Crop Market Turmoil Is Good News for Commodity Trader Bungeby
Company cites weather-related damage to South America harvests
CEO says Brazil corn crop losses may be up to 10 million tons
Bunge Ltd., one of the world’s largest agricultural traders and processors, said it stands to capitalize from the flooding in Argentina and drought in Brazil that has roiled global crop markets in recent weeks.
While cautioning that the disruption will create headwinds for the U.S. company in the current quarter, Chief Executive Officer Soren Schroder also predicted Thursday that smaller South American harvests mean an increased likelihood of supply "dislocations" later this year.
Such disruption presents opportunities for Bunge’s network of terminals, port facilities and processing facilities that span North America, South America and Europe. That reach allows it to handle harvests in both the northern and southern hemispheres and sell from areas of abundance into regions facing shortages.
Bunge’s comments come a week after Argentina said soybean output this year will be more than 3 million metric tons less than previously expected because of heavy rain, helping prices for the oilseed enter a bull market.
Brazil last week suspended corn-import taxes after dry weather affected its current crop. The nation’s so-called safrinha corn crop -- its second yearly harvest of the grain -- may be as much as 10 million tons smaller than previously estimated, Schroder said in an interview. The surplus for export will be reduced by an amount equal to what will be filled by supplies from the U.S. and Ukraine in August through January, he said.
“It represents some upside in the last half of the year” for Bunge, Schroder said.
The White Plains, New York-based company posted better-than-expected first quarter earnings on Thursday. Profit excluding one-time items was $1.41 a share, topping the 73-cent average of 10 estimates compiled by Bloomberg. Bunge forecast a recovery in margins for soybean processing, which had slumped earlier this year.
"Bunge’s South American exposure served as a good offset to weaker soybean-crushing margins and volumes in North America," David Driscoll, a New York-based analyst for Citigroup Inc., said in a report. "The quarter demonstrates the strength of Bunge’s global asset footprint."
The shares rose 3.4 percent to $62.51 at the close in New York, a three-month high.
The earnings report is a welcome break for Bunge. The company and competitors Archer-Daniels-Midland. Co., Cargill Inc. and Louis Dreyfus Co. comprise the so-called ABCDs, which have long dominated global agriculture. All of them have seen lower profits as corn, soybean and wheat prices tumbled for three consecutive years.
But in recent weeks there have been signs of improvement. As well as the jump in soybean prices, corn has moved higher, posting a 1.7 percent gain on Thursday in the Chicago futures market after U.S. data showed a jump in exports.
Bunge was founded in Amsterdam in 1818, entered the Argentine market in 1884 and began trading in Brazil a couple of decades later. It’s grown to become the largest soybean processor in South America and biggest wheat miller in Latin America, according to Citigroup.
Given its long history and footprint in South America, Bunge has benefited from bigger harvests in Brazil and the recent opening up of agricultural markets in Argentina at a time when U.S. supplies were less competitive due to the stronger dollar.