Soy Fuels Vanguarda Profit Bet as Stock Drops: Corporate Brazil

Vanguarda Agro SA (VAGR3), Brazil’s second-biggest publicly traded soybean producer, says it will post its first profit in 2014 as prices for the oilseed surge and it reaps more from its fields.

Vanguarda expects to produce about 52 60-kilogram bags of soybeans per hectare this year, up from 44 bags in the previous season after investing in new equipment and giving up on lower-yielding farms, Chief Executive Officer Arlindo Moura said. Each extra bag per hectare adds 9 million reais ($3.8 million) to net income by the end of the year, he said.

Moura, who took over last year after having worked at Deere & Co. and SLC Agricola SA, is trying to regain investor confidence after shares tumbled 96 percent since the company first sold stock in 2006 amid an investor dispute and a failed bet on biofuels. Vanguarda, whose shareholders include JPMorgan Chase & Co.’s Gavea Investimentos Ltda, is seeking to raise as much as $600 million to buy land and is studying its options, including a capital increase by current investors, Moura said.

“We want to make a decision by the second half of the year,” Moura said in an interview at Bloomberg’s Sao Paulo office, adding that he’s aiming to raise $250 million of the total this year. “Our priority is to increase productivity -- low yields led the company to post losses on top of losses in recent years.”

‘Wait and See’

Vanguarda fell 2.3 percent yesterday to 2.97 reais in Sao Paulo, bringing its year-to-date loss to 13 percent. That compares with a 16 percent decline for SLC, the No. 1 publicly traded soybean producer, and a 13 percent drop for BrasilAgro.

Moura said the market still isn’t pricing in the company’s improved outlook after it abandoned biofuel.

“Many investors we talk to tell us: ‘We’re going to wait and see if you will deliver what you’re promising this time’,” he said. “We’re going to see a reaction when we release the 2014 first-quarter results.”

Soybean futures have climbed 9.8 percent so far this year in Chicago amid concern that excessive rain in Mato Grosso damaged crops.

The Sao Paulo-based company aims to buy 100,000 hectares (247,000 acres) in the northern states of Para and Maranhao by 2019, said Moura, who previously worked as John Deere’s chief financial officer for South America and later led SLC for eight years until December 2012. The goal is to boost ownership to 50 percent of an estimated 500,000 hectares of cultivated land, from 38 percent of about 290,000 hectares this year, he said.

Talks on Hold

Talks with Asian food companies to fund acquisitions, which Moura announced in November, are now on hold, he said, adding that existing shareholders “have the size and cash” to carry out a capital increase.

Soybean producer Otaviano Pivetta is the biggest individual shareholder of Vanguarda, with a 16.6 percent stake. Gavea, the Rio de Janeiro-based asset manager founded by former Brazilian Central Bank President Arminio Fraga, owns 14.3 percent, while investors Helio Seibel and Silvio Tini own 12.7 percent and 8.6 percent, respectively.

Formerly known as Brasil Ecodiesel, Vanguarda accumulated losses after betting on a government program to make biodiesel from castor beans, jatropha and other oilseeds, driving down the stock price from a 2007 high of about 92 reais apiece to less than 4 reais by the end of the following year. A dispute over a debt proposal further eroded confidence in 2011.

Vanguarda is now focusing on producing soybeans, corn and cotton to take advantage of demand from China. The company runs 13 farms in the central northern states of Mato Grosso, Goias, Minas Gerais, Bahia and Piaui

Loss to Profit

The company is expected to post a record adjusted net loss of 192.3 million reais in 2013 when it reports its annual results later this month, according to the average of four analyst estimates compiled by Bloomberg. Five analysts expect on average a 16.4 million-real profit this year.

“Vanguarda went through a major restructuring, moving from a biodiesel producer to a farm -- it takes a while for these changes to produce results,” Catarina Pedrosa, an analyst at Espirito Santo Investment Bank, said by telephone from Sao Paulo. “It’s still the first crop entirely planned and executed by Arlindo Moura.”

To contact the reporter on this story: Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Jessica Brice, Robin Saponar

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