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Financial risk management
 12 Months Ended
Jun. 30, 2019
Financial Risk Management [Abstract]  
Financial risk management
4.Financial risk management

 

4.1. Financial risk factors

 

The Company operates with various financial instruments, including cash and cash equivalents, marketable securities, trade accounts receivables, accounts receivable and others, trade accounts payable, accounts payable for the purchase of farms, loans and financing and derivative financial instruments.

 

Certain Company's operations expose it to market risks, mainly in relation to exchange rates, interest rates and changes in the prices of agricultural commodities. As a result, the Company also enters into derivative financial instruments, used to hedge its exposures with respect to crops or with respect to assets and liabilities recognized in the balance sheet, depending on the nature of the specific operation.

 

Excluding derivative financial instruments, fair value is basically determined using the discounted cash flow method.

 

The amounts recorded under current assets and liabilities are either highly liquid or mature within twelve months, as such their carrying value approximates their fair value.

 

4.2. Policies approved by the Board of Directors for the use of financial instruments, including derivatives

 

The Company's policies in respect to transactions with financial instruments, which have been approved by the Board of Directors, are as follows: (i) Investment Policy which provides guidelines in respect to Company's investment of cash, considering the counterparty risk, the nature of instruments and liquidity, among others; (ii) Derivative financial instrument policy which provides guidelines to manage the Company's exposures to currency risk, interest rate and index risks, and agricultural commodities price risk, always linking the derivative financial instrument to the asset or liability that generates the exposure; and (iii) Risk Policy, which addresses items not covered by the Investment Policy or the Derivative financial instrument Policy including hedge against future cash flows with respect to future production of commodities.

 

a) Cash and cash equivalents, marketable securities, trade accounts receivable, receivable from sale of farms, loans with related parties and accounts payable. The amounts recorded approximate their estimated fair value.

 

b) Loans, financing and debentures. The book value of loans, financing and debentures, denominated in reais have its interest rates either fixed or based on the variation of TJLP (Long Term Interest Rate), SELIC (Special System of Clearance and Custody Rate) and exchange rate and approximates their fair value.

 

4.3. Analysis of exposure to financial asset and liability risks

 

a)Currency risk

 

This risk arises from the possibility that the Company may incur losses due to fluctuations in exchange rates, which reduces the nominal amount of assets or increase the amount of liabilities. This risk also arises with respect to commitments to sell products existing in inventories or agricultural products not yet harvested when sales are made at prices to be fixed at a future date, prices which vary depending on the exchange rate.

 

b)Interest rate and index risk

 

This risk arises from the possibility that the Company may incur losses due to fluctuations in the interest rates or indices which increase financial expenses related to certain contracts for the acquisition of farms, indexed by inflation, such as the IGP-M rate ("FGV").

 

c)Agricultural commodities price risk

 

This risk arises from the possibility that the Company may incur losses due to fluctuations in the market prices of agricultural products.

 

4.4. Objectives and strategies of risk management and of use of derivative financial instruments

 

The Executive Board is responsible for managing financial risks, and evaluates the Company's exposure to foreign currency risk, interest rate and index risk and agricultural commodities price risk with respect to assets, liabilities and transactions of the Company. Considering the exposure to such risks, Company management evaluates the convenience, cost and availability in the market of derivative financial instruments which allow the Company to mitigate such risks. After such assessment, the Executive Board decides whether to enter into the transaction within the parameters previously approved in the Policies referred to above and reports it in the Board of Directors' meetings.

 

4.5. Risks related to each operating strategy

 

The use of derivative financial instruments as an economic hedge reduce the risks of changes in cash flows arising from risks such as foreign currency, interest rate and price index and agricultural commodities prices.

 

However the change in the fair value of the derivative financial instrument may differ from the change in the cash flows or fair value of the assets, liabilities or forecasted transactions which are being hedged, as a result of different factors, such as, among others, differences between the contract dates, the maturity and settlement dates, or differences in "spreads" on the financial assets and liabilities being hedged and the corresponding spreads in the related legs of the swaps. In the case of the derivative financial instruments strategy to hedge recognized assets and liabilities, management believes that the derivative financial instruments present a high degree of protection with respect to the changes in the assets and liabilities being hedged.

