Bunge profit dives as grain glut hits margins; shares drop

U.S. agricultural trader Bunge Ltd reported a sharply lower first-quarter profit on Wednesday and cut its full-year earnings forecast as slow crop sales by farmers in South America squeezed margins in its core agribusiness unit, sending shares tumbling.

White Plains, New York-based Bunge said net income available to shareholders plunged 82 percent in the quarter, led by a steep drop in agribusiness, which buys, sells, stores, processes and transports crops around the world.
Bunge shares tumbled more than 9.9 percent, the steepest decline in 15 months, to $68.07.

The earnings miss came a day after rival grain trader Archer Daniels Midland Co reported its third global trading loss in five quarters and warned of a weaker year ahead in grain trading, dealing ADM shares their biggest loss in eight years.

Low grain prices and a global grain glut have eroded margins for agribusinesses including Bunge, ADM and competitors Cargill Inc and Louis Dreyfus Corp. The companies, collectively known as the ABCDs, dominate the global grain trading business.

“As it looks right now, if you assume good growing conditions in the U.S., then we will be in this oversupply environment for at least another year,” Bunge chief executive Soren Schroder told Reuters in an interview.

“We have to prepare ourselves to operate in an environment with compressed margins and we have to be more efficient and focus on cost,” he said.

By the end of the first quarter, South American farmers had yet to sell over 70 percent of their corn and soy crops as they awaited higher prices. That unsold volume was a record high, or very close to one, Schroder said.

As a result, profit for Bunge’s agribusiness segment, its largest unit in terms of volume and sales, fell more than 61 percent to $109 million.

The company said it expects “solid earnings growth” this year, but cut its full-year earnings target for agribusiness by $95 million to $125 million and trimmed its food and ingredients unit target by $25 million.

Lower first-quarter earnings also prompted Bunge to cut capex for 2017 by $50 million, likely delaying investments in “some smaller projects across both agribusiness and food,” Schroder said.

Net income available to Bunge’s shareholders fell to $39 million, or 27 cents per share, in the first quarter ended March 31, from $222 million, or $1.54 per share, a year earlier.