August 3, 2006

 

Farmers protests bring down Bunge's profits

 

Farmer protests in Brazil has wrecked havoc with oilseed processor Bunge's second quarter profits.

 

Earlier this year, Bunge had announced that 25 percent of its soy processing plants in Brazil had been affected by farmers' protests. Brazilian farmers blocked key roads and railway routes along which grains were shipped to port, cutting off Bunge's route to export. 

 

Even as net sales increased marginally, volumes for the quarter were slightly down, and profit was impacted by an increase in production costs.

 

Conditions in the first half of 2006 were more challenging than expected, said Bunge chairman and chief executive officer Alberto Weisser.

 

Besides farmers' protests, losses in freight, excess capacity in Argentina and lower volumes and margins in international marketing all weakened profits, he said.

 

Net sales for the period reached US$5.9 billion, up slightly from US$5.87 billion last year.

 

The company's profit over the past year plunged 90 percent to US$18m, compared to US$177 million in the year-earlier period.

 

Its shares were also down 73 percent from last year.

 

The situation seems to be improving as a more stable real and government aid for farmers has prompted the company to be more optimistic about its performance in the second half.

 

Bunge expects its South American operations to "remain challenging" , but it hopes that efforts to lower costs, reduce fertiliser inventory and enhance foreign currency risk management would pay off.

 

The company's North American operations may also give the company cause for cheer, as it is expected to produce the majority of their results in the latter part of the year.

 

Longer-term, the company expects that as the demand for meal, oil and biofuels draw down global stocks of soy, profitability would improve for Brazilian farmers and encourage additional production and input purchases.

 

According to USDA forecasts, all of the medium- to long-term growth in global soybean production would occur in South America, especially Brazil.

 

So far, that prediction has yet to come true as the company's gross profits in this segment went down 42 percent last year. The company attributed that to lower oilseed processing activity in Brazil and weak demand in Southern Europe.

 

Edible oil products fared slightly better, with gross profit increasing 31 percent to US$84 million. According to Bunge, results were stronger due to higher volumes and improved margins in Europe.

 

Based on its assumptions for 2006 performance, the company issued a net income guidance for the year of US$425m to US$445m.

 

Bunge also said it plans to continue improving its competitive position, and is close to finalising the purchase of a second soy crushing plant in China.

 

Over the past year, the company has also been strengthening its position on sugar from Brazil. The company said it intends to become an integrated producer of sugar and sugar-based ethanol, and is considering opportunities in Brazil.