Bunge Q2 Profit Slips, But Maintains Guidance

Strong agribusiness results driven by good margins, high cost inventories continued to pressure fertilizer margins & expect solid second half performance; maintaining full-year earnings guidance.

24 Jul 2009 Alberto Weisser, Bunge's Chairman and Chief Executive Officer stated, "Bunge's skilled team leveraged our integrated global asset network to generate better than expected agribusiness returns. We served our customers well and managed risks effectively in a volatile environment. This strong performance offset weak fertilizer results.

"We remain optimistic for a solid second half of the year. Lower soybean production in South America has limited oilseed processing utilization in Argentina. While challenging locally, this should continue to support crush margins on a global level. A large North American harvest, which according to early indicators is likely, should provide us with ample volumes for our agribusiness operations in that region.

"To rebuild global stocks, crop prices will need to stay at levels that encourage good planting and fertilizer use by South American farmers in the coming months. We continue to work through some remaining high-cost raw material inventory in our fertilizer segment, but good demand and improved international phosphate pricing should benefit our fertilizer margins.

"During the second quarter we continued to follow our strategy of investing in our core businesses. We recently announced the creation of a joint venture to build and operate a state-of-the-art export grain terminal in the U.S. port of Longview in Washington state. This investment will improve the balanced, global asset network that is a key driver of value for our company. We also announced an agreement to acquire Raisio, a European margarine producer. The transaction encompasses margarine plants in Finland and Poland as well as several brands. This will expand our food and ingredients business and enhance our efficiency."

* Second Quarter Results

Agribusiness

Second quarter results in grain origination, oilseed processing and distribution were significantly improved from levels seen in the preceding three quarters, although lower than an exceptionally strong period last year, which included a $117 million credit resulting from a favorable ruling related to certain transactional taxes in Brazil. Grain origination and distribution benefitted from strong soybean demand from China. Oilseed processing results were supported by solid margins and improved meal demand as customers rebuilt depleted inventory pipelines. Risk management strategies worked well during a volatile period. Higher volume in the quarter was due to increased grain origination and distribution in Europe, as well as higher sugar merchandising and oilseed processing in Eastern Europe and Asia, reflecting our investments to expand in these high growth areas. Foreign exchange gains of $138 million from U.S. dollar denominated financing of working capital, primarily in our Brazilian subsidiary, resulting from the impact of a 19% appreciation of the real against the U.S. dollar during the quarter, were offset by foreign exchange losses on valuations of commodity inventories included in gross profit.

Fertilizer

The operating loss in the quarter was due to the combination of high cost inventory and decreasing international fertilizer prices which negatively impacted margins. Results included $183 million of net foreign exchange gains resulting from the appreciation of the Brazilian real on U.S. dollar-denominated financing of working capital. The offsetting losses to these gains were largely realized as lower gross profit during the quarter through a combination of sales and inventory valuation write-downs. Second quarter results included an inventory valuation write-down of approximately $121 million reflecting further declines in fertilizer prices during the period. Noncontrolling interest (previously referred to as minority interest) decreased in the quarter due to lower results at Fosfertil. The quarter also included the reversal of a $32 million provision relating to transactional taxes in Brazil as a result of new legislation.

Edible Oil Products

Improved results in Europe and North America were more than offset by lower volume and margins in Brazil, which suffered from aggressive competition. The second quarter last year benefitted from a $14 million land sale.

Milling Products

Higher volume was more than offset by lower margins. Wheat milling margins in the same period last year benefitted from lower priced raw materials purchased earlier in a period of rising prices. The second quarter last year included an $11 million credit resulting from a favorable ruling related to certain transactional taxes in Brazil.

Financial Costs

Interest expense decreased in the quarter due to lower average debt levels, primarily resulting from the drop in prices of agricultural commodity inventories which led to lower average working capital needs.

Income Taxes

The effective tax rate for the six months ended June 30, 2009 was 25% compared to 28% for the same period in 2008. The decrease in the effective tax rate was primarily due to lower operating earnings in higher tax jurisdictions.

Cash Flow

Cash used by operations in the six months ended June 30, 2009 was $1,754 million compared to cash used by operations in the same period last year of $483 million. The negative cash flow in 2009 primarily reflects lower accounts payable in fertilizer and rising agricultural commodity prices during the period.