Adecoagro SA (AGRO) Q2 2021 Earnings Call Transcript

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Adecoagro SA (AGRO 2.42%)
Q2 2021 Earnings Call
Aug 13, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's Second Quarter 2021 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO and Mr. Charlie Boero Hughes, CFO. 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. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Adecoagro and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I'll turn the call over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Mariano Bosch -- Chief Executive Officer and Co-founder

Good morning and thank you for joining Adecoagro's 2021 second quarter results conference. As you can see in our release, we continue delivering strong operational and financial results across all of our businesses. Adjusted EBITDA marked a new record high for the first semester of the year and an increase of almost 50% compared to last year. The continuous growth in EBITDA and cash generation proved the success of the investments we did during the past years. It is thanks to them that Adecoagro is now a larger company, more efficient and better position to face all different scenarios.But our DNA remains the same. We are still a group of hard working people committed to the sustained production of food and renewable energy at the lowest cost.

Now, in relation of the performance of each of our segments. In our Sugar, Ethanol & Energy business, during the first six months of the year, we increased our production in 40% compared to last year. Thanks to an increase in crushing volume of 1.3 million tons and higher TRS content. This allowed us to significantly increase our sales of sugar, ethanol and energy and capture higher average selling prices of the three products. In addition, our commercial strategy is to carry over $70 million in stocks to benefit from higher expected future prices.

I also want to refer to the weather event occurred in Brazil during the last months. As you all may be aware a frost hit the main productive regions of Brazil, including Sao Paulo and Parana, as well as Minas Gerais and Matto Grosso do Sul, where our sugarcane plantations are located. We took actions to minimize the negative effect. This includes accelerating our harvesting pace anticipating the purchase of five two-lined harvesters to reinforce our equipment fleet and to contribute to speed up the harvest. And also purchasing canes from thirds parties.

Our assistant indicates that sugarcane availability will be reduced by year-end and beginning of 2022, resulting in a drop of productivity. However, due to the regional effect of the frost, we expect prices to continue to respond and improve the already constructed price scenario. We are confident that this is already offsetting significant part of the negative impact of the frost and will result in no material changes in EBITDA and free cash flow generation. In this regard, we had in a great position to continue capturing the upside in prices, as we have been hedging at the low end of our commercial policy.

More than 50% of our TRS for the current season remains unhedged and 2022 is 100% open. Sugar and ethanol, we have a healthy competition for the TRS and we own asset with high flexibility to switch from producing sugar or ethanol and benefit from higher relative prices. We recently doubled our capacity to produce anhydrous ethanol, enhancing even more of our flexibility to capture even higher price premiums.

Moving onto our rice business. We achieved strong results during the semester including a record high yield of 7.8 tonnes per hectare in average. This was possible thanks to investment we made across our business, but especially through the consolidation and innovative approach of our teams. We have three main goals in mind. One, increase productivity as a key to minimize cost per ton. Two, achieve higher quality rice to improve industrial efficiencies and serve as a commercial tool. And, three, enhance efficiencies throughout the value chain. As we improve our product genetics and offer a customized products that perform well at the farm and industry level, we continue to develop new markets and increase our mix of higher value-added products.

Going to our crops business. Harvesting activities are practically finished, totaling 640,000 tons of grains so far. Although it was La Nina year, we achieved good yields, thanks to the genetic selection, the use of technology, our geographic diversification and product diversification, which allowed us to extend the planting and harvesting window, what is clearly one of our competitive advantages. We are currently undergoing planting activities for next season and benefiting from high average selling prices and the fact that we control logistics of our production in our storage and conditioning facilities, strategically located.

In our daily operations, we continue to improve our productivity indicators even during the commencement of operation of our new four free stalls and transform raw milk into the value-added product, demanded both in the domestic and export markets. As mentioned in our past release, we are generating positive free cash flow, as well as targeting attractive opportunities, which synergize well with our operations and enhance our results. We remain committed to distributed portion of our cash generation with our shareholders. This is one of our priorities and as you can see, during the first seven months of the year, we have repurchased over 3 million shares under our buyback program, totaling $28 million. This is equivalent to almost 3% of the equity of the company. Going forward, we expect to continue repurchasing shares in line with our strategy to generate long-term value to our shareholders.

