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Bunge flags limited China exposure, as it foresees oilseeds 'tailwinds' - eventually


Bunge boss Greg Heckman highlighted the group’s limited exposure to Chinese soybean crushing as he anticipated “tailwinds” – eventually - from the country’s African swine fever outbreak.


Mr Heckman, the former Gavilon head appointed permanent Bunge chief executive in January, said that “there’s only about 15% of our [oilseeds] crush in China, including the Vietnam JV [join venture] there in Asia.”


The group reports a little over one-quarter of capacity in each of North America and Europe, with one-third in South America.


The spread positions the group to exploit the knock-on effects of China’s African swine fever outbreak, as livestock producers in other countries ramp up output to replace volumes lost in the country itself.


“As [soy]beans back up in the rest of the world, and as there is more demand for meal in the rest of the world for the protein to fill that hole in the protein demand in China, we do like how our global footprint sits,” Mr Heckman told investors.


‘Not just flipping a switch’

He added: “That’s why we believe that we can see some tailwinds” for the Bunge crushing operations overall, as they exploit growing feed needs outside China.


However, these tailwinds would kick in in the “long term”, with “none of that in 2019 and maybe not even the first half of 2020”.


While backing an analyst suggestion of shrinkage of more than 30% in China’s hog herd thanks to ASF, Mr Heckman highlighted the challenges to a rapid ramp up in output by foreign producers to exploit the shortfall.


Besides “the animal life cycle” - with cattle, for instance, having a gestation period of more than nine months - there were labour and transport issues, and “the investment to increase production because we don’t believe there’s a lot of open capacity out there.


“It’s not just flipping a light switch.”


Sugar joint venture

The comments followed the group’s announcement of better-than-expected earnings for the April-to-June quarter, helped by factors including a paper profit on its stake in Beyond Meat, the vegan burger maker.


It also represented Bunge’s first investor session since it last week announced the injection of its Brazilian sugar-ethanol assets, with $700m of debt, into a 50:50 joint venture with BP, the UK-based oil giant.


The move, which fulfils a longstanding Bunge aim to reduce its exposure to the sector, will rank as Brazil’s second largest operator, with “effective crushing” capacity of 28m tonnes of cane a year, ahead of the 27m tonnes for Louis-Dreyfus-controlled Biosev.


Raizen is the top operator, with a figure of 60m tonnes, Bunge said.


‘Clear path to monetisation’

While Brazil’s cane processing sector has a reputation for high gearing, after heavy investment earlier in the decade when sugar prices were higher, Mr Heckman said that the tie-up would “have the most conservative balance sheet, the most conservative capital structure we believe from anyone in the marketplace.


“We think it puts us in the best position to operate in that marketplace regardless of what everyone else does.”


The group estimated the joint venture as having net debt of R$97 per tonne of effective cane crushing capacity, compared with R$149 per tonne for Raizen, R$172 per tonne for Biosev and R$152 per tonne for fourth-ranked cane processors Sao Martinho.


“The other key thing is we have a clear path to monetisation,” Mr Heckman said, with Bunge having previously investigated a stockmarket flotation of its sugar operation.

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