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Bunge Warns of Agribusiness Challenges Amid Weak Demand

Company reported better-than-expected quarterly profit on Wednesday

Photo courtesy of Bunge
Photo courtesy of Bunge

Agricultural commodities merchant Bunge Ltd. said on Wednesday the environment for its grain trading and processing business will remain challenging as demand falls on the back of an ongoing U.S.-China trade war, reports Reuters.

Bunge Chief Executive Officer Greg Heckman described market conditions as “uncertain and deteriorating” and said he expected headwinds to continue.

The company reported a better-than-expected quarterly profit on Wednesday, driven by higher margins on its edible oil products in North America and Brazil.

However, Heckman warned of a profit decline of 15 cents to 20 cents a share for the current year compared to a year earlier.

"We navigated uncertain and deteriorating market conditions well," he said. "While we expect headwinds to continue, we are making progress on our key priorities. We have improved our operational execution, as well as our discipline around risk management. Our decision to combine our global and North American headquarters in St. Louis is an important step in the work underway to streamline our global business structure."

In Oilseeds, soy crush margins were lower globally driven by the combination of farmer retention of soybeans in anticipation of higher prices and soft export demand for soymeal. Results were negatively impacted by approximately $70 million of mark-to-market reversals on soy crushing contracts, which favorably impacted Q2. However, a decrease in forward soy crush margins during the third quarter resulted in new mark-to-market gains of approximately $95 million, benefiting our results. As we execute on these contracts, mainly in the fourth quarter, we expect these gains to reverse. Softseed processing results were higher than last year, as were results in trading & distribution.

In Grains, origination results were lower in North and South America primarily due to soft export demand, farmer retention related to the U.S.-China trade dispute and the delayed harvest in the U.S. Results in ocean freight and trading & distribution were lower than last year.

Edible Oil Products
Improved performance was largely driven by higher results in North America and Brazil, which benefited from better supply-demand balance of soy oil, as well as improved execution. Bunge Loders Croklaan also contributed to the increased results.

The decline in segment performance was primarily driven by lower margins in the U.S. and lower volumes and margins in Mexico. Results in Brazil were comparable to last year.

Sugar & Bioenergy
Higher sugarcane milling results were primarily driven by $32 million of lower depreciation due to the Brazilian sugarcane milling business being classified as held for sale, increased cane crush volumes and higher ethanol prices.

Slightly lower results were in line with the prior year.

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