To conclude, I would like to express my gratitude to all the operational and management teams, 2021 is proving to be a complex year from a climactic point of view, in addition to an extended pandemic. I know we still have challenges ahead of us, but they feel confident that we have the right teams and that we are following the right strategy to overcome this situation and generate attractive and sustainable margins for all of our shareholders.

Now, I will let Charlie walk you through the numbers of the quarter.

Carlos A. Boero Hughes -- Chief Financial Officer

Thank you. Mariano. Good morning, everyone. Let's start on Page 4 with a brief analysis on the rains in Matto Grosso do Sul. As seen on the top charts, rains in our cluster during the second quarter of 2021 were 45% lower than during the same period of last year and 53.5% lower than the 10-year average. This was particularly notable during the month of April when virtually no precipitation was observed; however, as can be seen on the graph, we experienced a humid first quarter. This means that our sugarcane was better prepared to go through the drier weather with no implication on productivity.

Before turning to the following slide, I would like to briefly comment on the weather in Brazil. The Center-South region of Brazil has been experiencing dry weather for a prolonged period of time, which negatively impacted its productivity. Due to the fact that the region accounts for approximately 85% of Brazil's sugarcane production, this has put pressure on the supply and demand and has led to an increase in the prices of both sugar and ethanol.

In addition to this, as Mariano mentioned increasing production, during June and July, Brazil's main productive areas were hit by a frost. We believe this will put further pressure on the supply side and thus continue to improve the outlook on prices going forward. Now, let's continue with Slide 5, where I would like to discuss our sugarcane crushing strategy. During the second quarter of 2021, the drier weather led to a 7.9% increase in effective milling days, compared to the same period of last year and enabled us to accelerate our crushing pace, resulting in a 10.9% increase in milling per day. In this line, total crushing during the quarter amounted to almost 3.5 million tons, 0.6 million tons or 19.6% higher during the same period of last year.

In addition to the favorable weather, which favored harvesting activities and to enhance efficiencies at the industry level, the increase in crushing volume was also explained by the dynamics of the second quarter of 2020, namely the fact during that time, we've temporarily slowed down our crushing pace in light of the COVID-19 pandemic as markets were fairly liquid, especially in the case of ethanol. As of June 30, crushing volume reached 5.6 million tons, 1.3 million tons or 31.7% higher year-over-year. This increase was explained both by the second quarter dynamics, as well as by the good cane availability and early start of crushing activities during the first quarter of the year as opposed to last year.

Please jump to Page 6, where I would like to walk you through our agricultural productivity. During the quarter, TRS content marked a 6.7% increase, reaching a 135 kg per ton and a 7.6% increase during the semester reaching 126 kilograms per ton. This increase is explained by the fact that dry weather favors the concentration of sugar juice in the cane. I would like to point out that the increase in crushing volume coupled with higher TRS content resulted in an increase in TRS equivalent of 29.1% during the quarter and 42.2% during the semester. This in turn was translating the greater production of both sugar and ethanol as we will see next.

Continuing with productivity indicators, sugar cane yields reached 80 tons per hectare during the quarter, in line with last year and 78 tons per hectare during the semester, marking a 3.6% increase compared to the same period of last year. Going forward, it is expected that yields will be negatively impacted by the effect of the region of frost in Brazil. The combined effect in TRS content and yields resulted in a TRS production per hectare of 10.8 tons during the quarter and 9.8 tons during the semester, 4.7% and 11.4% higher year-over-year.

Let's move ahead to Slide 7, where I would like to discuss our production mix. As you can see on the top left chart, during the second quarter of 2021, anhydrous and hydrous ethanol in Mato Grosso do Sul traded at an average price of $18.6 and $17.2 per pound sugar equivalent, representing an 11.4% and 2.7% premium to sugar respectively. However, it is worth pointing out that the evolution of sugar prices during the quarter was also very positive, in line with our strategy to maximize production of the product with the highest marginal contribution, during the quarter, we diverted 59% of TRS to ethanol to profit from higher relative prices compared to 46% last year.

