Bunge Q1 2020: A “challenging year” ahead, flags CEO

08 May 2020 --- Bunge has released its latest financial overview for the first quarter of 2020. While the Bermuda-incorporated agribusiness flags no overt disruptions to its businesses due to COVID-19, it forecasts a “challenging year” moving forward. The company’s overview outlines mark-to-market losses across its portfolios, primarily related to forward bunker fuel hedges, driven by the decline in global energy prices.

Greg Heckman, CEO at Bunge, details, “Our underlying business performed well during the quarter and the mark-to-market adjustments we incurred are expected to reverse in the coming quarters. The work we have done to improve our operations, streamline our portfolio and refine our approach to risk management has allowed us to remain nimble and adapt to evolving business and operational demands.

“We did not experience significant disruptions to our business from COVID-19 in the first quarter, although we did start to see the impact of changing consumer behavior in parts of our Edible Oils business in March,” he notes.

He further comments, “Without question this will continue to be a challenging year, but we have a strong platform, a resilient team and a remarkable base of customers on both ends of the supply chain that will allow us to continue to perform our critical role in the global food infrastructure and drive value along the way.

Results in Grains were primarily driven by origination in Brazil as the pace of farmer commercialization accelerated in response to an increase in local prices caused by the devaluation of the Brazilian real. Agribusiness 
In Oilseeds, Bunge reports average soy processing margins were lower in all regions compared to a strong prior year, with the exception of China, which benefited from tight soymeal supplies and reduced bean availability. Average softseed processing margins were higher in all regions.

As COVID-19 began to spread globally, concerns about soymeal availability caused global oilseed processing margins to spike toward the end of the quarter. As a result of these increasing processing margins, the company incurred approximately US$100 million of mark-to-market losses related to forward oilseed crushing contracts. 

In addition, as vegetable oil values declined during the quarter, the supplier recorded a mark-to-market loss of US$195 million on forward hedges related to its oil pipeline that serves its downstream Edible Oils customers. The company further expects the majority of these timing losses to reverse during the course of the year.

Meanwhile, results in Grains were primarily driven by origination in Brazil as the pace of farmer commercialization accelerated in response to an increase in local prices caused by the devaluation of the Brazilian real. Ocean Freight also had a strong quarter, benefiting from excellent execution; however, results were impacted by approximately US$90 million of mark-to-market losses, primarily related to forward bunker fuel hedges, driven by the decline in global energy prices. 

Edible Oil 
Products Higher results in North America, Europe and Argentina were more than offset by lower results in Brazil and Asia. Excluding approximately US$20 million of net unfavorable timing differences, US$6 million of which are expected to reverse in future periods, results were higher than prior year. The impact of COVID-19 was relatively limited as lock-downs and restrictions varied by region. However, toward the latter part of the quarter, we started to see reduced demand from foodservice and biofuel channels. 

Milling
Improved performance in Brazil, which benefited from higher volumes from food processors, was more than offset by lower results in North America due to a decline in margins from lower yields. 

Sugar & Bioenergy
Segment results for this quarter reflect the company’s share of the earnings of its 50/50 joint venture with BP. By contrast, first quarter 2019 results reflected its 100 percent ownership of the Brazilian sugar and bioenergy operations that we contributed to the joint venture in December 2019. 

Additionally, results of the joint venture are reported on a one-month lag. The loss in the quarter reflects the seasonally slow intercrop period, as well as approximately US$25 million in foreign exchange translation losses on US dollar denominated debt of the joint venture due to depreciation of the Brazilian real. 

Cash Flow
Cash used by operations in the quarter ended March 31 was US$439 million compared to cash used of US$402 million in the same period last year. Adjusting for the beneficial interest in securitized trade receivables, cash used by operating activities was US$9 million compared with cash used by operating activities of US$158 million in the prior year. This increase was primarily driven by improved working capital management. 

Income Taxes
For the quarter ended March 31 the Company recognized an income tax benefit of US$55 million. 

Bunge reports it has achieved 100 percent traceability for its direct sourcing of soy in the focus regions in South America.Non-deforestation progress report
In other developments, Bunge published its eighth non-deforestation progress report, which shows increases in monitoring and traceability for soybeans in areas most at risk of deforestation in South America. These include states within Brazil’s Cerrado biome and similar areas of Paraguay and Argentina.

In 2019, Bunge monitored over 8,300 farms across over 14 million hectares (over 34.5 million acres) – an area roughly the size of New York State. This includes a 12 percent increase in monitored farmland from the previous season.

For direct sourcing farms in Argentina and Paraguay, Bunge achieved 100 percent monitoring over the volume directly sourced from farmers. In Brazil, monitoring reached 91 percent of the volume sourced directly. A portion of smallholder farmers is still under an engagement process in which the company collects proprietary information and continues the communication process. These farmers account for the remaining 9 percent to be monitored going forward.

Nevertheless, Bunge reports it has achieved 100 percent traceability for its direct sourcing in the focus regions in South America.

Additionally, Bunge has mapped all grain elevators in its indirect sourcing supply in the area. Currently, 40 percent of soybean volumes from indirect supply are engaged by the company. Bunge is working to increase this to 60 percent  by the end of 2020.

Bunge began publishing non-deforestation progress reports in 2016. After four years of monitoring, only 0.7 percent of monitored farms showed soybean planting over recently deforested areas. A portion of these farms are no longer supplying the company, though the engagement process continues.

Edited by Benjamin Ferrer