 

In the case of the strategy to hedge forecasted sales of soybean or to hedge accounts payable/receivable, which are susceptible to changes commodity prices, differences may arise due to additional factors, such as differences between the estimated and actual soybean volume to be harvested, or differences between the quoted price of soybean in the international markets where the derivative financial instruments are quoted and the price of soybean in the markets in which soybean is physically delivered/received by the Company. Should the soybean volume effectively harvested be lower than the amount for which derivative financial instruments were contracted, the Company will be exposed to variations in the price of the commodities by the volume hedged in excess and vice-versa should the soybean volume effectively harvested be higher than the hedged volume.

 

In the case of exposure to exchange rates, there is a risk that the volume of U.S. dollars sold through forward contracts will be higher than the volume to which the Company is exposed. In such case, foreign exchange rates risk continues to exist in the same proportion as the mismatch, which could result from a reduction in the expected yield of a certain commodity or in a reduction in prices denominated in foreign currencies.

 

4.6. Restrictions related to the use of derivative financial instruments

 

Additionally, the Company is subjected to credit risk with respect to the counterparty of the derivative financial instrument. The Company has contracted derivative financial instruments either traded in the stock exchanges market or from prime first-tier financial institutions or "trading" companies. The Company understands that, at the balance sheet date, there are no indications of collectability risk with respect to the amounts recognized as assets with respect to derivative financial instruments.

 

The main restrictions by the Company's policy are as follows:

 

●establishment of policies defined by the Board of Directors;

 

●prohibition to enter into derivative financial instruments that have not been approved by the Executive Officers;

 

●maintenance by the Executive Officers of a centralized inventory of outstanding derivative financial instruments contracts;

 

●daily risk report with the consolidated position provided to a company comprising the Executive Officers and designated members of the Board of Directors;

 

●monthly monitoring by the Executive Officers of the fair values as reported by the counterparties as compared to the amounts estimated by management; and

 

●the fair value of the derivative financial instruments is estimated based on the market in which they were contracted and also in which the instruments are inserted.

 

4.7. Impact of derivative financial instruments on the statement of income

 

The gains and losses for changes in the fair value of derivative financial instruments are recognized in the statement of income separately between realized profit and loss (corresponding to derivative financial instruments that have already been settled) and unrealized profit and loss (corresponding to derivative financial instruments not yet settled).

 

4.8. Estimate of fair value of derivative financial instruments

 

The fair value of derivative financial instruments traded on stock exchanges (B3 and Chicago Board of Trade) is determined based on the quoted prices at the balance sheet date. To estimate the fair value of derivative financial instruments not traded on stock exchanges the Company uses quotes for similar instruments or information available in the market and uses valuation methodologies widely used and that are also used by the counterparties. The estimates do not necessarily guarantee that such operations may be settled at the estimated amounts. The use of different market information and/or valuation methodologies may have a relevant effect on the amount of the estimated fair value.

 

Specific methodologies used for derivative financial instruments entered into by the Company:

 

●Derivative financial instruments of agricultural commodities - The fair value is obtained by using various market sources, including quotes provided by international brokers, international banks and available on the Chicago Board of Trade (CBOT).

 

●Derivative financial instruments of foreign currencies - The fair value is determined based on information obtained from various market sources including, as appropriate, B3 S.A. – Brasil, Bolsa, Balcão, local banks, in addition to information sent by the operation counterparty.

 

a)Sensitivity analysis

 

Management identified for each type of derivative financial instrument the conditions for variation in foreign exchange rates, interest rates or commodities prices which may generate loss on assets and/or liabilities which is being hedged or, in the case of derivative financial instruments related to transactions not recorded in the balance sheet, in the fair value of the contracted derivatives.

 

The sensitivity analysis shows the impact from the changes in the market variables on the aforementioned financial instruments of the Company, considering all other market indicators comprised. Upon their settlement, such amounts may differ from those stated below, due to the estimates used in their preparation.

 

This analysis contemplates five distinct scenarios that differ due to the intensity of variation in relation to the current market. At June 30, 2019, as reference for probable scenarios I, II, III and IV, a variation in relation to the current market of 0%, -25%, -50%, +25%, +50%, respectively, was considered.

 

The preparation of the probable scenario took into consideration the market prices of each one of the reference assets of derivative financial instruments held by the Company at year end. Since all these assets are traded in competitive and open markets, the current market price is a meaningful reference for the expected price of these assets. Accordingly, since the current market price was the reference for the calculation of both book value and the Probable Scenario, it resulted in no mathematical difference.