Ethanol production increased by 66.4% compared to the second quarter of 2020 due to the combined effect of ethanol maximization and the increase in TRS equivalent produced. In hand with the increase in TRS produced is that sugar production was in line with last year's volume despite having diverted a lower percentage of TRS.

On our year-to-date basis, production mix, was in line with the first semester of 2020, standing at 59% ethanol and 41% sugar, although volumes produced deferred on account of the higher production of TRS equivalent, while we maximized sugar production during the first quarter of the year to benefit from higher relative prices and switched to ethanol during the second quarter. The opposite was observed in 2020 as ethanol prices plummeted during the second quarter due to the pandemic. This high degree in flexibility constitutes one of our most important competitive advantages, since it allow us to make a more efficient use of our fixed assets and profit from higher relative prices. Year-to-date, ethanol accounted for 64.7% of total adjusted EBITDA generation in the Sugar, Ethanol & Energy business considering other operating income, while sugar accounted for 28.6%.

Let's please turn to Slide 8, where I would like to discuss quarterly sales. As you can see on the doublet chart, during the second quarter of 2021, ethanol sales volumes increased by 49.4% year-over-year. This increase is mainly explained by the lockdown measures adopted during the second quarter of 2020 in response to the COVID-19, which negatively affected demand for fuels and resulted in fairly liquid markets. The increase is also explained by our decision to maximize ethanol production in the current quarter and capture higher relative prices. Despite the increase in cubic meters sold in absolute figures, carryover increased by 77.5% to take advantage of higher expected prices in the second semester of 2021 and beginning of 2022, driven by adverse weather conditions.

Average selling prices for ethanol were higher measured both in reals as well as in U.S. dollars, standing at $0.179 per pound in sugar equivalent, representing a 67% year-over-year increase. On account of the higher selling volumes and higher average prices, net ethanol sales during the quarter amounted to $64.9 million, almost 3 times higher year-over-year. In the case of energy selling volumes reached 277,000 megawatt hour marking a 6.7% year-over-year increase. Average selling prices were higher both measured in reals as well as in U.S. dollars, standing at $40.8 per megawatt hour implying a 16, 5% increase compared to the same period of last year. This was driven by the low levels of water reservoirs, which reduced the supply of hydroelectric energy. All in all, net sales of energy in the second quarter of 2021 were $11.3 million, 24.3% higher year-over-year.

Net sales of sugar during the second quarter of 2021 reached $71.6 million over 2 times higher year-over-year. This increase was driven by a 47.6% increase in selling volumes, which reached a 198,000 tons and a 52.1% increase in average prices, which reached $0.164 per pound. Sugar prices rallied during the quarter, mainly driven by the continuous dry weather observed in Center-South of Brazil. As mentioned before, this hike in prices is expected to be a accentuated [Phonetic] in the upcoming months as the market factors in the impact of the frost. In this regard, we are in a good position to capture the increasing prices as our estimated sugar production for the current campaign remains mostly unhedged and we have yet to begin hedging '22, '23 campaign.

Finally, to conclude with the Sugar, Ethanol & Energy business, please turn to Slide 9, where I would like to discuss financial performance. Adjusted EBITDA during the second quarter of 2021 was $73.6 million, 62.1% higher compared to the same period of last year. The main driver behind EBITDA growth was the $92.9 million increase in net sales due to higher selling volumes and prices of all three of our products. This was partially offset by an increase in selling expenses explained by the increase in sugar and ethanol selling volumes, which derived in higher freight costs and an increase in PIS COFINS taxes respectively and a loss in the mark-to-market of our sugarcane. Even though our harvested cane experienced a gain in its mark to market due to the greater volume and higher Consecana prices. This was fully offset by a loss in the mark-to-market of our unharvested cane caused by negative impact of the frost on future expected yields.

Year-to-date adjusted EBITDA stood at our $131.7 million, a 52.6% increase year-over-year. Higher results were explained by an increase in net sales, driven by higher volumes and average selling prices measured in U.S. dollars for all three products coupled with again derived from the mark-to-market of our sugarcane mostly related to harvested gain. This was partially offset by a loss in our commodity hedge position and an increase in selling expenses in line with the increase in sales.

