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Bunge 'confident' in sugar business, despite rain, price setbacks

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Bunge said it remained "confident" in its Brazilian sugar and ethanol business, despite plummeting earnings in the segment – in contrast to rising earnings in the group's key agribusiness division.

The US ag trading giant - with Archer Daniels Midland, Cargill and Louis Dreyfus one of the ABCD of ag trading giants – said that operating profits in its sugar and bioenergy segment for the July-to-September quarter plunged to $3m, from $44m a year before.

The drop, on divisional revenues down 23% at $891m, reflected weak sugar prices over the period, and rainfall which, besides slowing cane harvesting, curtailed levels of sugars in the crop too.

"While production volume was up this year, it was lower than expected due to excess rain in September, which limited the number of milling days," Bunge said.

The group's sugar division is based in Brazil's Centre South cane-growing heartland, where many processors suffered severe rain delays in September.

Bunge also noted a $7m loss on marking forward sugar hedges to market prices, contrasting with a $12m gain in the same period of last year.

'Strong domestic demand'

However, the group was upbeat nonetheless on prospects for the division, which remains at an operating loss for the first nine months of 2015, of $38m, compared with a $31m profit a year before.

"Strong domestic demand and an improving price outlook for ethanol in Brazil gives us confidence that we will finish the year profitable and free cash flow positive," said Drew Burke, the group's chief executive.

Soren Schroder, the Bunge chief executive, said that "demand for ethanol in Brazil has been strong", flagging the support to demand from factors including a rise by state-controlled energy giant Petrobas in prices of gasoline, which makes biofuels that much more competitive.

"Recent gasoline price increases have been supportive to ethanol pricing."

Furthermore, the "significant devaluation of the Brazilian real has returned Brazil to its traditional role as the world's low cost producer of sugar", with the weaker currency making the country more competitive.

Sector upturn

Brazil's ethanol industry enjoyed a recent turnaround, even as the broader economy has languished.

Dollar-denominated ethanol prices in Sao Paolo have rallied 25% in the last month, according to figures from the research institute Cepea.

The increased demand has sparked a flurry of investments in the sector.

The private mill Rio Verde this week pledged to double its ethanol output over the next two years, to 670,000 litres per day, following the likes of Cargill and Odebrecht in announcing new investments capacity in recent weeks, after years of stagnation.

'Significant pick-up in volume'

Bunge's group earnings for the latest quarter fell by a more modest 19% to $239m, equivalent to $1.90 a share, ahead of analysts' expectations of a $1.56-a-share result.

But revenues came in at $10.79bn, down 21% from last year and behind expectations of $12.64m.

Operating profits in the core agribusiness division near-doubled to $369m, from $186m a year before, boosted by strong demand for US soymeal – both domestically and for export – and by the boost to grain origination in Brazil from currency weakness, which supported local crop values.

"Our Brazilian grain origination operation… experienced a significant pick-up in volume in the quarter with the devaluation of the real," the group said.

Brazil vs US

The group said that, for its agribusiness division, "strong underlying demand for soymeal and oil will continue to support a favourable US and Brazilian soy crushing environment".

And in grains, a ongoing North American harvest means that "utilisations… are picking up", albeit with export margins dented somewhat by withholding by US farmers of crops, in hope of higher prices.

"Our Brazilian grain handling assets, on the other hand, should benefit from strong export flows of corn due to this year's large safrinha crop," Bunge said.

Bunge shares were down 2.2% at $76.88 in morning deals in New York.


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