Adecoagro SA (AGRO) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's third 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.

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. At that time, further instructions will be given. (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.

Results could 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 -- .

-- Everyone, and thank you for joining our call. Our sugar, ethanol, and energy business had a good performance during this quarter. As a result of a the good weather and very good operating efficiencies, our sugar mills have been able to crush 20% more cane compared to the third quarter of 2011, making full utilization of normalized capacity.

This has allowed us to achieve high margins and low cost of production for sugar, ethanol, and energy.

It is important to remark that, as a result of the environmental certifications obtained during the last year, including EPA and (inaudible), over 70% of the ethanol volumes sold during the quarter was exported to the US at significant premiums when compared to domestic Brazilian prices.

This is another proof of how sustainability and long-term profitability go hand in hand.

I'd also like to highlight that Ivinhema Mill has already started with milling tests in order to have everything ready to start commercial operations in the next harvest year.

We have also expanded our sugarcane plantation by more than 17,000 hectares, which is an important factor of our growth strategy.

All this confirms that our plant in Mato Grosso do Sul will become one of the most efficient and low-cost players in the industry.

Now, moving to the farming and land transformation business, Cushman & Wakefield have updated its appraisal of our farmland portfolio, which reflects a $49 million increase in the value of our land compared to the previous year.

We believe that the significant part of this appreciation is driven by our land transformation activities and our sustainable business model focused on enhancing long-term productivity.

In the third quarter, we continue our planting activities for the 2012-'13 harvest year under very good agronomic condition.

As of today, we have almost completed the planting of our rice crop. And we are in the process of planting the soybean and corn crop.

If normal weather conditions continue through the growing season and commodity prices remain at current levels, we expect to achieve very attractive margins per hectare, resulting in a profitable 2012-'13 harvest year.

Again, in line with our sustainable production model, in addition to the RTRS certification obtained by our soybean production, we have recently been certified under the 2BS scheme.

This sustainability certification has allowed us to access new markets and (inaudible) some premiums on our soybean exports.

Now, I would like to ask Charlie to walk you through the main operations, our financial highlights of the quarter. Charlie, please go ahead.

Thank you, Mariano. And good morning, everyone.

Starting on page three, I would like to go over the operating performance of the sugar, ethanol, and energy business.

The upper chart illustrates the monthly rainfalls at our Angelica Mill in Mato Grosso do Sul. The green columns represent the rainfalls corresponding to the current year, while the orange columns represent the rainfalls for 2011.

As we discussed during our previous earning calls, rainfalls during the month of May and June of 2012 were significantly higher than 2011 on the historic average.

Weather during the third quarter was favorable for sugarcane harvesting and crushing. In our average rainfall throughout the month of July and August have allowed our mills to increase the pace of crushing.

As reflected in the lower charge, sugarcane crushing during the third quarter reached 2.1 million tons of cane, 20% higher than the third quarter of 2011 and 113.5% higher than the second quarter of 2012.

Year to date, sugarcane crushing is still 9.4% below the first nine months of 2011, primarily as a result of the climatic difficulties experienced during the first six months of 2012.

However, if normal weather conditions continue during the fourth quarter of 2012, we expect to crush all the sugarcane on ourselves and fully compensate for the delay generated during the second quarter.

On slide four, we may observe the production of sugar, ethanol, and energy. As a result of the 20% increase in cane crushing, coupled with the 3.5% increase in the sucrose content of our sugarcane, the production of sugar, ethanol, and energy in the third quarter of 2012 increased by 29%, 23%, and 6%, respectively, compared to the third quarter of 2011.

On the upper left chart of slide five, you may see that, despite a sharp increase in sugar production year over year, sugar sales volume was 11% lower in the third quarter of 2012 than in the third quarter of 2011. This was primarily the result of congestion and logistical bottlenecks at the ports.

On the upper right chart of the slide, you may observe that, as a result of the increase in sugar production and the decrease in sales, sugar inventories reached 68,000 tons, 108% higher than the first quarter of 2011.

