Just eight months after its initial public offering (IPO) on the Sao Paulo stock exchange B3, emerging Brazilian agriculture firm 3tentos is analyzing an expansion into corn ethanol production and laying the groundwork for biodiesel exports, president and company founder Luiz Osorio Dumoncel told Argus. Following a 2021 that saw revenue of R5.34bn ($1.11bn), up by 72pc, Dumoncel discussed what impact the recent drought, the conflict in Eastern Europe and the opening of Brazil's biodiesel market are having on the company's operations and plans to expand. Edited excerpts follow.
In July 3tentos raised R$1.370bn in an IPO aimed at expanding operations in Rio Grande do Sul, deepening a foothold in Mato Grosso, and constructing a biodiesel plant. What is the status of these planned investments?
It was a project well-received by investors at a time when agribusiness entered the stock market. 3tentos has a complete ecosystem, from the seed to finished product such as meal, oil and biodiesel. By the end of 2025, we will open 22 stores in Rio Grande do Sul to sell inputs and grains, in addition to building a soybean crushing plant in Mato Grosso that will also produce biodiesel. There will be eight units in the region of the BR-163 highway [connecting the northern and southern of Brazil through the country's interior]. In Rio Grande do Sul, seven have already been inaugurated.
Does 3tentos intend to diversify its operations and produce corn ethanol?
We have studied [this area], obviously. 3tentos is diversified and participates in the entire soy chain. We originate corn in Rio Grande do Sul and Mato Grosso and we will be able to produce ethanol and DDG [dry and distilled grains] to sell as animal feed. Brazil is the world's largest producer of soybeans and has the largest cattle herd. Not producing renewable fuel with this potential would be, to say the least, unwise.
How has the crop failure caused by the recent drought in the country's south impacted 3tentos operations?
It was the most severe crop failure in recent years. Rio Grande do Sul should finish harvesting between April and May with a crop of 10mn-11mn t, half of the forecast. Disregarding what the industry will crush and what will be exported, we will be left with a stock of 1mn t by the time of the end of the crop season. 3tentos manages to make arbitrage and keep its revenue and operations steady.
What is Brazil's role in closing a soybean meal supply gap caused by drought-related crop losses in Argentina?
The drought happened in the southern region, but the center-west had a normal harvest, so we will have bran available for the domestic market and for export through the ports of Paranagua [in the state of Parana], Santos [in Sao Paulo] and at Miritituba and in Barcarena [in the northern state of Para]. Brazil will be able to serve these markets. The premiums in Rio Grande do Sul, Paranagua and Santos should be strengthened.
What impact are you seeing on the division of inputs and with fertilizers, grains, and wheat, as a result of the conflict in Eastern Europe? Do you expect costs will increase?
We are living in an exceptional period, first with the pandemic and now with the conflict. The products will be more expensive, with phosphorus, potassium and nitrogen already at high levels, and it will take some time for them to return to normal. Brazilian companies are prepared for this scenario.
In the south, analyses already show an interesting fertilizer condition in the soil. 3tentos has the product for the winter crop and already has [cargoes] arriving for the summer crop. The producer will rationalize the use to have adequate fertilization.
Brazil's biodiesel market migrated to a direct sales model at the start of this year. What is your impression of these first 90 days? Do you think a rise in input prices could prompt the government to trim the current 10pc blending mandate?
In January and February, [we negotiated] slightly lower volumes. We are working in March and April and preparing for the third quarter. The expectation is that the 10pc biodiesel blending mandate will grow again so that Brazil becomes a reference in the production of renewable fuels, such as ethanol and biodiesel. We hope the mix is not reduced further; it would be absurd. We have been talking to the government and we hope that the blending level can increase again, mainly due to difficulties surrounding diesel imports. The industry is at just over 50pc of idle capacity.
Is 3tentos seeking certifications to export biodiesel to Europe?
Yes, we have certifications in progress, ready in a month or two. We are looking for contacts abroad to export our product, as we do with soybean meal and oil, and have more business options, providing security for 3tentos and its investors.
