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Bunge shares plunge 18%, after it warns of market 'challenges'

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Shares in Bunge plunged to their lowest in nearly six years after it warned of "challenged" EU and US oilseed processing margin ahead and "headwinds" in Brazilian foods which brought the group a weaker-than-expected finish to 2015.

The US based group - with Archer Daniels Midland, Cargill and Louis Dreyfus one of the ABCD of ag trading giants – forecast a "year of moderate earnings growth", helped by returns at its key agribusiness and foods operations coming in "well above" capital costs.

"Looking to 2016, there are positive signs," said Soren Schroder, the Bunge chief executive, citing growing demand for its agribusiness products, with US officials expecting growth of 7% in world soymeal demand this year, and 5% in soyoil consumption.

Mr Schroder also flagged the particular expansion in demand, and crop production, in South America, where the group has a strong representation.

The dynamic "plays into the strength of our footprint", Mr Schroder said, forecasting "good crush and export margins" in Brazil, thanks to good harvests.

In Argentina, "improved farmer selling" of crops, which many observers see being encouraged by a series of ag friendly reforms by the new government, "will allow us to operate our crushing and port assets at higher utilisations", so boosting margin prospects.

'Challenged crush margins'

However, Bunge shares tumbled 18% to close at $47.79 in New York, the weakest since July 2010, wiping $1.5bn from the group's stockmarket value, after Mr Schroder also acknowledged "challenges" too for some operations.

The group's Brazilian foods business - hurt last year by a consumer confidence dip evident in, for example, 6% shrinkage and the margarines and shortenings market – would continue to face "difficult conditions", he said.

And oilseed processing margins in the northern hemisphere "will be challenged until world supply and demand comes into better balance", said Drew Burke, the Bunge finance director.

The comments follow Tuesday's downgrade of 10m bushels, to 1.88bn bushels, in the official estimate for the US soybean crush this season, representing only marginal growth, although Bunge highlighted setbacks in European rapeseed crushing.

A drop in softseed processing results in the October-to-December quarter was "primarily due to farmer retention and excess rapeseed processing capacity in Europe".

Rapeseed is one crop market in which world stocks are expected to fall for a second successive year in 2015-16, thanks to largely to disappointing output in the European Union, the top grower and consumer.

Back into the black

Bunge reported earnings of $203m for the October-to-December quarter, compared with an after-tax loss of $54m a year before, on revenues down 15.9% at $11.1bn, a drop largely reflecting weaker crop prices, in dollar terms.

Stripping out one-time effects, earnings per share improved to $1.49 from $1.12 a year before, but came in below the $1.56-per-share result expected by Wall Street.

Analysts have forecast underlying earnings rising to $6.34 per share this year, from the $4.83 per share reported for 2015.

By Mike Verdin

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