We expect to deliver (inaudible) and generous profits from these inventories during the fourth quarter.

Ethanol sales volumes increased by 28%, aligned with the increase in production year over year.

Moving onto the bottom left chart, we would like to remark the strong quarter-over-quarter increase in anhydrous ethanol sales volumes. During the third quarter of 2012, Adecoagro was able to capture the benefits of its production flexibility by turning over 85% of its ethanol in the form of anhydrous ethanol, which offered more [effective] margins during the quarter compared to hydrous ethanol.

In addition, as illustrated in the pie chart to the right, 71% of the ethanol sold was [destined] to the export market at price premiums over local prices.

This was only possible through the sustainable certifications obtained by Adecoagro, which has allowed the Company to enter new markets and capture attractive pricing premiums over domestic Brazilian prices.

Let's turn to slide six, where we will find a summary of the financial performance of the sugar, ethanol, and energy business. As mentioned on slide five, despite the increased sugarcane crushing and production, sales in the third quarter of 2012 were lower than in the third quarter of 2011, primarily as a result of the logistical bottlenecks at Brazilian ports.

Despite the reduction in sales, adjusted EBITDA for sugar, ethanol, and energy business has increased from $42.9 million to $46.4 million. Adjusted EBITDA margins have also increased from 60% to a record high of 61%.

The dry weather has enabled our mills to operate at full capacity, allowing us to make excellent use of our fixed cost structure, minimize unitary costs, and therefore increase profitability and margins.

As here, we see on page seven, in the first nine months of 2012, we planted a total of 17,400 hectares of sugarcane, over doubling the area planted in the same period of 2011.

Over 97% of the planted area (inaudible) to expansion of our plantation in order to supply sugarcane to the Ivinhema Mill, which is expected to begin its crushing activities in 2013.

The increase in planted area year over year was accomplished as a result of favorable weather, a (inaudible) agricultural team, and higher planting efficiencies.

As of September the 30th of 2012, our sugarcane plantations consisted of 82,252 hectares, representing a 26% increase since the beginning of the year.

On slide eight, I would like to show you a recent photograph of the Ivinhema greenfield mill. As of last week, the construction of the first phase of the mill is progressing on schedule. The assembly of the boiler, mill, and the powerhouse generator, ethanol distillery, and all other mill equipment and processes have been completed.

Ivinhema is currently undergoing test runs, and the mill is expected to start commercial milling operations at the beginning of the 2013 harvest with a nominal crushing capacity of 2 million tons of sugarcane.

Capacity will increase to 4 million tons in 2015, Phase 2, and reach full capacity of 6.3 million tons in 2017.

On page nine of the presentation, I would like to summarize the conclusion of our 2011 and '12 farming harvest year, which we completed in the first quarter.

As the chart shows, totals from production reached 737,000 tons, 11% higher than the 667,000 tons harvest in the previous harvest year.

Despite the climatic difficulties, which negatively affected our soybean, corn, and rice yields, expansion in planted area allowed us to increase our productions.

As you may see in the evolution, our production has grown at an average rate of 13% per year over the last five harvest years.

On the bottom chart, you will find the evolution of our planted area during the last five years.

Regarding the upcoming harvest year, we currently estimate to plant approximately 224,000 hectares. Following the trend of the past five harvest years, we expect all planted areas to increase by 9% or 10,000 hectares to a total of 133,000 hectares.

This growth is mainly driven by our land transformation activities and farmer concessions completed in 2011 and offset by the recent sales of La Alegria farms.

We expect the second crop area to decrease from 48,000 to 33,000 hectares. This decrease is the result of higher expected margins per hectare for soybeans or crop vis-a-vis the expected margin for wheat plus soybean double crop.

Although all the planted area is expected to decrease by 3%, we believe this plan will allow us to maximize our returns on margins.

As we may see in page 10, we have already begun our planting activities for the 2012 and '13 harvest year. Of the 224,000 hectares estimated to be planted, as of September the 30th of 2012, we have successfully planted a total of 68,000 hectares.

