Leading oilseed processor Bunge has reported a sharp fall in second quarter profit after farmer protests in Brazil caused a significant disruption in the company's business.
Although net sales increased marginally, volumes for the quarter were slightly down, and profit was also impacted by an increase in the cost of goods sold.
"Conditions in the first half of 2006 proved more challenging than expected," said Bunge chairman and chief executive officer Alberto Weisser.
"Additional losses in freight, farmer protests in Brazil, excess capacity in Argentina and lower volumes and margins in international marketing all contributed to a weak first half," he said.
Net sales for the period reached $5,980m, compared to $5,872m last year. But the challenges faced by the company over the past year resulted in total segment operating profit plunging 90 percent to $18m, compared to $177m in the year-earlier period.
Shares were also down 73 percent from last year.
Earlier this year Bunge had announced that around a quarter of its soybean processing plants in Brazil had been affected by farmers' protests. Squeezed by rising production costs and a strong Brazilian real, Brazilian farmers reacted by blocking key roads and railway routes along which grains were shipped to port. This resulted in Bunge being unable to transport its soybean products for export.
But a more stable real and government aid for farmers has prompted the company to be more optimistic about its performance in the second half, which it expects will be "much better".
"Losses from previously contracted freight are almost entirely behind us, and we should see improvements from international marketing," said Weiser.
The company expects its second half to be positively impacted by its North American operations, which produce the majority of their results in the latter part of the year. It expects South America to "remain challenging" , but is hopes that efforts earlier this year to lower costs, reduce fertilizer inventory and enhance foreign currency risk management will benefit results.
Longer-term, the company expects that as the steady demand for meal and oil and increasing demand for biofuels draw down global stocks of soybeans, the market will price crops at levels that improve profitability for Brazilian farmers and encourage additional production and input purchases.
And according to US Department of Agriculture forecasts, substantially all of the medium- to long-term growth in global soybean production will occur in South America, especially Brazil.
Volumes in the company's agribusiness, its largest segment, fell 4 percent in the quarter to 26.6m metric tons, compared to $27,664m last year. This brought sales for the segment up 1 percent to $4,498m, but gross profits fell 42 percent to $133m.
The company said volumes were largely down due to lower oilseed processing activity in Brazil and weak demand in Southern Europe.
Edible oil products fared slightly better, with volumes increasing 4 percent to 1.1m metric tons, net sales increasing 13 percent to $862m and gross profit 31 percent to $84m. According to Bunge, results were stronger due to higher volumes and improved margins in Europe, with European results more than offsetting weaker results in the Americas.
Based on its assumptions for 2006 performance, the company issued a net income guidance for the year of $425m to $445m.
Bunge also said it plans to continue improving its competitive position, and is close to finalizing the purchase of a second soy crushing plant in China.
Over the past year, it has also developed a solid position originating and marketing sugar from Brazil. The company said it intends to become an integrated producer of sugar and sugar-based ethanol, and is "considering several interesting opportunities, principally in Brazil."