Grain glut impacts Bunge’s profits
02 Nov 2017 --- Bunge business continues to be impacted by market and industry headwinds which has prompted the US agricultural commodities trader to reduce its earnings guidance for the year in Agribusiness and Sugar & Bioenergy, according to Q3 results.
A four-year slump in grain prices, prompted by oversupply because of bumper harvests, is putting pressure on Bunge, which says it now expects EBIT of US$425 million to US$500 million in its agricultural business. Previously, it had forecast EBIT to be US$550 million - US$650 million.
Net sales were flat at US$11.42 billion and Bunge posted a profit of 75 cents per share.
However, the company remains positive, saying that the Agribusiness unit has improved sequentially and year-over-year, despite a challenging environment.
“Our earnings improved sequentially and year-over-year, although they continued to be impacted by market and industry headwinds. As a result, we are reducing our earnings guidance for the year in Agribusiness and Sugar & Bioenergy,” said Soren Schroder, Bunge's CEO.
“At the same time, we are making good progress towards our strategic objectives of creating a more balanced business, managing those aspects of our operations that we can control and taking proactive steps to ensure we remain agile in responding to changing market conditions.”
Meanwhile, Edible Oils had a solid quarter driven by higher volumes and margins in most regions.
According to Bunge, the recent acquisition of a majority stake in IOI Loders Croklaan has significantly accelerated the growth of value-added Oils.
“Consistent with our strategy, in September we announced the acquisition of Loders Croklaan, which is expected to close in the first half of next year. This transaction will accelerate our growth in higher margin value-added products and it gives us an unmatched global footprint with best-in-class innovation capabilities.”
“In addition, I am pleased with our progress to date in reducing costs and increasing efficiencies. In the quarter we achieved US$30 million of industrial cost savings bringing our year-to-date savings to us$73 million against our full year target of US$100 million. We also expect to meet or exceed the US$15 million 2017 target set out in our Competitiveness Program, which is expected to reduce overhead costs by US$250 million by the end of 2019.”
Agribusiness
While both Grains and Oilseeds results were higher than last year, overall margins remained weak, reflecting excess global supplies, spot global customers and pressure on farmer margins.
In Grains, higher origination results were driven by improvements in Brazil and Argentina, which benefited from a spike in farmer selling in July as local prices increased on weather concerns in the US and the devaluation of the Real and Peso.
Brazil also benefited from strong safrinha corn exports.
Origination results declined in the US due to reduced exports driven by the higher volume out of South America and temporarily higher logistics costs due to weather. Risk management strategies were effective; however, margins in global grain trading & distribution remained weak due to competitive pressures and limited dislocation opportunities.
In Oilseeds, overall global structural crush margins were compressed during the quarter, reflecting farmer retention and excess meal supply. Compared to last year, soy processing results improved, driven by higher results in the US, Brazil and China, all of which benefited from higher volumes and effective risk management. Partially offsetting these improvements were lower soy crush results in Argentina and Europe.
Softseed processing results were lower than last year primarily due to lower margins in Europe from higher seed prices. Margins in Canada were comparable to last year as farmers held onto their seeds ahead of a record harvest. Oilseed trading & distribution performed better than last year, reflecting increased volumes and higher margins from effective risk management.
Edible oils
Results improved in most regions, driven by higher margins and lower costs. In North America, lower costs and higher margins in Canada more than offset softer US refining margins. In Brazil, higher margins and lower SG&A costs more than offset decreased volume, as consumer demand remained soft, but showed some signs of improvement.
Better results in Asia were driven by improved performance in both China and India with increased sales of higher value products. Western Europe performed better than in the prior year, including acquisitions, but this was offset by weak retail sales in Eastern Europe. Increased segment SG&A reflected recent acquisitions.
Outlook
Looking ahead, Schroder adds how “there are some bright spots in the market.”
“Global soy crush margins are off their lows as utilization rates have been adjusting to balance the oversupply of meal, and we have entered the Northern Hemisphere crop season where US crush margins are currently strong,” he said.
“In Food & Ingredients, we continue to grow value-added sales and are very encouraged by the traction we have made with key accounts, particularly in Edible Oils. In Milling, our volumes in Mexico are improving and the smaller wheat crops in Brazil and Argentina should give us an advantage with our integrated footprint.”
“These recent developments and our disciplined focus on managing our business, are expected to lead to improved results in the fourth quarter and will provide good momentum as we enter 2018.”