 

The assumptions and scenarios are as follows:

 

   2019 
       Devaluation in reais (R$)   Appreciation in reais (R$) 
   Probable
scenario		   Scenario I
-25%		   Scenario II
-50%		   Scenario III
+25%		   Scenario IV
+ 50%		 
Soybean - R$ / bag –December 20, 2019 (CBOT)   80.69    60.52    40.35    100.86    121.04 
Soybean - R$ / bag – February 21, 2020 (CBOT)   79.55    59.66    39.78    99.44    119.33 
Soybean - R$ / bag – June 26, 2020 (CBOT)   80.69    60.52    40.35    100.86    121.04 
Soybean - R$ / bag – June 29, 2020 (CBOT)   80.69    60.52    40.35    100.86    121.04 
Corn - R$ / bag – August 23, 2019 (CBOT)   38.45    28.84    19.23    48.06    57.68 
Corn - R$ / bag – September 13, 2019 (CBOT)   38.45    28.84    19.23    48.06    57.68 
Corn - R$ / bag – September 17, 2019 (BM&F)   37.16    27.87    18.58    46.45    55.74 
Corn - R$ / bag –December 20, 2019 (CBOT)   37.77    28.33    18.89    47.21    56.66 
Corn - R$ / bag – August 24, de 2020 (CBOT)   37.77    28.33    18.89    47.21    56.66 
Fed Cattle - R$ / arroba –July 31, 2019 (BM&F)   156.00    117.00    78.00    195.00    234.00 
Fed Cattle - R$ / arroba – October 31, 2019 (BM&F)   164.15    123.11    82.08    205.19    246.23 
Fed Cattle - R$ / arroba – November 1, 2019 (BM&F)   164.15    123.11    82.08    205.19    246.23 
Cotton - R$ / arroba – July 12, 2019 (CBOT)   83.74    62.81    41.87    104.68    125.61 
Cotton - R$ / arroba – November 11, 2019 (CBOT)   83.74    62.81    41.87    104.68    125.61 
Cotton - R$ / arroba –December 6, 2019 (CBOT)   83.74    62.81    41.87    104.68    125.61 
USD  - July 4, 2019   3.83    2.87    1.92    4.79    5.75 
USD  - July 5, 2019   3.83    2.87    1.92    4.79    5.75 
USD  - July 30, 2019   3.85    2.89    1.93    4.81    5.78 
USD  - July 31, 2019   3.85    2.89    1.93    4.81    5.78 
USD  - August 30, 2019   3.86    2.90    1.93    4.83    5.79 
USD  - November 26, 2019   3.89    2.92    1.95    4.86    5.84 
USD  - March 30, 2020   3.93    2.95    1.97    4.91    5.90 
Interest (rate%) – August 15, 2023   6.83%   5.12%   3.42%   8.54%   10.25%

 

This sensitivity analysis aims to measure the impact of variable market changes on the aforementioned financial instruments of the Company, considering all other market indicators remain unchanged. Estimated amounts below can significantly differ from amount eventually settled.

 

In addition, the Company presents a summary of possible scenarios for the following 12 months of the Company's financial instruments. Reliable sources of index disclosure were used for the rates used in the "probable scenario".

 

              Scenario I - Possible   Scenario II - Remote   Scenario I - Possible   Scenario II - Remote 
(*) annual average rates     At June 30, 2019   Scenario I – Probable   Decrease   -25%   Decrease   -50%   Increase   25%   Increase   50% 
Operation  Risk  Balance (R$)   Notional   Rate   Balance (R$)   Rate(*)   Balance (R$)   Rate   Balance (R$)   Rate   Balance (R$)   Rate   Balance (R$)   Rate 
                                                        
Short-term investments  CDI   81,013    -    6.40%   (486)   5.80%   (1,175)   4.35%   (2,349)   2.90%   1,175    7.25%   2,349    8.70%
Marketable securities - LFT  SELIC   55    -    6.40%   -    6.58%   (1)   4.94%   (2)   3.29%   1    8.23%   2    9.87%
Marketable securities  CDI   13,097    -    6.40%   (79)   5.80%   (190)   4.35%   (380)   2.90%   190    7.25%   380    8.70%
Cash - USD  USD   21,390    5,582    3.83    (718)   3.96    (5,527)   2.97    (11,054)   1.98    5,527    4.95    11,054    5.94 
Total cash, cash equivalents      115,555    5,582         (1,283)        (6,893)        (13,785)        6,893         13,785      
                                                                     
