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MarketScreener Homepage  >  Equities  >  Nyse  >  Bunge Limited    BG   BMG169621056


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Farm Giants Slog Through Trade War

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10/31/2019 | 12:20pm EST

By Jacob Bunge

Agricultural companies are sustaining more damage from the U.S.-China trade war.

Archer Daniels Midland Co. and Bunge Ltd. said this week that China's pivot toward South America as a supplier for key farm goods like soybeans is altering global food flows, cutting into U.S. exports and pushing up costs. That has made some U.S. farmers reluctant to sell their crops, executives said, constraining supplies for commodity traders.

For the companies that dominate global sales of agricultural commodities, trade-related problems have this year combined with bad weather that has vexed U.S. farmers, as well as a swine disease that has decimated Asian hog farms and diminished demand for feed. ADM and Bunge this week reported lower quarterly earnings, while privately held rival Cargill Inc. in September reported its own quarterly decline.

"I don't know that we could see a much more difficult environment than we've seen," Greg Heckman, Bunge's chief executive, said Wednesday on a conference call with investors.

Shares of ADM and Bunge traded higher Thursday after their quarterly results outpaced analysts' expectations.

U.S. and Chinese trade officials this month said they had reached an agreement covering some aspects of their trade dispute, which last year led the nations to levy tariffs on hundreds of billions of dollars of goods. For the U.S. agricultural sector, China's tariffs on products including soybeans, pork and the corn-based fuel additive ethanol have cut deeply into export sales and pressured already-low commodity prices.

Over the first eight months of 2019, Chinese importers purchased about $8 billion worth of U.S. agricultural goods, according to the U.S. Department of Agriculture. That ran ahead of 2018's rate, but below the $19.5 billion total for 2017, before the trade battle broke out.

The trade pact reached earlier this month included a Chinese agreement to purchase $40 billion to $50 billion in U.S. farm goods, though the time frame isn't clear and sales would be based on demand and market prices, The Wall Street Journal reported.

While China buys fewer U.S. soybeans, its increased purchases of South American crops have boosted South American soybean prices and made it more expensive for Bunge and ADM to buy and process oilseeds at their Latin American plants, executives said. Mr. Heckman said profit margins in Bunge's soybean processing operations fell by a double-digit percentage in the latest quarter.

Juan Luciano, ADM's chief executive, said China's heavy reliance on Brazilian crops was emptying that country's grain bins, lowering supplies there. Eventually, that will make U.S. crop exports more competitive again, he said.

Meanwhile, U.S. farmers also face the prospect of a poorer-than-usual crop, after persistent springtime rains left many fields unplanted and with more wet weather potentially complicating this fall's harvest. Farmers are holding back on crop sales as a result, executives said, delaying the flow of grain and oilseeds into ADM and Bunge's plants and shipping terminals, and driving up costs to secure crops.

Farmers over the past decade have built out storage bins, giving them more capacity to hoard grain and wait for higher prices, Bunge's Mr. Heckman told analysts.

"No one has to sell anything," he said.

Bunge and ADM are working to cut costs and shed poorer-performing businesses, including biofuels. Bunge expects to complete this year a transaction combining its South American biofuel operations with similar businesses of BP PLC.

ADM on Dec. 1 plans to separate some of its U.S. ethanol businesses into a new stand-alone unit called Vantage Corn Processors. Ray Young, ADM's chief financial officer, said the company was discussing a sale or joint venture involving its ethanol business, which he said has struggled with lower exports to China.

ADM reported a quarterly profit of $407 million, compared with $536 million a year ago. The company said its earnings included an eight-cent per sharecharge related to asset impairment and restructuring.

Bunge on Wednesday reported a $1.49 billion loss, compared with a profit of $365 million a share, a year ago. Adjusting for $1.7 billion in charges related to portfolio changes like the planned Brazilian joint venture, Bunge estimated profits at $1.41 a share, versus $2.52 a year ago.

Patrick Thomas contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com

Corrections & Amplifications

This item was corrected on Fri., Nov. 1, 2019 to clarify that Cargill Inc. reported its earnings in September, not October.

Stocks mentioned in the article
ChangeLast1st jan.
ARCHER-DANIELS-MIDLAND COMPANY 0.08% 37.65 Delayed Quote.-13.98%
BP PLC -4.35% 396.15 Delayed Quote.-12.18%
BUNGE LIMITED -1.88% 46.95 Delayed Quote.-16.85%
CORN FUTURES (C) - CBR (FLOOR)/C1 0.55% 366.5 End-of-day quote.-3.93%
LONDON SUGAR -0.26% 420.1 End-of-day quote.16.79%
NEW YORK COCOA 0.48% 2939 End-of-day quote.16.44%
WHEAT FUTURES (W) - CBR (FLOOR)/C1 -0.05% 529 End-of-day quote.-3.53%
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