Bunge revealed it had been badly wrong-footed by the revival
in grain prices, which dragged its trading operations into the red, as it
unveiled a surprise loss, hurt by losses on hedges in sugar too.
The sugar-to-fertilizer group, which is with Archer Daniels
Midland, Cargill and Louis Dreyfus one of the ABCD group of agricultural
trading giants, revealed it had fallen to a loss of $27m in the
January-to-March quarter, from earnings of $170m a year before.
The loss – equivalent to $0.18 per share, compared with
earnings of $1.40 per share that analysts had expected, according to a ThomsonReuters
survey – reflected a wrong bet by its traders on falling grain values.
It reflects the second set of below-forecast results from an
agricultural trading major in three days, after Archer Daniels Midland, on
Tuesday unveiled earnings per share of $0.55, below Wall Street forecasts of
$0.77, depressed by "weak results" at its agricultural services unit, its
largest division by revenue.
Bunge shares stood down 5.4% at $75.34 in closing deals in New York, wiping some $630m from the group's stockmarket value.
Bunge said: "Our commercial and risk management strategies
anticipated lower grain prices."
However, the "combination of deteriorating US winter wheat
conditions and Black Sea political volatility caused prices to rise, pressuring
margins", and landing the group's trading and distribution operations with a
These operations were also hurt by "above market" freight costs,
as Bunge "executed higher priced vessels that were toward the end of their time
Many commentators at the turn of the year forecast a weak
2014 for crop prices, only for futures in many contracts to revive from late
January, boosted by factors such as drought damage to US hard red winter wheat,
besides to Brazilian coffee and sugar cane crops, as well as concerns over the
implications of Ukraine's crisis for regional grain exports.
The group also unveiled a profits decline of 42%, to $22m,
in edible oils, as a drive to boost margins in Brazil and Canada resulted in
And in sugar, the division which Bunge is trying to sell, the
group reported a slide to a $64m operating loss, from a $23 profit a year
before, reflecting a worse performance in both cane milling and sugar trading.
The cane milling side took a $31m mark-to-market loss on hedges
against forward sales of sugar, the price of which has rebounded sharply since
late January, lifted by concerns over drought in Brazil's key Centre South
The deterioration in milling also reflected start-up costs
for the new season, which Bunge has begun earlier this year.
'Slower than expected'
The quarter was, for the group, "slower than expected," said
Soren Schroder, the Bunge chief executive.
However, Bunge has a "positive" outlook for the rest of 2014,
helped by factors such as improvement at its South American operations as the
region's harvest proceeds.
"With the recent pick-up in pace of farmer selling and strong
export demand for soymeal, crush margins and utilisations in South America
should remain strong through September when export demand begins to shift back
to North America," Mr Schroder said.
He added that "demand for our products in most regions has
been strong, and we expect these conditions to persist throughout the year".
However, he cautioned of a "challenging" current quarter in
China "as the industry works through the excess supply of soybeans" which has
depressed margins, and led to a series of Chinese import order cancellations.
"However, we expect margins in the second half of the year
to improve significantly as supply and demand come into balance."