Financing in Paraguay - Palmeiras  USD   (322)   (84)   3.83    (41)   3.96    319    2.97    638    1.98    (319)   4.95    (638)   5.94 
Debentures  CDI   (151,344)   -    6.40%   908    5.80%   2,194    4.35%   4,389    2.90%   (2,194)   7.25%   (4,389)   8.70%
Financing for Machinery and Equipment – FINAME  TJLP   (1,284)   -    6.26%   -    6.26%   20    4.70%   40    3.13%   (20)   7.83%   (40)   9.39%
Financing for sugarcane  TJLP   (10,947)   -    6.26%   -    6.26%   171    4.70%   343    3.13%   (171)   7.83%   (343)   9.39%
Total financing (b)      (163,897)   (84)        867         2,704         5,410         (2,704)        (5,410)     
                                                                     
Araucária III  Soybean bags   5,222    78,508    71.16    -    71.16    (1,306)   53.37    (2,611)   35.58    1,306    88.95    2,611    106.74 
Araucária IV  Soybean bags   7,238    106,393    73.70    -    73.70    (1,810)   55.28    (3,619)   36.85    1,810    92.13    3,619    110.55 
Araucária V  Soybean bags   38,083    575,000    79.39    -    79.39    (9,521)   59.54    (19,042)   39.69    9,521    99.23    19,042    119.08 
Jatobá I  Soybean bags   6,182    90,000    72.73    -    72.73    (1,546)   54.55    (3,091)   36.36    1,546    90.91    3,091    109.09 
Jatobá II  Soybean bags   118,823    1,833,296    81.65    -    81.65    (29,706)   61.23    (59,412)   40.82    29,706    102.06    59,412    122.47 
Jatobá III  Soybean bags   42,131    704,805    83.27    -    83.27    (10,533)   62.45    (21,066)   41.64    10,533    104.09    21,066    124.91 
Alto Taquari  Soybean bags   4,269    67,968    73.55    -    73.55    (1,067)   55.16    (2,135)   36.78    1,067    91.94    2,135    110.33 
Total receivables from farms      221,948    3,455,970         -         (55,489)        (110,976)        55,489         110,976      
                                                                     
Operations with derivatives, net  Grains   (8,383)   (2,588,394)   (a)    (8,798)   (a)    5,834    (a)    11,047    (a)    (39,369)   (a)    (76,354)   (a) 
Operations with derivatives, net  USD   894    (41,889)   (a)    957    (a)    37,699    (a)    74,440    (a)    (35,785)   (a)    (72,527)   (a) 
Operations with derivatives, net  Cattle   (89)   (23,430)   (a)    40    (a)    1,692    (a)    3,344    (a)    (1,612)   (a)    (3,263)   (a) 
Operations with derivatives, net  Cotton   164    (1,674)   (a)    245    (a)    526    (a)    808    (a)    (7,016)   (a)    (28,189)   (a) 
Operations with derivatives, net  Swap   986    14,810    (a)    1,038    (a)    1,602    (a)    2,190    (a)    498    (a)    (21)   (a) 
Margin - LFT Socopa  SELIC   2,292    -    6.40%   (14)   5.80%   (33)   4.35%   (66)   2.90%   33    7.25%   66    8.70%
Total derivatives (a)      (4,136)             (6,532)        47,320         91,763         (83,251)        (180,288)     
                                                                     
Cresca, net  USD   (1,358)   (354)   3.83    (44)   3.96    350    2.97    701    1.98    (350)   4.95    (701)   5.94 
Helmir, net  USD   301    79    3.83    12    3.96    (78)   2.97    (156)   1.98    78    4.95    156    5.94 
Total related parties      (1,057)   (275)        (32)        272         545         (272)        (545)     

 

(*)SOURCE Risks: Bloomberg

 

(a)For sensitivity analysis of derivative positions, forward rates and prices at each maturity date of the operation were used, according to the table above.

 

(b)The sensitivity analyses do not consider financing transactions with fixed rate.

 

b)Credit risk

 

Credit risk refers to the risk of the noncompliance by a counterparty of its contractual obligations, leading the Company to incur financial losses. The risk to which the Company is exposed arises from the possibility of not recovering the amounts receivable from the sale of sugarcane, grains, and from the leasing of land.

 

To reduce credit risk in commercial transactions, the Company adopts the practice of defining credit limits in which it analyzes factors such as: the counterparty's history, history of its business, commercial references and Credit Protection Institution (Serasa). The Company also constantly monitors the outstanding balances.

