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Soaring soymeal prices have further scope for gains, says Bunge boss

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Soymeal prices have scope for further gains, Bunge boss Soren Schroder said, flagging the boost to soy crushing margins, in comments which underlined the group’s global presence at a time of China-US trade tensions.


Mr Schroder, the Bunge chief executive, acknowledged a “danger” that the soymeal price - which ended at a 19-month closing high of $369.90 a short ton in Chicago’s futures market on Wednesday – “gets ahead of itself”.


“I’m not saying that this can go on for ever,” he said.


However, “our analysis suggests that we’re not there yet, that soybean meal is still well priced in formulation even after the recent run-up and has a bit more room to go”.


‘Meal trade will grow in a healthy way’


Soymeal futures have jumped 18% in Chicago so far this year, boosted by worries over dryness hurting the soybean crop in Argentina, which is by far the top exporter of soymeal, accounting for nearly half of world shipments.


Mr Schroder added that “other ingredients have followed to a large extent” in price terms, unlike in the 2016 rally when soymeal “divorced itself from everything else” and ran up to levels which represented a “complete stretch”.


This time, US prices of distillers grains, or DDGs, for instance, an alternative high protein feed ingredient late last month hit their own 19-month high of $211 a tonne at Gulf ports, according to the US Grains Council.


The October-to-December period “was a good quarter in terms of overall soybean meal consumption both at origin, but also in trade.


“And we believe that as we get into the second and third quarters this year, meal trade will grow in a healthy way again, which it didn’t last year.”


He added that “the livestock industry continues to be strong, creating consistent demand for protein feed”.


‘A big wake-up call’


This when “meal stocks in the origins and destinations have been drawn down to more reasonable levels, the crushing rate in Brazil has slowed down”, while the industry is being more disciplined in tailoring crush volumes to available supplies.


Indeed, “we’re coming out of a difficult year where a lot of factors meant that grain origination globally was a real struggle,” a factor which had cut margins in trading and processing operations.


“Last year was a big wake-up call for everybody,” he told investors, with factors including increased on-farm storage and improved balance sheets slowing farmers’ enthusiasm for sales.


In Argentina, for instance, “the biggest factor that’s played into sort of the reduction in crush rates… has been the pace of farmer selling”.


However, Bunge and other processors had learned from their experience of last year, in terms of not matching better forward commitments to supplies of crops to crush.


‘Significant margin challenges’


The comments followed the release of results showing a loss of $69m for the October-to-December period, compared with a $262m profit a year before.


Excluding one-time factors, Bunge achieved earnings of $0.67 per share, but that came in well below the $1.37-per-share figure Wall Street had factored in, with the outcome blamed largely on weak crushing and origination results.


“Agribusiness faced significant margin challenges with soy crush margins averaging approximately $5 a tonne lower than 2016 and over $10 a tonne lower than the three-year average,” Mr Schroder said.


Bunge shares closed down 5.6% at $75.06 in New York on Wednesday.


US-China tensions


The results come amid ongoing speculation of a bid for Bunge, with Glencore having made an approach last year, and Archer Daniels Midland reported last week as being in talks.


Mr Schroder, while acknowledging that Bunge’s October-to-December performance was “disappointing”, said that dynamics such as the reviving soybean crush margins were “pointing towards restoring earnings in 2018 and growth beyond”.


And he trumpeted the group’s “global footprint” and “very, very strong presence” in Brazil, the top soybean exporter, as a “good thing” in an environment of more strained trade relations between China, the top importer of the oilseed, and the US, the second-ranked exporter.


“It’s better that calm minds figure out good things and the US still represents a significant part of China’s over 100m-tonne import needs.


“I would expect that given the significance of the US as a supplier to China, that this could be worked out.


“If it doesn’t, we’ve got plenty of beans in Brazil.”

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