July 30, 2010
 

China's soy demand behind Bunge's Q2 profit plunge

Early and higher-than-expected Chinese demand for soy was a key factor in Bunge's plummeting agribusiness profit in the second quarter, said Bunge Ltd Chairman and CEO Alberto Weisser.

 

Profits in the company's agribusiness segment fell 94% versus the second quarter in 2009, which prompted the grain and oilseed processor to slash its 2010 earnings-per-share estimate to US$3.25-$3.50 from US$5.30-$5.80.

 

Weisser said the company was caught off-guard by the Chinese buying, which was coupled with a lack of farmer selling that drove up soy prices and hurt the company's margins as it scrambled to find supplies.

 

The company had anticipated that large South American crops would keep supplies ample, he said. The problem was "a timing mismatch," he said.

 

"The bean buying came earlier than normal, and in a much, much higher volume than expected," Weisser said.

 

He said farmer selling has since "normalised" and that the conditions that left the company scrambling for supplies are unlikely to repeat themselves. The surprise supply shortfall "is part of the commodity business," he said.

 

Weisser added that drought-stricken wheat crops in Europe and Russia could boost the company's agribusiness margins later in the year, as the amount of wheat available for livestock feed declines. That could drive demand for Bunge's products, including corn and soymeal.

 

He also noted that with the growth in ethanol demand slowing in accordance with federal mandates, the company's soymeal business will see less competition from distillers dried grains, an ethanol byproduct also used as an animal feed.

 

Bunge's stock was recently trading at US$46.47 a share, down about 14%.