End of the period stocks amounted to over $70 million, marking an increase of 2 times year-over-year, led by our commercial strategy to carry over stocks in order to benefit from higher expected prices. Regarding EBITDA margin, it is worth highlighting that the decrease is not indicative of a worst performance, but rather by the fact that the last year's figures were an outlier. Especially during the second quarter of 2020, net sales experienced a sharp decrease driven by the pandemic and we embarked into a strict cost reduction plan, in addition to achieving higher results of our biological assets.

I would now like to move on to the Farming business. Please direct your attention to Slide 11. As of the end of July of 2021, over 240,000 hectares were successfully harvested, representing a 93% of our total planted area. This amounts to almost 1 million tons of agricultural products harvested and transported across 10 provinces in Argentina and in Uruguay. The Romanian hectares are expect to be harvested by early August.

Let's move to Page 12, 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 $32.4 million in the second quarter of 2021, $7.7 million lower year-over-year. The decrease in financial performance was fully explained by the sale of farms we made in 2020 compared to no farm sales this year. Adjusted EBITDA is solely from the farming business stood at $32.8 million, marking an increase of $4.2 million or 14.7% year-over-year. Year-to-date adjusted EBITDA in the Farming business marked a 64.7% increase compared to the first semester of 2020.

Adjusted EBITDA in our crops segment was $16.3 million during the quarter, 4.8% higher compared to the same period of last year. This was explained by an increase in average selling prices, $100 per ton increase in the case of soybean and $60 per ton in the case of corn, partially offset by a reduction in selling volumes as a consequence of our commercial strategy to carry stocks forward in order to benefit from higher expected prices. The increase in gross sales was partially offset by an increase in costs driven by inflation in dollar terms and our net loss in the mark-to-market of our inventories on account of decreasing prices since the time of harvest compared to an increase during the same period of last year. Year-to-date adjusted EBITDA amounted to $34.2 million, 75.7% higher compared to the first semester of 2020.

In the case of rice, most of the margin was already captured during the first quarter of the year. In this line, adjusted EBITDA reached $9.6 million during the second quarter and $37.9 million during the semester, marking a year-over-year increase of 16.2% and 61.9% respectively. The positive financial performance was mostly explained by an increase in yields, which reached a record high of 7.8 tons per hector, an increase in area and an increase in prices, which led to a year-over-year gain in the value of our biological assets and agricultural produce. These results were possible due to our continuous focus on productivity, enhance efficiencies and the consolidation of our team.

The Dairy business generated an adjusted EBITDA of $7.3 million during the second quarter of 2021 and $12.1 million during the first semester, an increase of 46.7% and 47.5% compared to the same period of last year respectively. In both cases, higher results were explained by an increase in sales volumes, which fully offset the increase in average prices and achieved efficiencies in our vertically integrated operations, including high productivity at the farm level and flexibility of our industrial assets.

Let's now turn to page 14, which shows the evolution of Adecoagro's consolidated operational and financial performance. On a year-to-date basis, gross sales reached $460 million and adjusted EBITDA $211 million, marking a year-over-year increase of 34.5% and 48% respectively. During the quarter, gross sales reached $286 million, while adjusted EBITDA totaled $101 million, marking a 54.2% and 24.9% increase compared to the same period of last year.

From an operational point of view, we continue increasing our planted area both in our Farming and Sugar, Ethanol & Energy business. This in line with our enhanced efficiencies of the farm and the industry levels, has led to a 5.4% increase in our production of crops and rice, and a 31.7% increase in crushing volume as previously mentioned.

To conclude, please turn to Slide 15 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, 2021 reached $744 million, $12 million or 1.7% higher than the previous quarter. This was fully explained by an 11.2% decrease in our cash position. This reduction in our cash position was mostly explained by an increase in working capital on account of an increase in prices and our commercial strategy to carry stock in order to benefit from higher expected prices, especially ethanol.

On a year-over-year basis, net debt was in line with the second quarter of 2020, as the decrease in gross debt was offset by a decrease in our cash position. Also explained by the increase in working capital. In fact, marketable inventories, as of the second quarter of 2021 amounted to $147.6 million, $73 million higher than during the same period of last year, driven by our carry-over strategy and the impact on prices. The year-over-year increase in working capital was also driven by an increase in planted area in the Crops, Rice and Sugar, Ethanol $Energy businesses, as well as an increase in milking cows in our dairy business.

