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Bunge soybean supply disrupted in Brazil

By Lorraine Heller , 19-May-2006

Around a quarter of Bunge's soybean processing plants in Brazil have been affected by farmers' protests in recent weeks, but the situation looks to be returning to normal, said the company.

The problem, said the leading oilseed processor's chief financial officer William Wells, is actually getting the products to port for export, as major transportation routes have been blocked.

 

"It's not the supply piece which has been affected. We have a lot of supply of soybeans in our plants. It's more the transportation of those products. However, the situation is getting better," he said at the Harris Nesbitt Agriculture and Protein Conference in New York yesterday.

 

Squeezed by rising production costs and a strong Brazilian real that is affecting profitability, Brazilian farmers are now in their fourth week of protests, blocking key roads and railway routes along which grains are shipped to port.

 

The government is expected to announce a farm plan next week, which includes a monetary assistance package, and which Bunge is "hopeful will be good for the farmers."

 

Indeed, the farmers are not the only ones impacted by the strength of the Brazilian real, which was in large responsible for a sharp decline in Bunge's operating profits last year.

 

These slumped to $456mn in 2005, compared to $850mn the previous year, primarily due to "challenges in Brazil," which also included higher transport and energy costs, and large global stocks of soybeans that kept pressure on farm economics throughout the year.

 

Wells said these challenges are expected to continue this year, but added that the company has already taken numerous steps to adjust its operations to the new environment.

 

These have included reducing capacity through the closure of five oilseed processing plants in the country, as well as laying off over 10 percent of its local workforce.

 

"These measures are producing benefits," said Wells, adding that the net income effects of the appreciating real should be mitigated by efforts to lower costs, improve margins, reduce effective tax rate and reduce currency exposure.

 

"It is important to keep in perspective that we are always adjusting our capacity and our global footprint," he said.

 

In fact, Bunge is set to increase its capacity in Eastern Europe with two facilities already in construction, one in Russia and one in the Ukraine. It has also recently acquired a new facility in China and has increased capacity in Argentina.

 

Indeed, according to Bunge, Argentina is set to be the largest export platform for soybeans in the future, as it is the "advantaged location" worldwide in terms of cost.

 

However, the company expects current "weakness" in Argentina and Southern Europe to result in a "difficult" first half for its agribusiness this year.

 

Net sales for the year ended December 31 2005 fell 4 percent to $24 billion, compared to last year's $25 billion.

 

Net sales for the first quarter this year reached $5.6bn, compared to last year's figure of $5.5bn.

 

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