Bunge lifts profit hopes for 2018, despite fall into the red to start the year

03.05.2018

Bunge painted a brighter picture of 2018 profits prospects despite a bigger-than-expected loss to start the year, highlighting the boost from a “dramatic change” in soybean crush margins, as flagged by rival Archer Daniels Midland too.

Bunge, with ADM, Cargill and Louis Dreyfus one of the ABCD group of agricultural trading giants, reported a loss of $29m for the January-to-March period, compared earnings of $39m for the same quarter last year.

The loss was equivalent to $0.20 per share, compared with Wall Street expectations of a $0.18-per-share loss.

However, the slide into the red reflected a one-time accounting spin-off of the revival in soybean crushing margins trumpeted on Tuesday by ADM, rather than a deterioration in operating performance.

A surge in forward soybean crushing margins “resulted in negative mark-to-market of $120m related to forward oilseed crushing contracts”, Bunge said.

“As we execute on these contracts during the balance of the year, we expect this impact will be offset by higher margins,” a factor “which is embedded in our revised outlook”.

‘Dramatic change’

Indeed, Bunge raised to $800m-$1.0bn, from $550-700m, its forecast for full-year operating profits at its core agribusiness division, an upgrade the group said was “primarily based on improved soy crush margins”.

Soren Schroder, the Bunge chief executive, said: “During the first quarter, we saw a dramatic change in the global soy crush market environment as margins expanded significantly from 2017 levels.”

Bunge added the margin growth was “driven by the combination of strong underlying soymeal demand and crushing capacity constraints caused by reduced soybean production in Argentina”.

Argentina, the world’s top soymeal exporter, has seen its soybean output prospects hurt first by drought during the growing period, and then inundations which have hampered harvesting of what crop remained.

‘Improving crush margins’

The comments come the day after ADM also flagged a boost to its prospects from wider soybean processing margins – as well as a hit short-term from marking positions to current market prices.

“Improving crush margins resulted in negative timing effects of more than $100m on forward hedges,” ADM said, although the impact on its profits was offset by a one-time $120m boost from an extension to the US biodiesel tax credit.

Bunge reported a 61% tumble to $42m in operating profits at its agribusiness division, which includes the oilseed crushing operation - as well as origination, an area in which Bunge said that results were “comparable to last year”, with a boost from quicker crop selling in Brazil offset by weaker North American and Argentine performances.

Butter vs margarine

Profits fell in edible oils too, by 22% to $28m, thanks to a difficult market in Brazil, where strong crushing volumes, spurred by strong meal values, created “abundant” vegetable oil supplies,

European edible oil results were spurred by a knock on effect of soaring butter values, as customers sought alternatives.

Bunge flagged “increased demand for margarine which benefitted from the rise in European butter prices”.

And in sugar, the group flagged a widening by 40%, to $24m, in the operating loss of the quarter, “as higher average ethanol prices were more than offset by lower sugar prices and volumes”.

Indeed, the forecast for full-year sugar division operating profits was cut to $40m-60m, from $50m-70m, reflecting the drop in sugar prices, which last week set nine-year lows on futures markets.

However, Bunge revealed “progress” on a long-standing drive to get shot of the Brazilian sugar business, saying that “we have recently secured debt financing for the business and are now in a position where the business could operate on a stand-alone basis”.

‘Significantly smaller wheat crop’

Meanwhile, the grain milling arm reported a near-doubling in profits, to $17m, helped by a revamp of the Mexican operation, and an improvement in Brazilian volumes.

“We are starting to see signs of improvement as the Brazilian market transitions to a significantly smaller wheat crop this year.”

Bunge shares closed up 2.3% at $73.29 in New York.


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