We believe that our balance sheet is in a healthy position and only based on the adequate overall debt levels, but also on the term of our indebtedness, most of which is long-term debt. As of June 30, 2021, our net debt ratio reached 1.81 times and presented a downward trend comparable to the previous quarter, as well as the second quarter of 2020, marking a reduction of 3.3% and 26.1% respectively.

At the same time, our liquidity ratio, which is calculated as cash and equivalents plus marketable inventories, divided by short term debt reached 1.84 times in line with the previous quarter and 49.7% higher than last 1.23 times ratio. This clearly shows the full capacity of the company to repay short-term debt with cash balance without raising external capital.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question today will come from Guilherme Palhares with Bank of America. Please go ahead.

Guilherme Palhares -- Bank of America -- Analyst

Good morning, everyone and thank you for taking the question. I have two actually. The first one is related to the next harvest season. So, we are seeing food prices growing across the board and we would like to have your thoughts about it? And how this could impact the company going forward? And the second question is related to the fuel expenses and cost in the operation. So, we are seeing there bio-ethanol doing very well. We are seeing other fuels like diesel that it's cost to the company doing the same. So, if I'm not mistaken, the company had a pilot testing in the biogas plant that should allow the company to produce bio-methane and the core of this in cost increase. So, if you could share an update in that project and what are you seeing in terms of economic ability and what would be their impact going forward for the company in the results of that operation? Thank you.

Mariano Bosch -- Chief Executive Officer and Co-founder

Hi, Guilherme. Thank you for your question. On the first part of your question, you were asking about the next harvest season, what is the question.

Guilherme Palhares -- Bank of America -- Analyst

Yes, chemicals and fertilizers and what would be the impact for the capex after next year.

Mariano Bosch -- Chief Executive Officer and Co-founder

Yes. Clear. Thank you. So, regarding your question of next harvest season and the increase of cost of fertilizers. As you know, our production system is in the places where the combination of sunlight and climate is ideal. That's why, we talk about our sustainable production systems and within this sustainability includes the lower rates of fertilizers. We use crop rotations and we combine those things in order to minimize the amount of fertilizers that we use. So, because of this and the green system that we have is that the cost of fertilizer is around 5% of our total cost. So, the impact of the increase in prices in fertilizer is only on 5% of our total costs. That is thinking for next season and the specific question regarding the price of fertilizer.

Then regarding your second part of the question that you were asking about the biogas and the total concept of this project, the biogas is taken from the concentrated vinasse that we have here and I would like Renato to expand more on what's what are the numbers of this project of biogas. So, Renato, can you update there? Okay. So, as Mariano mentioned the source that we use to produce biogas is a concentrated vinasse. The concentrated vinasse in our cluster market was to save fertilizer. So, we concentrate it for additional vinasse in 8 times. So, instead of producing 11, 12 liters of vinasse per liter of ethanol, we produce 1.52 liters of concentrated vinasse. So, this concentrated vinasse, we put that in our bio-digester to produce the biogas. In this current phase of the project, we are producing 500 bromides cubic meter of biogas with liter of biogas and we are using the heat of the biogas to other sorts of heat to save steam in the process and by doing that, we are exporting extra 1.1 megawatts per hour. So, if you consider a season of 6,000 hours, so its approximately 6,000 megawatt hour per year. So, now we are getting ready to the second phase of the project. So, we are using the same bio-digester. So -- but we are producing bio-methane from this biogas. The production of bio-methane will lead to clean and to take it out the sulfur off the biogas and also to compress the biogas to produce bio-methane and now we have been adapting some vehicles that we have in our view. Actually, we have adopted seven vehicles, three cars, three trucks and one big truck and now they're going to be filled by bio-methane. The five contributors of the mass that produce 500 bromides per cubic liters of biogas can replace the equivalent of 240 liters of diesel. So, if you take the 240 liters of diesel and multiply by 6,000 hours. So, you'll be saving approximately 1.4 million liters of diesel per year in the current phase. I think it's important to mention here that we have been using less than 5% of the concentrated vinasse that we produce in our cluster. So, when we use the pulp of the mass that we produce in our cluster, we can multiply those numbers to 33 times. So, there is a huge potential of the project.

