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Aquaculture Newsletter

April 27, 2012


Bunge's Q1 profits down 60% on weak fertiliser prices



Due to pressure from weak fertiliser prices, Bunge said on Thursday (Apr 26) that its first-quarter income dropped 60% from a year ago.


The company, the world's largest soy processor, said it still expected good results for the year, as the fertiliser business should improve due to a strong farm economy in South America.


Global fertiliser prices have dropped as farmers have delayed purchases until the market softens, hurting other companies like fertiliser maker Potash Corp of Saskatchewan.


"Fertiliser prices were pressured by an environment of falling international prices, an inherent risk in this business," said Alberto Weisser, Bunge's chairman and chief executive officer.


Bunge, among the top sugar and ethanol producers, is one of four large players, known as the ABCD companies that have traditionally dominated business in agricultural markets. The others are Archer Daniels Midland Co, Cargill and Louis Dreyfus.


Bunge reported a first quarter profit of US$92 million, or US$0.57 a share, down from US$232 million, or US$1.49 a share, last year. Excluding costs for a legacy environmental claim in Brazil and other adjustments, earnings were US$0.69 a share.


Revenue of US$13.45 billion was up from US$12.2 billion a year earlier. Analysts polled by Thomson Reuters expected a US$1.18 per share profit on US$13.25 billion of revenue.


The slump came after Bunge outperformed rivals late last year. In February, it reported better-than-expected profit, following weak results from trading giants ADM and Cargill.


Cargill this month reported a rebound in earnings after its worst quarter in a decade, led by record profits in its global food ingredient businesses and stronger results in energy trading.


For Bunge, higher volumes in fertiliser in the last quarter were more than offset by lower margins. The company expects to recover, as "farm economics are strong in South America and should result in higher fertiliser volumes," said Drew Burke, Bunge's chief financial officer.


Bunge listed a US$27 million charge in the fertiliser segment stemming from an environmental incident due to a sulphuric acid spill during vessel unloading in the south of Brazil in 1998. Overall, the company said it was still looking for "strong results" in 2012.


Yet, Potash Corp of Saskatchewan, the world's largest fertiliser maker, damped down expectations for the rest of the year. The company reported a 33% profit drop due to lower sales and production volumes.


"Fertiliser buyers continued to move cautiously at the beginning of the year," said Bill Doyle, Potash Corp's chief executive office. "It took longer than we expected for demand to emerge."


Profits in the sugar and bio-energy business were down from a year ago because of lower ethanol margins, "stemming from high-cost inventory that was carried into the year from 2011," according to Bunge. Market sales prices in Brazil were pressured, in part, by an increase in imports from the US.


The sugar and bio-energy business has been in focus as Standard & Poor's Ratings Services this week raised its outlook for Bunge to positive from stable, saying the processor would likely sustain improved sugar and bio-energy earnings. S&P warned it could revise the outlook back to stable if Bunge did not sustain earnings and weakness persisted in the sugar and bio-energy segment.


Bunge's agribusiness unit, its largest segment, benefited from strong demand in South America due to smaller-than-expected US harvests last year, when hot, dry weather hurt crops. The unit buys, sells, transports, stores and processes bulk grains and soy. Results were still down from "an especially strong" first quarter last year, Bunge said.

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