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Sagging Bunge flags sugar and China oilseed hopes

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Bunge struck positive notes on sugar prices, and China's hunger for oilseeds, even as it unveiled a sharp drop in profits, depressed by setbacks from a poor cane crop to "aggressive competition" in vegetable oils.

The US agribusiness giant said that Chinese oilseed crushing margins, having improved from levels depressed by state controls on cooking oil prices, "should remain supported" by growth in demand for vegetable meal, an important feed source.

China's soymeal demand will soar 10% in 2011-12, to 47.6m tonnes, to keep the country's expanding hog herd fed, on US Department of Agriculture estimates.

And Bunge backed its case for expanding in Brazilian cane, despite another disappointing quarterly result, saying that prices of sugar and ethanol "should remain supported by strong demand, tight ethanol supplies in Brazil and the need to encourage Brazilian capacity expansion".

Indeed, strong prices were needed to encourage investment in Brazil's important Center South cane region, whose first fall in cane output this year in a decade has fuelled a recovery in sugar prices from a May low.

Brazil downgrade

Bunge cut production prospects for its own Brazil sugar operations this year by a further 1m tonnes, to 14m-14.5m tonnes, following a similar downgrade in July.

"This reduction, which is generally in line with the decrease in the overall industry, reflects the impact of adverse weather in the Center South region," Drew Burke, the Bunge finance director, said.

With sugar results also weighed down by a one-off foreign exchange charge, Bunge said the division had returned to the red in the July-to-September quarter, with a pre-tax loss of $43m, compared with a profit of $34m a year before.

Profits declined at most other divisions too, including the edible oil producers unit, "where margins were pressured by aggressive competition", and milling, where profits were depressed by higher wheat costs than a year before.

Share reaction

Notably, profits at the group's biggest earner, agribusiness, dipped too, by nearly one-half to $159m, hurt by the impact on European margins of high rapeseed prices and soft demand for rapeseed meal.

The group's hedging operations also "did not perform as well as last year" amid markets which Alberto Weisser, the Bunge chairman and chief executive, termed "particularly volatile".

"Managing risk in our agribusiness and sugar and bioenergy segments proved to be challenging," he said.

Group earnings tumbled by one-third to $140m, equivalent to $0.86 a share excluding one-off effects, well below Wall Street expectations.

However, a forecast by Weisser of a "stronger" October-to-December quarter, and of "optimistic signs" for 2012, coupled with broad stockmarket rises helped Bunge shares add 5.2% to $62.56 in lunchtime deals in New York.

By Agrimoney.com

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