Guilherme Palhares -- Bank of America -- Analyst

That's very clear. Just a follow-up question on that. You said that you're moving toward the second phase of the project. What is the timeline that you're looking at right now and is there any opportunity to not only sell bio-methane and using your operation better commercialize that to third parties as well?

Renato Junqueira Santos Pereira -- Director of Sugar and Ethanol Operations

I think the timeline, now, we are just working in the second phase, is expected to start working on September. So, then we are going to adjust the increase of the production according to the success of the project that we are going to have. So, we have to be testing and of course, we are very optimistic, but of course, depends on how good is the fleet powered by the bio-methane. We don't expect to sell it because it's impossible to sell it to other sources. What we expect to do is to use it in our whole fleet, especially the vehicles that are -- the tanks are the new to be full, not the ones that are in the food and the fuel, because then it's easier to full them and we are just starting to work in an idea to produce some hydrogen from our bio-methane, but is is still in a very early conversations.

Guilherme Palhares -- Bank of America -- Analyst

That's very clear, Renato. Thank you for the explanation. We will look forward to the next steps in the project.

Mariano Bosch -- Chief Executive Officer and Co-founder

Guilherme. One quick on this biogas. This makes the whole system much more sustainable and this will also add additional CBios and including the whole project, this can add like 85,000 CBios per year. So, just a quick reminder on that. On your question on [Indecipherable] Guilherme, do you want to add something else?

Guilherme Palhares -- Bank of America -- Analyst

That's very clear. Just if you could repeat the number, it's 50,000 CBio, right?

Mariano Bosch -- Chief Executive Officer and Co-founder

85,000, the total project additional CBios.

Renato Junqueira Santos Pereira -- Director of Sugar and Ethanol Operations

When you replace -- if you replace a 100% of our diesel, which is the potential of the project.

Guilherme Palhares -- Bank of America -- Analyst

Makes perfect sense. Thanks.

Operator

[Operator Instructions] Our next question today will come from Lucas Ferreira with JP Morgan. Please go ahead.

Lucas Ferreira -- JP Morgan -- Analyst

First of all just, I'm not sure if I missed them. I'm sorry, but what's as of now the expected impact of frost combining with droughts in your crushing for this year? So what's the expected the upbeat of crushing guidance you guys may have for 2021, '22. And do you already foresee some impact of this to '22, '23. Is it possible to anticipate something? And if you can comment obviously on the expected TRS production decline as well? And the other question that I have is, even though I welcome, you guys are opened in terms of hedges, especially for next season, right, prices are -- and combined with the currency, you're getting to a level that I believe will grant you guys super good margins. So on a risk perspective, wouldn't it make sense to start already to hedge something for the next season at this prices of, if you look at the curve over $0.18 for the next two years pretty much? So, would it make sense to already start position yourselves in locking some good margins for the following seasons?

Carlos A. Boero Hughes -- Chief Financial Officer

Thank you, Lucas for your question. Renato, can you answer both, please?

Renato Junqueira Santos Pereira -- Director of Sugar and Ethanol Operations

Okay. So thank you, Lucas for your question. So, it depends on the rest of the Center-South. We had a good summer time in terms of rains. That's why we crushed very well in the first quarter, actually, was a hefty [Phonetic] crushing and also our yields -- accumulated yields for the six months is higher than last year because we didn't have such impact of the drought that is affecting the rest of the Center-South. In July, as you know, there was a frost in Brazil, which affected the main sugarcane areas including Sao Paulo, Parana and affected Mato Grosso do Sul and Minas Gerais.

So, we were also affected by the frost. This should impact our sugarcane yields for the remaining part of this season and for the beginning of the next one. And we are doing all that we can do to try to minimize the impacts, which include as Mariano mentioned at the beginning to speed up the crushing base, especially the sugarcane that will be harvested this year. We have acquired some third party sugarcane that is being delivered by the owner of the cane. So, it helps to supply sugarcane to our mills. We are taking part of the planting structure to help to crush the sugarcane affected by frost as quickly as possible.