 

Currently, management does not expect losses due to the default of its counterparties and has no significant exposure to any individual counterparty.

 

c)Liquidity risk

 

Management policy is to maintain sufficient cash and marketable securities to comply with its financial commitments, due to the mismatch of terms or volume between the estimated amounts receivables and payables.

 

The table below shows the Company's financial liabilities by maturity. The amounts disclosed in the table are the discounted contractual cash flows, in addition to the net derivative financial instruments, which are recorded at fair value/. With respect to payables for the purchase of farms all amounts due at June 30, 2019 and 2018 are payable upon the fulfillment of certain conditions precedent by the sellers and as a result its payment date cannot be determined and have been considered as payable on demand in the table below and no interest or other financial charges have been considered.

 

   Note  Less than one year   From one to two years   From three to five years   Above five years   Total 
                        
At June 30, 2019                       
Trade payable  14.1   63,959    -    -    -    63,959 
Financial instruments derivatives  6   11,055    -    -    -    11,055 
Loans, financing and debentures  15   76,608    78,326    124,191    6,728    285,853 
Lease payables  13   254    -    -    20,943    21,197 
Transactions with related parties  27   2,405    -    -    -    2,405 
                             
At June 30, 2018                            
Trade payable  14.1   48,518    -    -    -    48,518 
Financial instruments derivatives  6   10,489    2,145    -    -    12,634 
Loans and financing  15   68,412    21,298    143,793    22,302    255,805 
Lease payables  13   1,676              18,539    20,215 
Transactions with related parties  27   1,831    -    -    -    1,831 

 

4.9. Capital management

 

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

 

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to stockholders, return capital to stockholders or, also, issue new shares or sell assets to reduce, for example, debt.

 

Consistent with others in the industry, the Company monitors capital based on the leverage ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total loans and financing (including "current and noncurrent loans and financing" as shown in the Consolidated statement of financial position) less cash and cash equivalents. Total capital is calculated as equity, as shown in the Consolidated statement of financial position, plus net debt.

 

According to the following table, the Company presents net debt of loans, acquisitions payable and trade accounts payables and the financial leverage index.

 

   2019   2018 
Loans, financing and debentures (Note 15)   285,853    255,805 
Total lease payables (Note 13)   21,197    20,215 
Total trade accounts payables (Note 14.1)   63,959    48,518 
Total derivatives (Note 6)   11,055    12,634 
    382,064    337,172 
Less: cash and cash equivalents (Note 5.1)   (106,627)   (104,314)
Less: marketable securities (Notes 5.2)   (13,152)   (29,441)
    (119,779)   (133,755)
Net debt   262,285    203,417 
Total equity   880,533    755,864 
Financial leverage   29.79%   26.91%

 

4.10. Fair value hierarchy and classification of financial instruments

 

The carrying amount (less impairment) of trade accounts receivable and payables approximate their fair values. The fair value of financial liabilities, for disclosure purposes, is estimated by discounting the future contractual cash flows at the current market interest rate that is available for similar financial instruments.

 

The Company adopted IFRS 7 and IFRS 13 for financial instruments that are measured in the balance sheet at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

 

●Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

 

●Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

 

●Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

 

The following table presents the Company's assets and liabilities, their classification and the fair value, as well as the level of hierarchy:

 

   June 30, 2019 
Consolidated - R$ thousand  Note   Book value   Fair value   Quoted prices in active markets (Level 1)   Significant observable data (Level 2)   Significant non-observable data (Level 3) 
Financial assets measured at amortized cost                        
Current                        
Trade receivables, net  7,1    71,295    71,295    -    71,295    - 
Related-party transactions  27    1,987    1,987    -    1,987    - 
                              
Financial assets measured at fair value through profit and loss                             
Current                             
Cash equivalents  5,1    81,013    81,013    81,013    -    - 
Marketable securities  5,2    4,038    4,038    4,038    -    - 
Receivables from sale of farm, net (c)  7,1    41,351    41,351    -    -    41,351 
Derivative operations (b)  6    5,906    5,906    3,084    2,822    - 
Noncurrent                             
Marketable securities  5,2    9,114    9,114    9,114    -    - 
Receivables from sale of farm, net (c)  7,1    180,597    180,597    -    -    180,597 
Derivative operations (b)  6    1,013    1,013    27    986    - 
                              
Non-financial assets measured at fair value                             
Current                             
Biological assets  9    99,881    -    -    13,887    85,994 
                              