Wheat planting was completed. Planting area reached 28,400 hectares.

The rice crop planting is advancing well and expected to continue until the end of November. Abundant rainfalls have secured water of supply in reservoirs and rivers needed to irrigation of the rice.

Corn and sunflower planting began during the end of the third quarter 2012. However, the bulk of the planting occurs throughout the fourth quarter.

Weather conditions across our farms are good. And our operational teams and contractors are all set and moving forward to successfully execute the planting plan.

Let's move onto slide 11. In this slide, we would like to explain the main drivers of the decrease in adjusted EBITDA of the crop segment.

Due to the seasonality of our crop business, adjusted EBITDA in third quarter is generally the lowest of the year. This is primarily because, due to the natural growth cycle of production, most of the harvest takes place during the first and second quarters of the year.

And new planted crops are still in the initial growing stages and therefore generate no results.

Therefore, adjusted EBITDA generation in the third quarter primarily constituted by the results generated by the mark-to-market of inventories and commodity derivative instruments.

Starting on the top chart on the slide, you may see that the gross margin generated by (inaudible) increased from $5.9 million in the third quarter of 2011 to $9.2 million in the third quarter of 2012.

This is primarily because a higher amount of corn hectares were harvested in the third quarter of 2012 compared to the third quarter of 2011 as a result of the strategic decision taking that summer to plant 50% of the corn with (inaudible) varieties in order to diversify drought risk.

However, this overperformance is not reflected in our adjusted EBITDA since it was fully offset by hedged results.

The bottom chart of the slide illustrates the price attrition that soybean and corn had from July 2011 to November 2012.

As you may notice, during the third quarter of 2011, soybean and corn prices decreased, driven by concerns of global recession.

On the contrary, during the third quarter of 2012, both corn and soybean prices rallied at the result of the adverse weather [attacking] the U.S. crop. As a result of these opposite price movements, the mark to market of our hedged positions generated a $6.2 million unrealized gain in the third quarter of 2011 compared to a $5.7 million unrealized loss in the third quarter of 2012.

This loss is unrealized and has been partially reversed since soybean and corn prices have decreased since the end of the third quarter of 2012.

$11.9 million gap in hedge results will be partially neutralized in the fourth quarter as we used these prices to calculate the fair value of our biological assets.

Moving onto slide 12, you will find the financial performance of the farming business for the first nine months of 2012 compared to the same period of 2011.

Starting on the left, we may see the financial performance of our crops segment. As a result of the 22.5% increase in planted area year over year and higher commodity prices, gross sales of the segment were 32% above the first nine months of 2011.

However, adjusted EBITDA for the segment decreased. This lower year-over-year performance is primarily explained by lower crop years as a result of the summer drought and a $12 million loss generated by the mark to market of our crop hedged positions as a result of the rally in grain and oil seed prices since the beginning of the year.

Moving onto the right, you may observe that our rice segment has underperformed compared to the previous year. The lack of adequate climatic conditions in addition to the [loan] to national rice prices reduced our adjusted EBITDA to a loss of $0.3 million.

Nevertheless, we strongly believe the northeast region of Argentina has optimum soil and weather conditions and have a competitive advantage, which makes it one of the best places in the world to grow rice at no cost.

We are currently in the process of transforming additional hectares in order to expand our rice planted area for the 2012 and '13 harvest year.

In the case of our dairy segment, milk production has increased by 5.7% compared to the first nine months of 2011. However, adjusted EBITDA was negative and below our expectations due to the following reasons.

During August 2012, Adecoagro started operations at the second free-stall dairy. As a result of the natural adaptation of cows to the new environment, cow productivity tends to remain low during the first phase of the process, therefore reducing margins; lower milk prices resulting from a [hole] in the international milk powder price; and higher feeding costs as a result of lower corn silage yields and the rally in corn prices.

On a consolidated basis, sales for the farming business increased by $47 million as a result of the increased in production, while adjusted EBITDA decreased by $31 million, primarily as a result of the climatic difficulties experienced during the harvest year and the losses generated by the mark to market of hedged instruments.

