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Bunge profits beat forecasts despite Brazil hurdle

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Bunge overcame a reluctance by Brazilian farmers to sell corn at current prices to lift its profits far more than Wall Street had expected, boosted by the boost to processing margins from depressed crop values.

Shares in the US group – with Archer Daniels Midland, Cargill and Louis Dreyfus one of the ABCD of agricultural trading giants – stood 7.0% higher at $78.81 in late deals in New York, adding more than $750m to its stockmarket value.

Bunge revealed a 147% rise to $272 in earnings for the April-to-June quarter, on revenues up 8.4% at $15.49bn.

The improvement lifted earnings per share to $1.76, above the $1.36-per-share result that analysts had forecast.

And it reflected the boost from strong harvests which, besides boosting volumes of crop to market and transport, weigh on prices, so supporting the profitability of processing operations.

'Meet or exceed targets'

Soren Schroder, the Bunge chief executive, said: "Strong global oilseed processing margins, driven by big crops and growing demand, led to significantly better results in agribusiness," by far the group's largest-earning unit.

And he forecast further prosperity for the agribusiness division, as "big northern hemisphere crops, combined with strong global livestock economics…. continue to drive demand and encourage trade".

For the group as a whole, "we expect the momentum of the second quarter to carry through for the remainder of the year," supported by agribusiness and the food & ingredients division, which achieved record results in the April-to-June period, helped by last year' acquisition of Mexican wheat miller Grupo Altex.

The agribusiness and food & ingredients division will "meet or exceed" their target for combined full year returns 1.5 points above cost of capital.

Brazil farmers delay sales

The strong performance in agribusiness, which achieved an 83% rise to $311m in its operating profits in the latest quarter, came despite a reluctance by Brazilian growers to sell corn at prices which have fallen to four-year lows in the country, as they have in Chicago.

The division's grain origination volumes fell year on year, "primarily due to Brazilian farmers postponing commercialisation of the safrinha corn crop as a result of the drop in market prices", Bunge said.

The safrinha corn crop, grown on fields vacated by the soybean harvest early in the calendar year, is the source of Brazilian exports of the grain, which appear to be running slower than a year ago.

The line-up of vessels waiting to load corn at Brazilian ports was last week - at 35 ships seeking 1.8m tonnes of the grain – well down on the 86 ships looking for 4.5m tonnes a year before, a drop seen as only partly down to infrastructural and logistical improvements.

However, the drop in prices below guaranteed levels is persuading many growers to try to hang on for government auctions rather than sell at prices which in major growing state Mato Grosso fell to R$10.00 per sack, equivalent to less than $2.10 per bushel, earlier this month.

The guaranteed minimum price is R$13.56 per sack – assuming the country's farm ministry succeeds in a quest for funds to support a state purchasing programme.

Sugar review

Bunge added that it expected a slowdown in farmer selling in South America as a whole in the second half of the year.

"While this would reduce utilisation in the region, it should provide additional export opportunities for the US and Europe," said Drew Burke, the group's finance director, adding that the trend will "also skew results more towards the fourth quarter".

The group added that its strategic review announced in October of its sugar business "is progressing", with the business for now being run on a free cash flow neutral basis "as we explore various alternatives".

The division reported an operating profit of $6m for the latest quarter, compared with a $3m loss a year before.

By Agrimoney.com

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