumes decreased by 14.1% year-over-year. This is mainly explained by our commercial decision to increase our carry to benefit from higher expected prices. Ethanol average selling price measured in reals increased compared to the first quarter of 2020 but was slower measured in U.S. dollars, standing at $15.7 per pound sugar equivalent, representing a 3.7% year-over-year reduction. Overall, net Ethanol sales during the quarter reached $43.4 million, which is 17% lower compared to the same period of last year. Allow me to briefly point out that the Ethanol volume sold enabled us to continue generating carbon credits under the RenovaBio program and thus capture an additional revenue stream recorded in the other operating income line. In fact, during the quarter, we sold 102,000 CBios at an average price of BRL31.9 per CBio, equivalent to $6 per CBio. In the case of Energy, selling volumes reached 120,000 megawatt hours marking a 12.3% year-over-year increase. Average selling prices were lower, both measured in reals as well as in dollars, standing at $30.3 per megawatt hour, implying a 23.2% decrease compared to the same period of last year. Overall, net sales totaled $3.6 million, 13.7% lower compared to the first quarter of 2020. Sugar sales during the quarter reached $25.2 million, which is almost nine times higher than during the first quarter of 2020. This increase was driven by a 26.4% increase in average Sugar prices, which reached $18.3 per pound and an increase of over seven times in selling volumes. Our strategy to maximize Sugar production, coupled with the increasing crushing volumes, resulted in a greater volume available for sale to capture the highest Sugar prices observed during the quarter. In addition, we exported over 2,700 tonnes of certified organic Sugar produced in our UMA mill, capturing an average price premium of 50.3% over VHP Sugar. In this way, we not only have a highly efficient cluster model in place, but also continue to add value to UMA. Finally, to conclude with the Sugar, Ethanol, and Energy business, please turn to slide eight where I would like to discuss financial performance. Adjusted EBITDA during the first quarter of 2021 was $58.2 million, which is 42.1% higher compared to the same period last year. In addition to the higher net sales, the increase was explained by a cost reduction measured in cents per pound as a consequence of the higher crushing volume, the depreciation of the Brazilian real, attained efficiencies at the farm and industry level, and a $26.5 million gain derived from the mark-to-market of our sugarcane, of which $15 million has already been harvested and hence is realized margin, while the balance will generate cash in the upcoming quarters. This was partially offset by a loss derived from the mark-to-market of our commodity hedge positions led by the increasing prices. I would now like to move on to the Farming business; please direct your attention to slide 10. We have completed planting activities for the 2020 and 2021 harvest year, reaching over 262,000 hectares, which is 9.9% higher than the previous harvest season. This increase is mainly driven by an increase in peanuts and sunflower planted area, two crops that are well-suited to our crop rotation system, offer higher margins, and strengthen our diversification strategy. Harvesting activities are well underway, and it is worth noting that the heavy rains registered during March in Argentina led to slower harvesting progress during this quarter compared to the same period of last year. However, harvesting activities have since resumed with no impact on yields. 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 reached $56.2 million in the first quarter of 2021, which is $31.5 million or over two times higher year-over-year. The increase was mostly attributable to the Farming business, which registered a year-over-year increase in adjusted EBITDA of $28.7 million, showing the benefits of having bigger, more efficient, and vertically integrated operations. The Crops business generated an adjusted EBITDA of $17.7 million, which is more than four times higher than during the first quarter of 2020. This increase was explained by a $5.8 million gain in the mark-to-market of our biological assets, driven by an increase in commodity prices, especially soybean and corn, despite lower yields and lower harvested area, and a $9 million cost reduction due to enhanced efficiencies and the depreciation of the Argentine peso, which led to a dilution of costs in U.S. dollars. This was partially offset by a decrease in gross sales, which was explained by a 43.8% reduction