Ceres reports favorable sorghum growth in Brazil in Q2 results

By Katie Fletcher | April 10, 2015

On April 9, Ceres Inc. released financial results for the second quarter of 2015, reporting growing conditions in Brazil have been generally favorable for its sweet-sorghum collaboration with Raizen across most multi-hybrid field evaluation sites.

Ceres has activities in Brazil associated with both large-scale evaluation and adoption of high-biomass sorghum for biomass power generation and sweet sorghum for ethanol production.

In March, Ceres and Brazilian energy company Raizen—a joint venture between Royal Dutch Shell and Cosan—signed a multi-year collaboration agreement. Under the collaboration, Ceres is contributing seed and agronomic expertise, while Raizen is providing the land and other resources. “We’re working together, closely, to incorporate sweet sorghum production into their industrial practices, and share the profits,” said Richard Hamilton, Ceres President and CEO. “This is a well-established and influential mill group and we believe that this relationship can facilitate the adoption of our products throughout the sugar and ethanol industry.”

In addition to Raizen, Hamilton said the company is working with many large mills and agribusiness groups this season, with plantings covering more than 4,000 hectares (9,884 acres) compared to approximately 1,000 hectares planted in the previous season. This, according to Hamilton, is due primarily to an increased demand for high-biomass sorghum for biomass power generation. “A reflection, in part, of the current macro-economic climate in Brazil where a severe, multi-year drought has helped push electricity prices to historical highs relative to ethanol prices,” Hamilton said.

Right now, Ceres is in the middle of a growing season, and Hamilton said the company will have final performance results of products for the quarterly earnings call in July. Hamilton added, “In November we’ll get a good sense of how these results are translating into larger-scale evaluations and commercial adoption of our sorghum products in Brazil.”

In the U.S., Ceres highlighted its launch of new forage sorghum hybrids and plans to evaluate more than a dozen new hybrids that offer performance advantages, including higher yields and improved nutrition. Hamilton mentioned that the company has entered into a distribution agreement with Helena Chemical Co. to extend its sales and marketing reach in certain geographies for its hybrids. Following successful field trials, Ceres also has plans to perform additional evaluations of biotech traits in forage sorghum in the U.S. this growing season. Performance results for both traditionally developed hybrids and biotech traits are expected by the end of the year.

Additionally, in March, Ceres accelerated its sugarcane trait development following positive field results in Latin America. The next stage of research field trials, which will provide more definitive results, is expected to be completed by June 2016, and at the current pace, commercial sugarcane cultivars with Ceres’ traits could be ready for commercial scale-up as early as 2018.

Other details included in the quarter two results was news that the company has filed an application for a patent covering its iCODE (Intelligent, Combinatorial, Optimization and Directed Evolution) multi-gene trait development technology in the hopes of expanding the scope of its trials, including evaluations of its biotech traits in a more diverse set of corn-breeding lines. Persephone is another technology the company is working with. This bioinformatics software was first developed for internal use, but is now being evaluated by new potential customers in plant genomics, as well as in biomedical research and diagnostics. Persephone is licensed by Syngenta and Bayer CropScience. “We’re much more than a bioenergy company, we have responded rapidly to changes in the energy market, as well as the economic challenges faced by the Brazilian ethanol industry,” Hamilton said.

As for Ceres second quarter financial results, the company reported total revenues for the quarter ended Feb. 28, were $300,000 compared to $500,000 for the comparable period in the prior year. Ceres Chief Financial Officer Paul Kuc said the decrease in revenue was primarily due to the completion of work scheduled under various grant programs. Kuc added that the company expects to recognize a majority of the company’s product revenues for the 2014-2015 season in Brazil after harvests are complete, during its fiscal third and fourth quarters.

Total cost and operating expenses increased over the same period last year as the company ramped up promotional programs in Brazil. However, Kuc said Ceres expects the overall trend to decline year-over-year based on how various market areas perform. The cost of product sales increased by $1.6 million to $2.1 million for the second quarter compared to the same period in the prior year. The increase is connected to a $1.4 million charge for crop management costs associated with the company’s sales incentive and promotional programs for the 2014-2015 growing season in Brazil, which include offtake agreements for sorghum biomass.

Research and development expenses for the quarter decreased by $1.1 million to $2.5 million for the second quarter, primarily due to reduced personnel and related expenses in the U.S. Selling, general and administrative expenses increased by $300,000 to $3.9 million for quarter two, compared to the same period last year. This is primarily due to increased personnel and related expenses in Brazil, which were partially offset by the decrease in the United States.

Ceres ended the second quarter reporting a net loss of $8.1 million, or $1.34 per share, compared to a net loss of $7.2 million, or $2.29 per share, for the comparable period in 2014. The company’s cash and cash equivalents and marketable securities totaled $14.6 million at the end of the quarter. “We continue to keep a close eye on the expenses and remain flexible in how we direct our working capital,” Kuc said.