October 30, 2019 / 10:43 AM / 21 days ago

Bunge warns of agribusiness challenges amid weak demand

(Reuters) - Agricultural commodities merchant Bunge Ltd (BG.N) 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.

The U.S. agricultural sector has suffered for more than a year from tit-for-tat tariffs, which have cut farm exports from North America.

Additionally, harvests of corn and soybeans are now lagging behind schedule after heavy rains and historic flooding delayed U.S. plantings in the spring.

In China, the world’s top pork consumer and producer, an outbreak of fatal pig disease African swine fever has reduced the need for soy imports used for livestock feed.

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. The outlook excludes some items, such as Bunge’s investment in plant-based meat company Beyond Meat (BYND.O).

U.S. farmers are also holding off on selling soybeans to merchants like Bunge, anticipating higher prices.

The company’s earnings before interest and taxes from the agribusiness unit, which includes everything from crushing oilseeds to export of corn and wheat, fell over 68% to $153 million.

The company’s operations in Brazil and Argentina helped it offset the impact of the U.S.-China trade war on its U.S. business. Bunge is also streamlining its operations and cutting costs as part of its restructuring program.

“The results on the quarter represented a solid, albeit noisy beat,” Stephens analyst Ben Bienvenu said.

Bunge took a $1.7 billion charge related to its Brazilian sugar and bioenergy business joint venture with British energy company BP Plc (BP.L).

The joint venture, BP Bunge Bioenergia, will merge the two companies’ Brazilian sugar and ethanol operations to create the world’s third-largest sugarcane processor. Bunge has tried to sell its sugar operation in Brazil in the past with no success.

Excluding items, the company earned $1.41 per share, beating analysts’ expectation of 48 cents, according to Refinitiv IBES data.

Net sales fell 9.5% to $10.32 billion, missing analysts’ estimate of $11.31 billion.

Reporting by Arundhati Sarkar in Bengaluru and Tom Polansek in Chicago; Editing by Vinay Dwivedi

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