in selling volumes, mainly due to the slower harvesting progress achieved during the quarter. The Rice business generated an adjusted EBITDA of $28.3 million, which is 86.7% higher compared to the same period last year. This increase was explained by an 11.9% increase in yields and an increase in prices, which led to a $13.7 million increase in the mark-to-market of our biological assets and agricultural produce, and a $3 million increase in gross sales driven by higher average prices, which fully offset the lower selling volume. We were able to achieve these results because for the past years we have focused on three main goals: productivity as a key variable to minimize costs per ton, grain quality to improve industrial efficiencies coupled with traceability to be used as a commercial tool, and efficiency throughout the value chain by focusing on synergies at every level. In this line, by making investments to improve logistics and enhance efficiencies at the field level, we were able to achieve higher yields and reduce costs per ton. By diversifying our product portfolio, working on our own genetics, and achieving a customer-centric view, we successfully increased our average selling price. The Dairy business generated an adjusted EBITDA of $4.7 million in the first quarter of 2021, which is 48.8% higher year-over-year, mainly driven by a 14.5% increase in gross sales on account of higher selling volume, mainly derived from the export market. It was partially offset by the lower price of milk and by the higher cost of staples. Our Land Transformation businesses registered an adjusted EBITDA of $5.1 million explained by the gain in the mark-to-market of an account receivable corresponding to the latest sales of farms in Brazil, which was positively impacted by the increase in soybean prices. Let’s now turn to page 13, which shows the evolution of Adecoagro's consolidated operational and financial performance. In the first quarter of 2021, we achieved solid results both from an operational and financial point of view. Adjusted EBITDA totaled $109 million, which is 78.7% higher compared to the same period last year, marking a new record high for the first three months of the year. We were able to achieve these high results and capitalize on the rally in commodity prices, thanks to the investments we carried out since 2017 across all our businesses. As we projected, these investments are driving our EBITDA and cash generation, offering attractive returns. To conclude, please turn to slide 14 to take a look at our net debt position. As you may see in the bottom-left chart, our net debt as of March 31, 2021, reached $732 million, which is $97 million higher compared to December 31, 2020. The 3.1% reduction in gross debt was fully offset by a 38% decrease in our cash position. This is explained by the fact that cash generation is concentrated in the second semester of the year. From a seasonality point of view, the first quarter has the highest working capital requirements, as during this period, all of our crops are planted and most costs are incurred, but only a small amount of the crops are harvested and sold. As we continue harvesting throughout the second and third quarters, we expect to reduce working capital investment and debt. On a year-over-year basis, net debt during the quarter was 2.9% higher than during the first quarter of 2020, also explained by the decrease in cash position. This was mostly driven by a 64.4% increase in inventories, led by our commercial strategy to carry stocks in order to benefit from higher expected prices, especially for Sugar and Ethanol. The decrease in accounts receivable is due to the greater maximization of Sugar and the increasing planted area in the Crops, Rice, and Sugar, Ethanol, and Energy businesses, as well as the increase in milking cows in our Dairy business. The net debt ratio reached 1.88 times, in line with the fourth quarter of 2020, and 18.8% lower than the first quarter of last year. At the same time, our liquidity ratio, calculated as cash and equivalents plus marketable inventories divided by short-term debt, reached 1.84 times. Any value above 1 shows the full capacity of the company to repay short-term debt with cash balance without raising external capital. We consider our balance sheet to be in a healthy position based not only on adequate overall debt levels but also on the terms of our indebtedness, most of which is long-term debt. Thank you very much for your time. We are now open to questions.
Operator, Operator
Thank you. Today's first question comes from Thiago Duarte with BTG Pactual. Please go ahead.