Noncurrent                             
Biological assets  9    23,235    -    -    23,235    - 
                              
Non-financial assets measured at cost                             
Noncurrent                             
Investment properties  10    548.717    1,471,248    -    -    1,471,248 
                              
Financial liabilities measured at amortized cost                             
Current                             
Trade payables  14,1    63,959    63,959    -    63,959    - 
Borrowings and Financing (a)  15    76,608    76,608    -    76,608    - 
Related-party transactions  27    2,405    2,405    -    2,405    - 
Noncurrent                             
Loans and financing (a)  15    209,245    209,245    -    209,245    - 
                              
Financial liabilities measured at fair value through profit and loss                             
Current                             
Financial lease sugarcane field – Parceria III  13    254    254    -    254    - 
Derivative operations (b)  6    11,055    11,055    9,127    1,928    - 
Noncurrent                             
Financial lease sugarcane field – Parcerias III and IV  13    20,943    20,943    -    20,943    - 

 

 

   June 30, 2018 
Consolidated - R$ thousand  Note   Carrying amount   Fair value   Quoted prices in active markets (Level 1)   Significant observable data (Level 2)   Significant non-observable data (Level 3) 
Financial assets measured at amortized cost                        
Current                        
Trade accounts receivable, net  7,1    57,185    57,185    -    57,185    - 
Transactions with related parties  27    1,66    1,66    -    1,66    - 
                              
Financial assets measured at fair value through profit and loss                             
Current                             
Cash equivalents  5,1    81,213    81,213    81,213    -    - 
Marketable securities  5,2    11,215    11,215    11,215    -    - 
                              
Receivables from sale of farm, net  7,1    21,372    21,372    -    21,372    - 
Derivative financial instruments (b)  6    28,299    28,299    21,006    7,293    - 
Noncurrent                             
Marketable securities  5,2    18,226    18,226    18,226    -    - 
Receivables from sale of farm, net  7,1    55,423    55,423    -    55,423    - 
Derivative financial instruments (b)  6    4,053    4,053    -    4,053    - 
                              
Non-financial assets measured at fair value                             
Current                             
Biological assets  9    61,993    61,993    2,203    -    59,79 
                              
Noncurrent                             
Biological assets  9    34,053    34,053    -    34,053    - 
                              
Non-financial assets measured at cost                             
Noncurrent                             
Investment properties  10    557,152    1,385,780    -    -    1,385,780 
                              
Financial liabilities measured at amortized cost                             
Current                             
Trade accounts payable  14,1    48,518    48,518    -    48,518    - 
Loans and financing (a)  15    68,412    68,412    -    68,412    - 
Transactions with related parties  27    1,831    1,831    -    1,831    - 
Noncurrent                             
Loans and financing (a)  15    187,393    187,393    -    187,393    - 
                              
Financial liabilities measured at fair value through profit and loss                             
Current                             
Financial lease sugarcane field – Parceria III  13    1,676    1,676    -    1,676    - 
Derivative financial instruments (b)  6    10,489    10,489    1,275    9,214    - 
Noncurrent                             
Financial lease sugarcane field – Parcerias III and IV  13    18,539    18,539    -    18,539    - 
Derivative financial instruments (b)  6    2,145    2,145    -    2,145    - 

 

 

(a)The book value of loans and financing presented in the financial statements approximates the fair value, since the rates of these instruments are substantially subsidized and there is no intention of early settlement;
(b)The derivative transactions negotiated at active market are measured at fair value at Level 1, over-the-counter transactions are measured at Level 2, as presented in the table above
(c)Due to market volatility, one of the non-observable inputs became significant and the receivables from sales of farms were reclassified from Level 2 to Level 3. The Company's policy is to recognize transfers from and to Level 3 on the date of the event or change in the circumstances that caused the transfer.

 

The significant non-observable inputs used in the measurement of the fair value of the credits from the sale of the farm classified as Level 3 in the fair value hierarchy, along with an analysis of quantitative sensitivity on June 30, 2019, are as follows. There were no reclassifications:

 

Description  Evaluation method  Significant non-observable inputs  Variation of non-observable inputs  Sensitivity of inputs to fair value
Receivables from sales of farms  Discounted cash flow  Premium (or Basis)  0.3 - 0.5 USD/bu  The increase or decrease of 0.20 USD/bu in the premium (or basis) paid for the soybean would result in an impact of R$4,644. An increase or decrease of 2% in the receivables from sales of farms.