Page 13 shows the evolution of Adecoagro consolidated operational and financial performance during the last five years. Consolidated adjusted EBITDA for the first nine months of 2012 stands at $72.2 million compared to $126 million in the same period of 2011.

As discussed during the previous slide, this is primarily explained by the lower yields obtained in our farming business, the delay in the [soybean] harvest due to excess rains, which we expected to be fully recovered during the fourth quarter, and the negative results generated by the mark to market of our hedged positions, which will be partially offset in the fourth quarter.

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.

Please move to slide 14. Cushman & Wakefield have updated its independent appraisal of our farmland portfolio, as it does every year. And here, we see on the far right of the page, as of September the 30th of 2012, Adecoagro [plant] portfolio consisted of 286,000 hectares, which were valued at $938 million.

Adjusted by the sale of La Alegria and San Jose farms in November of 2011 and June of 2012, respectively, and the acquisition of the La Canada farm in November of 2011, the appraised value of our farmland portfolio increased $49.3 million or 5.6% since the previous appraisal dated September the 30th of 2011.

This value creation is driven mainly by the transformation of underutilized or undermanaged [capital] land into high-yielding crop and rice land; the ongoing transformation and productivity improvement of all our farmlands through our sustainable farming model, focused on cutting edge technology and best practices, such as no-till farming, crop rotations, balanced fertilization, integrated [best] management, and water use efficiency; and the increased and/or decrease in farm margins, driven by changes in commodity and input prices.

These gains are not reflected in Adecoagro's financial statements because the Company does not mark to market the value of farmland assets on its balance sheet.

However, land transformation and appreciation are an important part of our business strategy and accompanied on the Company's total return on invested capital.

For your reference, the Group value of our farmland assets in our balance sheet is $313 million.

Finally, let's turn to page 15. Our net debt as of September 30th of 2012 has increased to $286 million compared to the $202 million in the second quarter of 2012. This increase was mainly driven by a $73 million increase in total debt and a $10 million increase in cash, primarily to finance our capital expenditures related to the Ivinhema Mill.

In addition, the long-term portion of our debt increased from 47% in the second quarter of 2012 to 60% in the third quarter of 2012.

The increase in the duration of our debt was the result of long-term debt being raised in order to finance the CapEx and working capital needs of our Ivinhema Mill.

Thank you very much. We are now open for questions.

Thank you, sir. The floor is now open for questions. (Operator Instructions). The first question we have comes from Pedro Richards of Raymond James. Please go ahead.

Hi, Mariano, Charlie. Thanks for the call. My question is on the construction cost of the Ivinhema Mill. I don't know if you have an updated estimation of the total construction cost of the mill. And if so, how does it compare with your initial budget or estimation for the full CapEx at Ivinhema Mill?

Hi, Peter. Good morning. This is Mariano. To answer your question, the budget that we had for the full construction of Ivinhema, including the crushing capacity, the equipment, and the plantation, overall, we are slightly below our budget. And I would say that milling and other equipment are below and farming slightly above.

So, overall, we are slightly below our budget. That our budget was around $130 per ton overall.

Okay. Thanks. And you were planning to do testing by the end of this year. Is that on track? Have you already done the testing?

Yes, we are in the middle of the testing. The testing is on track. We started a couple of days earlier but doesn't mean anything. So, we have until the beginning of next season to continue testing things. And we are very happy on where we are until now.

Excellent. And one final question, if I may. On the land transformation business, could you remind me how much land bank do you have today to transform and how many hectares you are planning to transform over the next two or three quarters?

Peter, we still have near 18,000 hectares to be transformed that are going to be transformed in the next two years. It is not fourth quarter -- the transformation the quarter. The transformation is per campaign.

Excellent. Thank you very much -- .

-- In crops and rice.

Excellent. Thanks.

Next, we have Enrico Grimaldi of BTG Pactual.

Hello, everyone. Good afternoon. I actually have two questions if you don't mind. My first question is regarding your planted area guidance for the next harvesting, right?

