A stand-off by Brazilian farmers, which took some polish from Archer Daniels Midlands' results, landed rival Bunge with profits well below investor hopes – although the group flagged "significant earnings growth" ahead. helping its shares soar.
Bunge - unveiling earnings equivalent to $0.73 a share, below the $0.81 a share expected by Wall Street – said that the drop reflected a dent from "low farmer selling in South America", where growers have been holding off forward sales of crops, in hopes of higher prices.
"Historically, Brazilian farmers price a portion of their next year's production during the [July-to-September] quarter prior to planting," said Bunge which, with Archer Daniels Midland (ADM), Cargill and Louis Dreyfus is one of the "ABCD" group of agricultural trading giants.
"But with the change in market conditions, farmers deferred sales in hope of higher prices."
Brazilian soybean, and corn, values have come under pressure from the recovery in the real, which cuts the value in local terms of assets priced internationally in dollars, besides from the strong US corn and soybean harvests currently in progress.
The comments tally with those on Tuesday from ADM, for which a drop in profits at its oilseeds division marred otherwise well-received results for the July-to-September quarter.
Juan Luciano, the ADM chief executive, said that in Brazil "producer commercialisation of next year's soybean and corn crop decreased due to lower commodity prices and the continued strength of the real.
"The farmer in Brazil, that was 40% sold by this time last year, is only 20% sold now, so we have less volume going through our [trading] operations".
However, Bunge, which cautioned that the slow farmer crop selling in South America was "likely to persist through the end" of this year, forecast a boost to profits in 2017 as pent-up hedging pressure is unwound.
"We see the potential for significant earnings growth in 2017," said Drew Burke, the Bunge finance directors, flagging the prospect of the agribusiness division returning to "historical levels of performance".
This recovery would be "supported by growing protein demand, record crops in South America, and the fact that Brazilian farmers have only priced small percentages of their next year's soy and corn crops".
The group unveiled strong operating profits in its four other divisions than agribusiness, with the fertilizer division achieving a $9m profit, compared with a $3m loss a year before.
The return to the black was "primarily driven" by improvement in Argentina, where a delay to a cut in the country's soybean export tax has driven farmers to plan extra corn, a more nutrient-hungry crop – although the swing is being frustrated by wet weather, as reported elsewhere on Agrimoney.com.
Operating profits in the Brazilian cane crushing arm soared to $35m, from $3m, helped by higher prices of both sugar and ethanol, while in edible oils, a jump in operating profits to $34m, from $13m, was fuelled by "reduced costs" at European plants.
Group earnings halved to $118, on sales up 6.1% at $11.42bn.
Soren Schroder, the Bunge chief executive, added that the group expected a "solid" performance in the current, October-to-December quarter, and was "confident" on growth prospects for 2017.
Bunge shares soared 7.4% to $67.23 in morning deals in New York.
By Mike Verdin