Thiago Duarte, Analyst
Hello. Good morning, Mariano. Good morning, Charlie. Thanks for the call. I have three questions. I’ll try to be brief. I’ll start with the Sugar and Ethanol and Energy segment. As you mentioned in your opening remarks, I know there’s been growing concerns on the poor rainfall levels that shouldn’t be affecting cane yields across the Brazilian Center-South. You already mentioned that core clusters weren’t as affected, which is great. So I wanted to hear your views on how you think that it will affect Sugar and Ethanol production in the Center-South of Brazil in general in this ongoing crop. The reason why I’m asking this is that I suspect that the industry will continue to maximize Sugar output, so that Ethanol output will be the one sacrificed by lower feedstock availability. So I wanted to hear your views and how we should expect Adecoagro to react to this scenario in terms of production mix? The second question is related to capital allocation. So based on the current environment, it looks like you’re headed to a very good free cash flow generation this year, coming from better commodity prices and the phasing out of your five-year investment plan. So can you please remind us what the ideal or target leverage ratio is that you are aiming for, and whether you should be able to come up with a stronger dividend cash distribution policy beyond the share buybacks that you have been executing or if you see room for another round of capacity expansion and attractive investment opportunities across your business unit? So just how we should see capital allocation between dividends and cash distribution and investments? And finally, my third question is on the Rice business, you have been showing a very good progress in this quarter in particular, a very good contribution from the Rice business in terms of yields and in terms of prices as well. So can you comment a little bit on the outlook and the sustainability of those margins, in particular in terms of how you see the pricing outlook going forward? Thank you so much.
Mariano Bosch, CEO
Thank you, Thiago, very much for your questions. I want to take first your first question on the Sugar and Ethanol outlook for this year in general and our strategy there and how the climate is affecting it, and I will ask Renato to give more context on this. So, Renato, can you answer Thiago?
Renato Junqueira-Santos Pereira, Market Analyst
Hi, Thiago. Thank you for the question. I think it’s becoming clear that the weather in the Center-South Brazil will yield less TRS than everyone was expecting. Most analysts are saying there will be a drop of about 10% in the TRS produced. So, I think it’s becoming clear that Brazil will not have enough TRS to supply the 36 million tonnes that the world needs from Brazil, as well as to supply the recovering Ethanol market, which should be increasing approximately 6% this year. A 6% increase in the Ethanol market is equivalent to 2.7 million tonnes of sugar equivalent. So different from the last two years, we think that the two products, Sugar and Ethanol, will be trading closer to parity. Last year we saw Sugar paying much more than Ethanol, resulting in a significant switch from Ethanol to Sugar; I think almost 11 million tonnes, and the year before it was exactly the opposite. This year, we believe we will see healthy competition for TRS from both Sugar and Ethanol, which is why we expect both products to have good prices. Our strategy in this scenario is to be as flexible as possible to switch or adjust our production needs on a weekly basis, as Mariano mentioned before, taking advantage of the product that is more profitable at that moment. Just as a reference, today hydrous Ethanol is trading at $0.19 per pound sugar equivalent and anhydrous at $0.20 per pound. So now we are maximizing Ethanol production.
Mariano Bosch, CEO
Clear, Renato. Thiago, anything else on Sugar and Ethanol? Is that okay?
Thiago Duarte, Analyst
Oh! That’s okay. That’s okay. My follow-up would be how we think the mix in the Center-South of Brazil will behave. Will you believe the two products are going to be trading at parity, considering that there was a consensus that there would be a maximization of Sugar output, and whether you think there’s going to be more TRS diverted to Ethanol? Not from Adecoagro, which is clear in your strategy, but from the industry in general.
Renato Junqueira-Santos Pereira, Market Analyst
I didn’t understand your question, Thiago. As we mentioned before, we think that the parity will be similar even in the Center-South, not as much in the southern part but closer than the last two years. However, since most players in Center-South are very advanced in their hedging, I think they are maximizing Sugar at least when prices are very close as we are today. Most projections indicate that the Center-South will try to produce the 36 million tonnes that everyone expects from Brazil.
Mariano Bosch, CEO
Okay. Thank you, Renato.
Thiago Duarte, Analyst
Thank you, Renato.