You're basically keeping your planted area flat, I mean, with a small decrease year over year, favoring a high productivity from the first crop instead of higher planted areas from the first and second crop combined, in my opinion.

Can you please elaborate a bit more on that? I mean, by how much you intend to maximize returns and margins from the strategy coming from this new planting format? And in the end, I'm just trying to understand all the main components behind this strategy, if you don't mind and if there won't be any negative impact to your production volumes or better than that to your earnings.

And at least for now, you're not growing your planted area anymore, I mean, for the next year. That will be my first question.

Hi, Enrico. This is Mariano. To address your question, I think it's helpful to go to page nine of the presentation that we just did. So, as Charlie was mentioning on page nine, we are increasing our own planted hectares. On the own planted hectares is where you get the best profitability. It is where you get the best margin per hectare.

The main decrease is on the double crop hectares. That change in the double crop hectares is because the margin of the [quick] soybean production that you do in one campaign is lower than doing full-season soybean or full-season corn. That's why we did this suite, always looking for best margins.

So, that's why we think that, for next year, we are going to obtain better margins with higher production because we are expecting a higher productivity. The drought that we had last year was an important drought that affected total production.

So, to answer the other part of the question, we expect production to increase compared to last year. And the most important increase, we expect it on the margin side because we are prioritizing the margins as we are always prioritizing the profitability of what we are doing other than the growth itself.

Yes, it makes sense. Thank you. And my question -- and my second question, if you don't mind, is regarding your sugar and ethanol operations in Brazil. In my opinion and as you mentioned and as you also mentioned in the presentation, one of the quarter's highlights was a well-executed commercial strategy on the ethanol front in which you directed more than 70% of your sales to exports and where you probably had way better prices than in Brazilian -- in the Brazilian domestic market.

And with that in mind, my question is, what's the price you're getting from exports? I mean, how much premium did you have over domestic prices?

And do you think this is a trend for the next quarters? Do you expect this to continue? I know this is a very dynamic market on exports. But, I'm just trying to understand what's your take on that for the coming quarters and the next year. That's my second question.

So, well, okay. I think we lost Enrico. But, we are going to answer the question that was related to the prices of ethanol compared to domestic prices and how are we approaching that. I will ask Marcelo Sanchez, our Commercial Director, to address that question.

Enrico, we achieved a price differential between domestic and export market in an average range of BRL120 and BRL180 per cubic meter. That was a differential that we made over the sales that we then did in the quarter.

And do you expect to continue to have this advantage? I mean, I know this is a market that changes really fast. But, as far as you can see and on the foreseeable future, you believe you will continue to direct most of your exports or of your sales to exports, right?

Yes, we think that, for next year, the situation, the Brazilian crushing situation will be leading towards more exports in anhydrous and hydrous production of the ethanol.

We are expecting next year exports from Brazil around 3 billion liters coming out from this year of 2.8 billion or 2.7 billion.

What I would add -- this is Mariano -- is that the important thing is the flexibility that our operations have, including the environmental certifications that we have and the commercial team that is always looking for the best margin to our ethanol.

So, the key is that the commercial team is looking always for what's the best alternative to get our best price for ethanol. So, we are open for any of those options.

Okay. Thank you very much.

Next, we have Alessandro Baldoni of Deutsche Bank.

Hi, good afternoon. My question's about your freight costs. Recently, the Brazilian government announced some changes in regulations for truck drivers, which would imply higher resting periods and probably higher freight costs.

My question is, on your negotiations with the traders for the next harvest, are they charging you a higher freight discount? And if so, by how much?

Okay. Marcelo will address the question, Marcelo Sanchez, the Commercial Director, will address your question.

Hello, Alessandro. If you are referring to the sugar production, we are estimating a higher transport cost for our sugar. We are not receiving the -- we're not getting and deduction from the traders (inaudible) from the sugar.

If you are referring to the grain production, basis towards [Vallea] compared with -- towards the [fork] is going to be -- of course, going to be widening because of this increasing cost.

