Bunge cuts Brazil cane hopes, citing poor weather

Bunge’s march into Brazilian sugar has been hit by the weather setbacks which slashed expectations for the country’s production, with the group cutting its own cane harvest forecast by 1m tonnes.

The group said the downgrade, to 15.5m tonnes, in its harvest estimate reflected "the impact of adverse weather on the development of the sugarcane", after a spell of unduly dry weather in Brazil which has, in some places, seen frost too.

The revision follows a rash of analyst downgrades by analysts to their expectations for Brazilian sugar, with the country, the top producer of the sweetener, expected in 2011-12 to suffer its first drop in output in a decade.

However, Bunge stemmed fears of the downgrade holding back its improvements in sugar, in which it has been ramping up its operations, saying that "tight global sugar supplies, strong demand for ethanol in Brazil and ongoing concern about Brazil’s sugarcane crop should be supportive of prices".

"As a result, our [financial] expectations for the year have not changed."

‘Good risk management’

The comments came as Bunge unveiled results for the April-to-June period showing that the sugar business reported an operating profit of $18bn, up from $4bn a year before, in what is seasonally the division’s weakest quarter.

"Sugarcane milling… benefitted from higher sugar and ethanol prices and increased sales volume, as all mills were operating during the quarter," the group said.

The core agribusiness division saw operating profits soar 10 times to $319m, boosted by the gain of a sale of a stake in a European oilseed processors, besides higher volumes in South America and wider margins in Europe and the US.

The group also signalled that it had made correct calls on futures prices, saying that "risk management strategies worked well".

Oilseed processing

Group earnings came in at $316m a figure which, while below the $1.78bn a year before, boosted by proceeds from disposals in fertilizer, was above Wall Street expectations.

Underlying earnings per share, at $1.78, beat analysts’ forecasts of a $1.41-a-share result.

Drew Burke, the Bunge finance director, said the company expected a "good second half", helped by higher oilseed processing volumes in the US, as harvest boosts supplies, although margins in Europe may feel "pressure" as a smaller rapeseed crop underpins prices.

Bunge shares closed down 2.2% at $69.44.

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