Mariano Bosch, CEO
Just to complement, Thiago. This is why our strategy has to continue to be open regarding Sugar prices compared to the rest. Then I will address the second and third questions that you asked. On the third question regarding the Rice operation, thank you for that question. It’s an opportunity to point out again the amazing job that the full team of the Rice operation has done. This has been a particular effort over several years. We made specific investments in planters; for example, we change the whole strategy of how to plant. That means we planted 45,000 hectares at a very efficient rate, and this is something we can continue to sustain. Then the whole irrigation system is very specifically dedicated, with a lot of technology being applied here. We apply technology in every place where the Internet of Things is connecting, managing all the different flows of water, making us not only more efficient economically but also more sustainable. So the Rice operation is improving every year, and we expect to continue to see progress because there is continuous improvement going on, with our team learning more and being solid in execution. So all these investments are very relevant, but what’s most relevant is the team’s dedication to make all these things come together. In terms of the commercial and logistics part, this presents a huge challenge, with three different mills and five to eight different farms or locations for harvesting. The quality of rice that we were able to achieve this year is the best in the last eight years and even better than what we were projecting. Moreover, we are now able to segregate the different buyer varieties, allowing us to reach different clients around the world. These clients understand the specific variety they need for their brands. So we see these results being very sustainable. We appreciate the commitment and technology being applied and are very optimistic about the Rice business and the progress we’ve made over the last two to three years. When we look at the general prices of rice, they are acceptable and better than what they were five years ago, but they are not even close to historical highs. Overall, prices can continue to rise, and we are positioned to see sustainable profit margins because of what I mentioned before. So thank you for the opportunity to discuss Rice. It has become an important business for us, though we don’t typically spend a lot of time explaining the details involved in that segment. On your second question regarding capital allocation and what leverage ratio we aim to achieve, it’s clear we’ve discussed maintaining a ratio below two times EBITDA. That has been our message for the last three years, and we want to remain there in order to contemplate distributing our results with shareholders. We are comfortably positioned regarding our earnings, capital distribution, and structure. As we've explained in detail, we are well-structured in terms of our debts and what we owe, and we'll work to establish a clearer distribution policy, which we plan to announce during the year. The distribution policy will reference a percentage of the operating free cash flow. Operating free cash flow is the cash generated from operations after accounting for maintenance CapEx, interest, taxes, and working capital needs. The funds generated will be divided between buybacks, dividends, and other combinations. That’s the discussion we’re currently pursuing. Additionally, we see ongoing growth opportunities across all our business areas and improvements in the functional areas we’re involved in. I’ll mention a small example of biomethane from our Sugar and Ethanol operations; we’re collecting methane from the vinasse in this biomethane plant. We are involved in a project where we are concentrating this, experimenting with some trucks for transportation. Projects like this are interesting, and we will continue pursuing such synergies with the current operations, but as mentioned before, our first priority remains distributing part of the cash generated to our shareholders.
Thiago Duarte, Analyst
Mariano, thank you so much for your detailed answers. Very helpful. Thank you.
Operator, Operator
And our next question today comes from Lucas Ferreira with JP Morgan. Please go ahead.
Lucas Ferreira, Analyst
Can you hear me?
Mariano Bosch, CEO
Yes. Perfectly well.
Lucas Ferreira, Analyst
Okay. Sorry. Hi, guys. My questions are somehow follow-ups to Thiago's questions. The first one is if you can briefly talk about the CapEx itself. So with the company generating more cash, I assume you have some projects in the pipeline, maybe efficiency projects. So how much can you expect the CapEx to be this year or next year? I’m talking about expansion CapEx and if you can share any insights on that? The second question, more specifically, is about the free cash flow to be generated in Argentina. So I don’t want you to make projections or guidance here, but based on the EBITDA you generated in Argentina in the first quarter and the bio asset formation, you should have a very strong year in Argentina. And I suppose that if the markets don’t change much, you’ll also have a good 2022. If I’m not mistaken, you still have over $150 million to $200 million in debt in Argentina. Given that this business consumes very low CapEx, you should be generating a lot of cash in Argentina in the next couple of years. So beyond paying off the debts, what can be done? When do you plan on being fully debt-free? And what will be the future plans regarding cash generation, especially in Argentina? So, these are my two questions. Thank you.
