Bunge Reports Loss on Wrong-Way Grain Prices Bet

May 01, 2014 5:32 pm ET

(Corrects quote in penultimate paragraph to say “process” instead of “prospect.”)

May 1 (Bloomberg) -- Bunge Ltd., one of the world’s biggest grain traders, fell the most in more than a year after harsh winter weather in the U.S. and political unrest in Ukraine led to a surprise first-quarter loss.

The grain-trading and distribution unit expected prices to fall, and instead the situation in Ukraine and deteriorating conditions for the U.S. winter wheat crop drove prices up, the White Plains, New York-based company said today in a statement.

“What happened this quarter is unfortunately the reality of global commodity market and managing commodity risks,” Chief Executive Officer Soren Schroder said today in a telephone interview. “We feel very comfortable and we are very supportive of not only our process but also of our global team in managing risk.”

The loss, excluding one-time items, was 12 cents a share, Bunge said in the statement. Analysts had expected a $1.40 profit, the average of 13 estimates compiled by Bloomberg. Sales dropped 9 percent to $13.5 billion, trailing the $15.1 billion average estimate.

Bunge slumped 5.4 percent to $75.34 at the close in New York, the most since Feb. 7, 2013.

Wait-and-See

While political unrest in Ukraine didn’t have a dramatic impact on Bunge, Schroder said, it did put businesses in the region into a “sort of wait-and-see mode.”

“Farmers on one hand are dealing with uncertainty on what’s going to happen tomorrow, oil consumers in the same situation,” Schroder said. “It means that the business is not growing, it’s in a standstill.”

Corn climbed 19 percent in the first quarter to $5.02 a bushel on the Chicago Board of Trade while wheat jumped 15 percent from the prior quarter to $6.9725 a bushel, as tensions between Russia and Ukraine raised concerns grain exports may be disrupted. Ukraine is the world’s third-largest corn exporter, while Russia is No. 5. In the global wheat trade, Russia is the fifth largest, followed by Ukraine.

The winter-wheat crop in the U.S., the largest shipper of the grain, also deteriorated with cold, dry weather helping support the rally.

Bunge wasn’t alone in betting the wrong way on prices. Goldman Sachs Group Inc. had a three- and six-month price forecast of $4.25 a bushel for corn, and $5.85 a bushel for wheat in January.

B in ABCD

Bunge’s net loss for the quarter was $27 million, or 18 cents a share, compared with net income of $170 million, or $1.15, a year earlier. The company is the ‘B’ in the so-called ABCDs, the companies that dominate global grain trading, the others being Archer-Daniels-Midland Co., Cargill Inc. and Louis Dreyfus Holding BV.

Bunge also said today it’s still looking for “strategic alternatives” for its Brazilian sugarcane business.

“The process of reviewing our milling business is active,” Schroder said, without providing details.

Bunge said in February it hired Morgan Stanley to advise on options for the underperforming unit.

--With assistance from Luzi Ann Javier in New York.