Okay. Thanks, Marcelo.

And next, we have Giovana Araujo of Itau BBA.

Hi, good afternoon. My first question is on customer appraisal. Mariano, I'd like to hear your views on that, the appreciation came in at 5.6%, right, which was below last year's 14%. And I would like to understand what -- in your view, what's the main explanation behind that decrease, if there is room or if you think that the rally in the crop prices are not fully incorporated in that valuation, or in other words, do you -- if you see some rule for catch up going forward. That would be my first question.

Okay, Giovana. Thank you for the question. I would firstly like to clarify that the appreciation is in dollar terms. So, that is important when we compare different appreciations from different appraisals.

Taking into account that this is in dollar terms, as you mentioned, last year was higher. And there may be a combination of factors that may lead the independent appraisal to reach such a conclusion. And I'm guessing on that combination of factors that I think may be that during the last five to seven years, the appreciation has been on double digits.

And maybe today, they are reducing that. They are correcting that curve that there has been last transactions that they're -- these global economic concerns (inaudible) that the foreign land ownership restrictions, South America may be affecting somebody on their thinking, that the depreciation of the real and the local currencies may also be affecting.

So, there are many reasons that may lead the independent appraisal to reach this conclusion. But, anyway, I would like to remark that we sold our farms always above this independent valuation.

Yes. Okay. Thanks. My second question, it's about your commercialization strategy, the sugar and bioenergy segment. We saw in last year, the current year, crop year, clearly that sugar and anhydrous is the vast allocation. And so, I would like to ask how are running terms of sugar and ethanol production capacity, anhydrous, hydrous, if you are running at full capacity, if you intend to increase that capacity, and if you can give us an update about your energy -- your strategy on the energy sales. That's it.

Okay, Giovana. I'm going to ask Marcelo Sanchez to address your question.

Okay. Thank you.

Hi, Giovana. This is Marcelo. As you know, I mean, we are always prioritizing our margin and on each of the products. And we're taking advantage on this flexible possibilities into -- going into anhydrous when the margins are getting us higher returns.

In the third quarter, as you saw and you've been observing, the returns were high for the sugar production. Then we prioritized the sugar production on the third quarter. And given the price of the sugar this end of this fourth quarter and some of the -- some spikes in the ethanol prices that we've seen within the last two, three weeks, we are prioritizing production of ethanol in this time.

Coming for next season, we're going to be managing production as we always did and in observing what is the best returns on the products that we are doing.

Okay. Thank you.

The next question we have comes from Martin Garzaron of City. Please go ahead.

Yes, good morning, Mariano, Charlie. My question -- I have a couple of questions actually. The first one is if you could explain a bit what is the hedging strategy that you're applying. How much -- I guess my question is, how much of the total production you should hedge, if that is going to change or anything about that.

And my second question relates to farming sales and purchases. But, if you want, I can go with the second after the hedge one.

Okay. Okay, Martin. I'm going to let Marcelo Sanchez answer that question.

But, before answering that question, I would like to point out on Giovana's question before on the energy side that she asked that -- what's our strategy, simply to say that, on Angelica, we were already contracted 100% of the energy sales at BRL180 per megawatt. On UMA, we've also sold 100% long-term contracts for BRL196. And on Ivinhema, this -- what we will be starting next year, we've already sold 50% for next year at BRL132 per ton.

So, after clarifying on that second point of Giovana's question, I'm going to ask Marcelo to address your question on the hedge.

Hi, Martin. This is Marcelo. Regarding the hedging policy, we -- on the grain side, we stated that we're not staging more than 70% of the harvest if it is not planted, regardless the prices that we are witnessing in the board.

Up to now, we are in corn and soybeans -- in our corn and soybeans expected production, we are roughly 50% or very hedged. And going into sugar, we had hedged the overall position of the sugar of this year. We are about 80% hedged. And we already started hedging our production for next year.

We are 30% hedged, 32% hedged for next year at the (inaudible) price of 0.23. And one thing to remark is that we have already been selling part of our ethanol for next year. We are 13% hedged on that side.