Mariano Bosch, CEO
Thank you, Lucas for your question. First of all, in terms of the overall CapEx that you asked about, we expect CapEx to continue to align with what you’ve seen last year. We don’t anticipate significant changes. All these projects are growing above 25%, as we’ve mentioned from our achievements. We continue to focus on specific small projects in each of our businesses, so in general, you should expect our CapEx to remain consistent with last year’s figures. In regard to Argentina, we always think of Argentina and Uruguay together, so the business generated in the two countries should be viewed simultaneously. Yes, we are generating good returns, and we have interesting small CapEx investments, as I mentioned in Rice, and you can see the same in the case of Sunflower and Peanuts across the overall crops as well as in the Dairy business. They are projects growing within the same framework we have in our Sugar and Ethanol business. So Argentina and Brazil present similar scenarios regarding overall cash generation. When it comes to debt, we consider the debt as a total company matter. Sometimes we do have intercompany debts in order to be more efficient, but that is the main case. Overall, analyze our total debt, and we are staying in line with our desired ratios.
Lucas Ferreira, Analyst
Thank you.
Operator, Operator
And our next question today comes from Guilherme Palhares with Bank of America. Please go ahead.
Guilherme Palhares, Analyst
Good morning, everyone. Thank you for taking my questions. My first question pertains to the costs in the agricultural business, as we see that fertilizer costs are probably rallying right now. If you could share your thoughts on expected costs for the next season as well? And my second question on the Sugar and Ethanol business is regarding the productivity gains that the company achieved in the first quarter. What can we expect for the remaining season regarding yields and whether the current performance should persist? Those are my two questions. Thank you.
Mariano Bosch, CEO
Hi, Guilherme. Thank you. I will take the cost part of agriculture in general, and then your question on Sugar and Ethanol will be addressed by Renato. Regarding costs, as you mentioned, fertilizer costs are increasing, and transportation costs are rising as well with the increase in oil prices. There are many costs increasing significantly, including all the different products we sell. Some of these increased costs are being offset by our operational improvements but overall, we can expect an increase in agricultural costs. However, as you can see, our sales prices are improving significantly, resulting in increased margins. I anticipate an overall cost increase in agriculture. Now, regarding Sugar and Ethanol, I will have Renato provide further details on our expected yields for the remaining year and overall milling capacity.
Renato Junqueira-Santos Pereira, Market Analyst
Thank you, Mariano. As mentioned, this year has a different weather pattern than in the other regions of the Center-South. We had good rain during the second semester last year and 200 millimeters in general during January of this year. The cane outlook for the first quarter was promising, and that’s why we have records in crushing. The weather turned drier in March, following the last rain at the beginning of that month. If the dry weather persists, we expect a significant dip in yields, which will be partially offset by the TRS content in sugarcane. Today the TRS is 4% higher than we predicted. Our mill in Alegre has weather conditions similar to the other regions of the Center-South, and that’s why it is experiencing challenges from the lack of rains. We expect a significant reduction in yields of between 5% and 10%. By considering both variables—higher TRS and lower yields—we will likely process approximately 5% to 10% more TRS than we did last year.
Guilherme Palhares, Analyst
Okay. Perfect. Thank you.
Operator, Operator
And ladies and gentlemen, this concludes the question-and-answer session. At this time, I’d like to turn the floor back to Mr. Bosch for any closing remarks.
Mariano Bosch, CEO
Before closing the call, I want to thank you all for joining the conference. The market outlook for the products that we produce is looking promising and we are in an unbeatable position to take advantage of this favorable scenario. But again, this is only possible because of the strategic investments we made across our operations over the last couple of years. We believe we are in an excellent position to generate good financial results that we are already distributing to our shareholders through our buyback program, and we plan to continue doing so in a more structured way in the coming years. Lastly, I would like to reiterate my gratitude to all our operating teams for their outstanding work and to our shareholders for their continuous support. Thank you, and see you at our upcoming events.
Operator, Operator
Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.