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Poultry sector fuelling China soy revival - Bunge

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A recovery in China's poultry industry is driving a rebound in soybean crushing margins from a "very dark place" which has provoked jitters in the world market, the head of agribusiness giant Bunge said.

Bunge chief executive Soren Schroder, expanding on comments last week that Chinese soybean crushing margins are to improve, flagged improvement demand for processed soy products from the group's own plants in the country.

"Offtake has been probably better than you would expect, given the negative press around margins in China," Mr Schroder told investors.

The group's experience with Chinese customers, which it supplies directly rather than through intermediaries, signalled that "things have probably bottomed out and are now improving again".

Poultry revival?

Indeed, margins from processing soybeans into soymeal, a high protein ingredient in livestock feed, and soyoil, as used in the likes of cooking oil and biodiesel, "have recovered some, as has demand", he said, citing "particularly" orders from China's poultry industry.

The country's chicken producers have suffered severely from the knock-on effects of an outbreak of H7N9 avian influenza, or bird flu, which has seen more than 200 human cases, of which more than 20 have died.

The epidemic, in stemming demand for chicken meat, has curtailed prices and left many producers facing a loss.

However, major Chinese poultry groups in January formed an alliance to tackle food safety concerns, and improve the reputation of domestically produced chicken.

Margin outlook

Mr Schroder said that Chinese soybean crushing margins, which fell to "a very dark place" in the first three months of 2014, would undergo a "transition" in the April-to-June quarter to an improved level

"So by the time we get into July-August and we have reduced pipelines, and demand for protein in China has normalised, I think will return to reasonable margins - probably margins that are similar to what we had last year in the second half of the year [2013]," he said.

The current quarter "is a transition quarter from very bad to hopefully something a little bit more reasonable, and then a strong last half of the year".

Weak quarter

The comments followed Bunge's announcement on Thursday of a surprise quarterly loss, prompting a 5% drop in the group's shares, thanks in part to poor Chinese crushing margins.

Mr Schroder said that the group's key agribusiness division had underperformed, in profit terms, by some $140m, of which $30m was down to China, and $60m to wrong bets on falling grain prices.

The fall in Chinese crush margins has been a massive factor for soybean investors worldwide in recent weeks, sparking talk of cancelled orders, or of purchases from Brazil being sold on to the US, which requires record imports to tackle a shortfall in supplies.


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