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Early 2016 to bring 'wave' of crop selling, says Bunge CEO

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The floodgates may break early next year on crops that farmers are hoarding in hope of higher prices, Bunge said, flagging the potential for presidential elections to provoke a particular pick-up in Argentine sales.

Soren Schroder, the Bunge chief executive, speaking after the agribusiness giant unveiled a drop in earnings, said that the appetite for farmers to withhold crop sales had been unexpectedly strong.

"I would say that the biggest overall surprise is probably the amount of farmer retention we have globally," Mr Schroder said.

"It's not just North America. It is pretty predominant throughout most of the world," with the exception of Brazil, where a weaker real has protected growers from declines in dollar-denominated crops values.

"Farmers don't like lower prices. They're putting the grain away, the seeds away."

'

Compressing margins'

The hoarding "has had probably more of an impact in compressing margins than we would have expected", with merchants and consumers needing to pay more than they might have expected to obtain supplies.

The dynamics had tightened margins in the US in squeezed grain origination, and were "clear in the softseed complex in Canada and in Europe, where [processing] margins are down 40-50% from 2014," Mr Schroder told investors.

"Conditions are unlikely to change in the short term, given the reduced rate in canola crops."

Global canola production in 2015-16, at 66.6m tonnes, will end up 5.1m tonnes lower year on year, according to International Grains Council estimates released overnight.

'Wave of farmer movement'

However, farmers would not be able to hold the crop for ever, with the prospect of needing cash to pay for sowings, for example, potentially spurring an uptick in sales in 2016.

With US farmers grappling with a second successive large crop, "you would expect that some of this will come to market prior new crop plantings, which will be in March and April," Mr Schroder said.

"So there should be a wave of farmer movement as we get into the end of the first quarter" of 2016.

'Start letting loose'

This looked the case in Argentina too, although Mr Schroder termed the country "a little bit of a wild card" given the prospect of the second round of presidential elections next month, which look like heralding a weaker currency, and relaxed restrictions and taxes on crop exports too.

Mr Schroder said: "I think everybody is in agreement there will be devaluation of the peso in some form," whoever wins the election," with a weaker currency likely to encourage farmers to sell, in boosting local crop values.

While "we do not anticipate… strong" Argentine farming selling for the rest of 2015, "I think it's fair to say that we all believe that starting some time in the first quarter [of 2016], the Argentine farmer will start letting loose on some of the soybeans that are accumulating.

"And they'll be sitting on over 10m tonnes of [soy]beans as it looks right now. Some of that should come out first quarter, prior to their new crop harvest."

Crush margin implications

The pace and timing of the sales "is really dependent upon the election outcome and so forth", Mr Schroder said.

"But Argentina will undoubtedly be more of a factor," he said, highlighting potential effects on soy crushing margins and product prices, with the country the top exporter of both soyoil and soymeal.

The impact may not be felt, however, until "the other side of March.

"So the US should still have a decent share or its continued share of global meal exports for the first couple of months of the new year."

By Mike Verdin

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