SLC Agrícola "Drying outlook - Downgrade to Sell" (Sell) Enfeldt

Research evidence excerpt

SLC Agrícola "Drying outlook - Downgrade to Sell" (Sell) Enfeldt

SLC Agrícola UBS Research

Pivotal Questions

Q: Will soybean and cotton prices support an

improvement in expectations?

UBSVIEW

We don't think so, as we see limited upside from soybeans and cotton prices for

SLC in the short term.

In soybeans, although we expect a modest global deficit in 2026/27 driven by

steady demand growth and only modest increases in the main producing

countries, this leads to an STU of ~29% in 2026/27, down -2pp YoY but still

above 26% average. Futures already converge near ~US$12/bu, in line with

long-term normalized levels, suggesting limited room for further price

appreciation, particularly as oil prices are expected to ease moving onwards.

Similarly, in cotton, despite a recent rally supported by higher oil prices and a

tightening in the global balance (with STU expected by the USDA down -5pp to

~59% in 2026/27), current prices appear to already reflect these dynamics

following the recent correction. Supply constraints in key producers and steady

demand growth are not sufficient to drive a sustained upside beyond current

levels. Further, oil prices correcting downwards are an important trigger for

prices to correct down. We now model cotton prices at ~80cpp for 2Q26-

4Q27, before correcting further to ~75cpp in 2028.

EVIDENCE

We expect the global soybean STU ratio to drop -2pp YoY to 29% in 2026/27 vs

historical avg of 26%; and the USDA expects cotton STU to drop -5pp YoY to 59%,

slightly below average of 61%.

WHAT´S PRICED IN?

Given our discussions and how the market typically invests in agricultural

companies, we believe investors are pricing in the futures curve for soybeans

and cotton for SLC, which we believe is adequately reflects the global SxD for

both commodities.

Soybean