Rising Grain Markets Swing Bunge to Loss -- Update

By Jacob Bunge 

Bunge Ltd. swung to a first-quarter loss after the agricultural company got caught on the wrong side of rising grain prices, executives said Thursday.

A spike in wheat markets over the quarter ran counter to Bunge's expectations, driving a 59% drop in the company's agribusiness segment, Bunge's main source of revenue.

"We expected a lower price environment, particularly for wheat, which has not materialized," said Soren Schroder, Bunge's chief executive, on a conference call with analysts Thursday.

Bunge's $13 million loss for the first quarter of 2014 are the toughest results yet in what has been a turbulent period for the big U.S. grain trading houses. The companies manage the flow of agricultural commodities from key farming regions around the world, directing them toward governments, food companies and the grain merchants' own processing facilities. Bunge ranks among the sector's largest players with $61 billion in total sales last year.

Archer Daniels Midland Co. earlier this week reported a narrow decline in first-quarter profits, partly due to bad winter weather in the U.S. and farmers' reluctance to sell their crops at lower prices. Cargill Inc. last month reported that its earnings fell 28% due to some of the same factors.

Bunge's grain-trading troubles followed what officials said was an unexpected jump in the price of wheat, driven higher as the U.S. winter crop suffered from dry conditions and political unrest in Ukraine raised fears around shipping and planting for the country, which ranks among the top five exporters of wheat. Chicago Board of Trade wheat futures climbed 17% over the quarter.

Market concerns around the availability of wheat ran counter to Bunge's analysis, which showed "more than adequate global stocks," Mr. Schroder said. Problems transporting crops across the U.S., largely due to railroad congestion, also hurt Bunge's grain-trading business, officials said.

Higher ocean transport costs and an overabundance of soybeans in China, where processing plants' profitability tumbled over the quarter partly due to reduced demand for animal feed, also posed problems for Bunge's crop-trading unit, officials said. Margins are expected to pick up again for China's soybean processors in the second half of 2014, Mr. Schroder told analysts, as shipments to the country slow and feed demand improves.

Profits in Bunge's agribusiness segment fell 59% to $79 million versus the year-ago period, and earnings fell in the company's other segments as well. Bunge's sugar and biofuels segment lost $64 million in the quarter, and the company's evaluation of a possible sale of its sugar-milling operation in Brazil is "progressing," according to Mr. Schroder.

Bunge's first-quarter loss of $13 million compared with a year-earlier profit of $180 million. On a per-share basis, which includes certain dividend payments, the loss was 18 cents, versus a year-ago profit of $1.15. Excluding certain gains and charges, the company recorded a per-share loss from continuing operations of 12 cents in the latest quarter.

Sales dropped 9% to $13.5 billion. Analysts polled by Thomson Reuters expected earnings of $1.40 a share on revenue of $15.13 billion.

--Ben Fox Rubin contributed to this article.

Write to Jacob Bunge at [e-mail]

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