So, we are trying to do all our best to minimize the impact for this year and the beginning of next year. It should be, of course, impact our crushing. I think that this year, we should be crushing similar or slightly lower than we had crushed last year and for next year for 2022. Probably, we are going to crush for sure more than this year, but I would say a little bit more than 11 million tons of sugarcane altogether. And I think the good point of the frost, there is a good point is the fact that the prices of both sugar and ethanol are very high, [Indecipherable] of sugar and ethanol are very constructive because -- especially because of the drop in the supply of sugarcane in Brazil. I think the market is it starting to realize the impact that the drought and the frost is having in the Brazilian crop.

So, everyone is adjusting their projections to 500 million tons or close to that, which would give you sugar production close to 30 million tons of sugar, which is very -- is much lower than everyone was previously forecasting. And we are very -- we are going to be able to capture those prices because as we were mentioning, we have 30% off of our sugar, almost 55% of our TRS for this year not hedged yet and a 100% for next year. And I think it's important to also to mention that the price of energy is very, very high at the moment, is in the top range of the spot market. So, we are selling energy now of almost BRL600 per megawatt hour. And we have approximately 9,000 megawatt hour to be sold in the spot market, which represents approximately 10% of our energy production.

Regarding the hedge question, of course, it's -- we're already starting to talk about the hedging part of the sugar, but we still believe that the market is going to keep moving up because we don't think that the scenario of the draught and the frost is fully priced. There are a lot of important analysts that are still saying that Brazil has 550 million tons of sugarcane to be crushed. So, we are trying to monitor those variables to -- at some point, you start to hedging the production.

And I think that -- one last comment that I think is important to mention here is the fact that -- we think that the anhydrous situation is very tight because the auto cycle is growing in Brazil in a higher pace than everyone was expecting. And since the price of hydrous is very high at the moment. So, the gasoline is gaining market share in the auto cycle. So, the demand for anhydrous is growing a lot and we are happy that we just finished our peneira molecular, which is the equipment to produce anhydrous in Ivinhema. So, we would be able to increase our anhydrous production in 50%. So, I think we are very well positioned to get this upside of prices in all the products that we produce. It's I believe is equivalent to $0.22 per pound for the reference in markets we sell.

Lucas Ferreira -- JP Morgan -- Analyst

Excellent, Renato. And sorry, just. Then a follow-up if I may. What is the -- with the sugar prices and now you with more anhydrous capacity, what should be your mix going forward? Are you adjusting your production mix for the second half?

Renato Junqueira Santos Pereira -- Director of Sugar and Ethanol Operations

You want to be sure, as I was mentioning the anhydrous today is already equivalent to $0.22 per pound. So, it's been more than sugar right now and the hydrous is about the same. So, we think that we are going to be maximizing ethanol in the end part of the season. And also, you have to consider that the sugar cane is -- when the harvest progress, the sugarcane gets with lower TRS. So, it's always easier to produce ethanol. So, we think that we'll be producing the ethanol and benefiting of higher price, especially in markets where we sell.

Lucas Ferreira -- JP Morgan -- Analyst

Perfect. Thank you very much.

Operator

[Operator Instructions] There being no further questions at this time, this will conclude our question and answer session. At this time, I would like to turn the floor back to Mr. Bosch for any closing remarks.

Mariano Bosch -- Chief Executive Officer and Co-founder

Okay. So, before finishing the call, I wanted to thank you all for joining the conference. As you know, we're at an inherent risk of our business. However, we are uniquely positioned to continue taking advantage of the constructive price scenario. This is true for all the products we produce. And as I have mentioned before, it is only possible because of the strategic investment we made across our operations and because of the hard work of our team. We believe we are in an excellent position to continue generating good financial results. We have already started to distribute these results with our shareholders through our buyback program and we plan to continue doing so in a more structural way in the coming years. Lastly, I would like to reiterate my gratitude to all our operating teams that are doing an outstanding job and to our shareholders for their continued support.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Mariano Bosch -- Chief Executive Officer and Co-founder

Carlos A. Boero Hughes -- Chief Financial Officer

Renato Junqueira Santos Pereira -- Director of Sugar and Ethanol Operations

Guilherme Palhares -- Bank of America -- Analyst

Lucas Ferreira -- JP Morgan -- Analyst

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