The New York headquartered company, which was subject to a recent failed takeover by ADM, posted a better-than-expected net loss of $21m in the three months to March on Wednesday [May 2].
The first quarter was considered positive because of the signals the market is showing, said Soren Schroder, Bunge CEO.
“First quarter results came in stronger than expected when excluding mark-to-market on committed crush and signal an awaited transition into a period of much-improved margins and performance – especially in soy crush,” he said.
The combination of much-reduced soybean availability in Argentina, and strong underlying consumption of both protein and oils has increased demand for, and therefore margins of, soy crush capacity in other regions, especially the US and in Europe, said the CEO.
“Our teams took advantage of a quickly changing environment and we have positioned the company for very strong performance in the balance of the year,” he said during an earnings conference call.
The CEO is optimistic about the rest of the year.
“We can effectively direct capacity and trade flows between origins to serve our global customer base during times of rapid market shifts and volatility,” he said. “As a result of these improved market conditions and our capabilities, we're confident of a significant growth in agribusiness performance in 2018 and beyond.”
Bunge’s agribusiness division recorded EBIT in Q1 2018 of $52m, down 62% from $109m in 2017. Agribusiness volumes were 35,805 million tons, up slightly from Q1 2017.
Thomas Boehlert, Bunge CFO, said soy crush margins expanded significantly over the course of the quarter as compared to 2017's depressed levels, driven by strong soybean meal demand but also crush capacity constraints resulting from the drought in Argentina.
However, he said the hike in crush margins had not immediately translated into higher profits due to $120m of losses on derivative contracts used to lock in margins. However, the impact would reverse later in the year as the underlying deals were completed.
Demand for soymeal has been strong, and even though prices have increased, the feed ingredient is not being priced out of formulations in favor of other proteins like DDGs or feed wheat, he said.
Bunge said it has reduced forward logistics and sales commitments in Brazil and Argentina, providing more optionality to adapt to farmer marketing and customer buying patterns. With soymeal more competitively priced and expectations that Argentine processors will crush in alignment with the pace of farmer selling, the company sees a better balance in the supply and demand of soymeal during the year.
On that basis, it has raised its full-year outlook for the agribusiness segment from a range of $550-700m to a range of $800m-1bn.