Thank you, Marcelo. And my second question was going to be about the farm market in Argentina. What is it that you're seeing? I saw that you sold a farm, bought another one. I know about the restrictions for foreign ownership. So -- but, at the same time, I can imagine that maybe we're -- you are seeing some opportunities arising in terms of buying new farms. I wanted to know what is it that you see there.

Martin, just to clarify, this year, we only sold one farm in Argentina. We didn't acquire a new farm in Argentina this year. It was -- that was in the end of last year.

Within our strategy, we are -- we already have a lot of land in Argentina. And want on the near future, we want to increase farmland outside of Argentina, including Brazil, Uruguay, Paraguay, and other countries of Latin America. So, our focus is not on acquiring land in Argentina. The growth in Argentina is being financed by Argentina. And it's growing with the current existing projects. So, we are not planning to grow with the new land in Argentina as our strategy today.

Thank you, Mariano. Very quick final question, how's the dairy business going?

Dairy business is going in a difficult situation all over the world. The prices of corn and powdered milk and the -- or the combination of prices of corn and powdered milk, that relationship is one of the worst in history.

So, we are in line what -- with what is happening all over the world. But, having said this, we do see our specific dairy operation improving with the population of the new free stall. And that's why we are still very confident that what we are building on the baby industry, the baby business in Argentina is going to be one of the most efficient places of the world, or it's going to be the lowest cost, or we'll have the lowest cost of production as we are always seeking in the different commodities we are producing.

Great. Thank you very much, Mariano.

Next, we have Martin Tapia of Raymond James.

Hi, everyone. My question is regarding the 2012 (inaudible) season for the southern hemisphere, if you could share with us your internal projections for corn and soybean production, mainly in Argentina and Brazil or if your internal projections are in line or below the figures released by the USDA last week, which seemed a little bit optimistic.

And if you can also share with us the outlook for soybean and corn prices over the next months based on the weather market here and the plantations in the US for the next year. Thank you.

Thank you for your question, Martin. And I'm going to ask Marcelo Sanchez also to answer this question.

Martin, I think that we are -- in terms of our -- let's talk about soybeans first. We are slightly below USDA expected production in Brazil. We are at 80 million tons at this time, with USDA is at 81 million in production. And that's in terms of tonnage. And Brazil, we have 27 million hectares to be planted. They're still achievable. And 27.5 million is the USDA.

In Argentina, we are at 55.5 million tons estimated production, slightly below the USDA. In area, we are 200,000 hectares less than the USDA. We're at 19,500.

We expect Uruguay producing 2.1, 2.15, 2,150,000 (sic) tons of production, 1.9 million is expected from the USDA. And in terms of the area, we think that Uruguay could be achieving 1.1 million hectares this time.

Paraguay is at 8.1 million tons. And we are at 2.95 million hectares also.

And I'm thinking that you are probably wanting to know about the corn. Corn estimation Brazil is 68,000 tons, 68,000 million (sic) tons. And we are in 15 million hectares in planting. And for Argentina, we still think that Argentina will be accomplishing this 24 million, 25 million. I mean, it's slightly below USDA that is 28 million. And that's what we are thinking as of today with the current weather pattern.

In terms of prices, we are bullish corn and neutral soybeans.

And regarding the last part of the question, whether the US planting will be -- what will be the facts of the planting, I think that we are all focused on corn. Basically, I think that the US has to produce this 400 million tons of corn for next year. I don't know whether they're going to be achieving that or not.

Okay. Thank you very much.

Well, it appears that we have no further questions at this time. We'll go ahead and conclude the question-and-answer session. At this time, I'd like to turn the floor back to Mr. Bosch for any closing remarks. Sir?

Okay. Thank you, everyone. Thank you very much for your time. And we hope to see you during our upcoming IR activities. Bye, bye.

And we thank you, sir, and to the rest of management for your time. This does conclude today's presentation. At this time, you may disconnect your lines. Thank you, and take care, everyone.