JPM-Rumo Mato Grosso Harvest Tracker(Jun. 23)...-20251023

The Mato Grosso Agribusiness Institute (IMEA) has published its weekly update on the soybean and corn harvest. We remain OW on RAIL3, trading at 6.0x EV/EBITDA 2025e.

•Corn. Corn production for the 2024/25 season in Mato Grosso remains unchanged at 50.4 million tons (+5% y/y). The commercialization rate for the 2024/25 season reached 51.1% in May, up 7.4 p.p. m/m and 14.9 p.p. above the previous season. Commercialization of the 2025/26 harvest is at 5.8%, up 2.0 p.p. m/m, which is 2.9 p.p. above last year but behind the last five-year average.The second corn harvest in Mato Grosso reached 14.1% of the total area (+6.9 p.p. w/w), which is still 12.7 p.p. below the last five-year average and -23.5 p.p.y/y. According to CONAB, the 2024/25 storage capacity is expected at 52.3 million tons, up 1% y/y while the total grains production is forecasted at 101.3 million tons, leading to a deficit of 49 million tons, which should exacerbate logistical and distribution challenges.

•Soybean. Soybean production for 2024/25 is at 50.9 million tons (+30% y/y)while expectations for the 2025/26 crop is at 47.2 million tons (-7% y/y).Commercialization of the 2024/25 crop reached 76% in May, up 5.5 p.p. m/m,while for the 2025/26 season it reached 14.2%, up 3.4 p.p. m/m, and 2.4 p.p.below last year. CME soybean prices were up 1.6% w/w driven by a potential increase in soybean crushing related to biofuel production, although prices are still -8% y/y. In the US, seeding reached 96% of the total area (+3 p.p. w/w) with 66% of the harvest in good condition, similar to last week’s results.

•J.P. Morgan's view on Rumo (RAIL3, OW). We believe the market is already pricing in concerns on a potential weaker volume outlook and skepticism on the company's ability to achieve its full-year guidance. The stock is trading at 6.0x EV/EBITDA for 2025 estimates, which is a c.35% discount to historical levels and, in our view, presents a favorable risk/reward asymmetry.Nevertheless, delayed grain commercialization, despite optimistic harvest forecasts, constrains the potential for earnings revisions and a valuation re-rating in the near-term. The company announced a R$1.5 billion dividend (4%yield) this month, and in our view this dividend payout is expected to have only a modest impact on the company's leverage (1.6x net debt to EBITDA as of 1Q25, ex-leases) - more details here.