QUOTE AND NEWS
Financial Times  8 hrs ago  Comment 
ISS adds to chorus of calls to reject package
guardian.co.uk  Nov 25  Comment 
IoD says £25m pay for new boss Helge Lund could put executive pay on the political agenda ahead of the general election The Institute of Directors has launched a blistering attack on the £25m pay deal promised to the new boss of oil and gas...
Reuters  Nov 12  Comment 
BG Group has scheduled a general meeting for next month to allow shareholders to vote on its new chief executive's performance-linked pay which is worth 12 million pounds (18.97 million US dollar).
Benzinga  Nov 11  Comment 
In a report published Tuesday, Bank of America analyst Evan Morris reinstated coverage on Bunge Ltd (NYSE: BG) with a Neutral rating and $95.00 price target. In the report, Bank of America noted, “Although Bunge (BG) is likely to benefit from...
Agrimoney.com  Nov 4  Comment 
The ag giant unveils a bigger-than-expected earnings rise despite, like rival Bunge, seeing a setback from slow crop sales by South American growers
Agrimoney.com  Oct 31  Comment 
The trading house's CEO foresees "very favourable economics in soy" into 2015, flagging too a "nice profit" for Bunge from this month's soymeal rally
Agrimoney.com  Oct 30  Comment 
Bunge, unveiling lower-than-expected earnings, cites a hit from unusually slow crop selling in Brazil - a trend beginning to worry crop traders too




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Bunge (NYSE:BG) is an agribusiness and food company that is the largest producer of soybean oil and which has an immense stake in the South American fertilizer market. It also deals with commodities and works a great deal with Biofuels, especially Brazilian sugar-cane ethanol. In February of 2010, Bunge purchased five sugarcane mills in Brazil, making it the third largest sugar and ethanol producer in Brazil.[1]

Bunge faces several risks as a result of the nature of its operations. Government Agricultural Subsidies, Environmental Regulations, weather conditions, and Health trends all play a roll in determining the success of the company.

Bunge competes against Cargill and Archer-Daniels-Midland Company (ADM).

Company Overview

Business Financials

Bunge earned a total of $41.9 billion in total revenues for 2009, a decline from its 2008 revenues of $52.6 billion.[2] As a result, its net income declined dramatically as well, from $1.1 billion in 2008 to just $361 million in 2009.[2] This decline was primarily a result of declines in demand and prices for key goods that Bunge supplies. Furthermore, tight credit conditions in Brazil limited the amount of fertilizers farmers could purchase, thereby driving down demand and prices for fertilizers, which are a commodity.[3]

Business Segments

Bunge conducts its operations in three divisions: agribusiness, fertilizer and food and ingredients. These divisions include four reportable business segments: agribusiness, fertilizer, edible oil products and milling products.

Agribusiness (72.8% of 2009 Sales)

The agribusiness division is an integrated business principally involved in the purchase, storage, transport, processing and sale of agricultural commodities and commodity products. These operations and assets are primarily located in North and South America, Europe and Asia. In 2009, this segment earned $30.5 billion in total sales.[4]

Fertilizer (8.8% of 2009 Sales)

The fertilizer division is involved in every step of the business, from mining phosphate-based raw materials to the final sale of retail fertilizer products. These operations are mostly located in South America. In 2009, this segment earned a total of $3.7 billion in total sales.[4]

Food and Ingredients (18.4% of 2009 Sales)

The food and ingredients division consists of two reportable business segments: edible oil products and milling products. These segments include businesses that produce and sell edible oils, shortenings, margarines, mayonnaise and milled products such as wheat flours and corn-based products. The operations and assets of our milling products segment are located in Brazil and the United States, and the operations and assets of our edible oil products segment are primarily located in North America, Europe, Brazil, China and India. In 2009, this segment earned a total of $7.7 billion.[4]

Trends and Forces

Expansion

Bunge seeks to generate fiscal value in conjunction with other companies, through both acquisitions and joint ventures. Problems with these companies could negatively affect the business and could divert the management’s attention from other matters. Likewise, success with these undertakings could be a boon to the company as it tries to compete with giants such as Archer Daniels Midland and Cargill.

Agriculture Subject to Weather Conditions

Large-scale agribusiness is vulnerable Temperature and Precipitation Fluctuations, and Agricultural Diseases. Because of the fluctuations in production quantities, it is very difficult to gauge capacity when building a new processing plant. Mistakes in calculations could lead to a surplus or a scarcity of commodity, both of which would negatively effect profitability until the imbalance has been corrected. These uncertainties make an investment in agribusiness inherently high-risk.

With Such a Global Presence in Such a Politicized Industry, Bunge is at the Mercy of Government Policies

As an agricultural major with operations in over 80 countries, Bunge is at the mercy of international politics. Government Agricultural Subsidies and trade laws plague the agricultural industry, leaving Bunge subject to increased government interference, higher tariffs, tax regulation, political instability and trade barriers. Bunge is subject to a wide array of environmental laws. Bunge also faces laws effecting the labeling, storage, and disposal of hazardous wastes.

Consumer Trends Impact the Food Industry

Health concerns ranging from trans-fats to organic foods to Genetically Modified Foods constantly change the demand patterns of consumers. Genetically Modified Foods are currently a hot topic, especially in the European Union and Brazil where consumers oppose their usage. The delivery of GMF products to customers requesting GMF-free products could tarnish Bunge’s reputation and result in a loss of customers. Consumption of organic foods has been on the rise of late. Outbreaks of diseases such as Avian Flu and Mad Cow Disease in the poultry and livestock market lead to great losses for Bunge.

Competition

While Bunge competes with many different companies across each of its operating segments, it does not have a competitor with which it competes across all of its segments. Bunge’s primary competitor in the public sector is Archer-Daniels-Midland Company (ADM), a slightly bigger and much more profitable business. In the private sector, both of these companies are dwarfed by Cargill the world’s second largest privately held business. As the graphs show, Cargill has a clear advantage in terms of revenue over both ADM and Bunge, but in the past two years, Archer-Daniels-Midland Company (ADM) has made a huge leap in net earnings while Bunge has failed to achieve the same.

Corn

Recently U.S. corn production has skyrocketed, eclipsing all estimates. Most of this increase has been due to Ethanol demand. This increased corn production has lowered Corn Prices and led to a decrease in the plantings of other crops such as soybeans and wheat. Unlike small agribusiness companies, larger companies such as Bunge and Archer-Daniels-Midland Company (ADM) have invested overseas in Brazilian agriculture. This Brazilian presence has allowed them to produce the needed soybeans and import them into the US thereby giving them an advantage over companies who rely on the U.S. corn belt.

Ethanol

China has stated that it will not use food products to produce ethanol and some U.S. companies have taken the lead in researching cellulosic ethanol as an alternative to corn-produced ethanol. These companies would gain an advantage over ADM if they succeed.



References

  1. BG 10-K 2009 Item 1 Pg. 2
  2. 2.0 2.1 BG 10-K 2009 Item 6 Pg. 32
  3. BG 10-K 2009 Item 7 Pg. 38
  4. 4.0 4.1 4.2 BG 10-K 2009 Item 7 Pg. 39
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