SLC Agrícola braces for El Niño with record yields and a heavier balance sheet

Brazil's largest grain and cotton producer reports record soybean yields and outlines its leverage and irrigation strategy to weather an expected strong El Niño.

SLCE3.SA · Earnings Call · 2026-08-13

Preparing for the climate curveball

With a strong El Niño forecast for the upcoming season, SLC Agrícola's management is leaning on the lessons of 2016 and a dramatically expanded irrigation footprint. CEO Aurelio Pavinato framed the response around adaptability: “So we're preparing for it. So what could be done to mitigate any damage caused by El Niño?” — Aurelio Pavinato, CEO · 2026-08-13 He detailed practical shifts—adjusting planting windows, splitting fertilizer applications, and preserving soil moisture—rather than just relying on insurance or price hedging. The centerpiece is irrigation: “Now with the project we are completing at Piratini, we have 25,000 hectares under irrigation in the farms where risks were higher.” — Gabriel Coelho Barra, Analyst · 2026-08-13 That compares with almost none in 2016, and Pavinato expects losses this cycle to be far smaller than the 15% output hit in the last major El Niño. This is not just a weather story; it is a structural investment narrative. The el niño response is tightly coupled with the company's irrigation project and its broader push to lift and stabilize yields. The record soybean harvest—4,146 kg/ha, up 4.7%—is a direct payoff of prior capital spending, and the hedge position on the ’25-’26 crop (90% soy, 94% cotton) shields revenue visibility even as volumes remain volatile.

Balance sheet: leverage by design, deleverage ahead

CFO Ivo Brum acknowledged the net debt/EBITDA ratio of 3.09x is above the company's historic comfort zone, but insisted it was a deliberate part of the growth plan. “So having a net debt over EBITDA ratio of 3x, this is no surprise to us.” — Ivo Brum, CFO and IRO · 2026-08-13 The earlier 2025 call had set the board's preferred ceiling at 2x (“Our Board discourage us from going over 2x, and we are now at 2.3x.” — Ivo Brum, CFO and IRO · 2025-11-07), but the recent acquisition of 8,900 hectares from Grupo Radar and ongoing working capital needs pushed the number higher. The CFO now expects harvest cash flows in the second half to bring leverage down, and if needed, the company can sell land without leaseback—while maintaining a long-term target of 1/3 owned and 2/3 leased. As Pavinato put it,

We want to work with 1/3 of owned areas and 2/3 leased areas.
Aurelio Pavinato, CEO · 2026-08-13

The leverage discussion is intertwined with interest rate concerns. The company is considering USD-denominated loans to lengthen the debt profile, and it is keeping a tight grip on CapEx (maintenance ~R$700M) while completing the high-return irrigation projects.

Commodity tailwinds and cost discipline

Management's tone on commodities is cautiously optimistic. Cotton prices have recovered as polyester prices rose and the U.S. crop shrank; the global deficit (5.3M bales) supports the outlook. Soybean prices are supported by the biodiesel mandate and the Iran conflict, while corn remains in a structural deficit. The company also timed its fertilizer purchases well—locking in 100% of phosphate, 90% of potash, and 70% of nitrogen—“we were able to form our prices at adequate levels for the next crop season” — Aurelio Pavinato, CEO · 2026-08-13—which should cushion margins in 2027. This cost discipline is a recurring theme from prior calls, where the company emphasized a zero-increase input target (“…our objective is zero increase in inputs for all crops.” — Ivo Brum, CFO and IRO · 2025-05-14). Now, with better visibility on both costs and the El Niño playbook, SLC Agrícola looks positioned to defend its historical EBITDA margin even as Brazilian soybean acreage is expected to flatten for the first time in a decade.

Why it matters

SLC Agrícola is effectively using its scale and balance-sheet capacity to turn a climate threat into a competitive advantage. The near-term leverage is a calculated bet that irrigation and efficiency gains will deliver a more stable and profitable operation than peers who are less prepared. If the El Niño materializes as a moderate event, the company could emerge with stronger market share and a healthy balance sheet entering the ’27-’28 cycle.