Bunge Global SA (BG) 2003 Q2 法說會逐字稿

Good day, everyone, and welcome to the Bunge Limited second quarter conference call. Today's call is being recorded. At this time for opening remarks and introductions I'd like to turn the conference over to Mr. Hunter Smith, Global Communications Director. Please go ahead Mr. Smith.

Thank you, Pam. Thank you everyone for joining us this morning. Welcome to Bunge Limited's 2003 second quarter earnings conference call.

With me on today's call to discuss results, are Alberto Weisser, Bunge's Chief Executive Officer, Bill Wells, Bunge's Chief Financial Officer, and Susie TerJung, Assistant General Counsel. Susie will be assuming the role of Director of Global Communications and Investor Relations for Bunge transitioning from her current responsibilities in August. I will be moving on at that time to take on new responsibilities as Bunge's Chief Financial Officer in the Asian region.

Before I turn the call over to Alberto I'll read the Safe Harbor Statement. This call may contain forward-looking statements within the meaning of the Safe Harbor provisions of the private litigations securities reform act of 1995, including statements about future financial and operating results and Bunge's acquisition of Cereol. These statements are based on managements current expectations and beliefs that are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. The pertinent risk factors for Bunge can be found in its [SEC] filed reports. Now I'll turn the call over to Alberto.

Thank you. Good morning, and thank you for joining us today. We are pleased with our second quarter earnings, which were solid in spite of some headwinds. Bunge continued to show quarter on quarter growth in net income and earnings per share.

For the quarter ended June 30, volumes grew 19% to 28 million metric tons, and net income increased 42% excluding the gain on sale of all Brazilian ingredients business. Bunge's good results benefited from the strong performance of our fertilizer segment as well as from the improved geographic balance and product offerings and (indiscernible) brought about by the Cereol acquisition. Let me take a moment to talk about Cereol. In the nine months since the close of the transaction, we successfully acquired the minority shares and de-listed the company. We merged the organization in North America, and in Europe, filled all key management positions, we refinanced company-level debt and concluded two strategic asset redeployments that are key to Bunge's future. Cereol has been efficiently integrated into Bunge's operations and its performance is validating our acquisition strategy.

At the same time, we have strengthened our balance sheet to the point that we were upgraded by S&P, and placed on positive outlook by both Moody's and Fitch. The integration continues to proceed smoothly and we are on track to deliver our targets for the acquisition. The redeployment of assets deserves particular attention. We created a new joint venture as part of a global alliance with DuPont and substantially enhanced existing joint venture with (indiscernible), the financing arm of the French oilseed farmers association. In the process, we monitized $471 million, which was used to reduce debt.

Let me update you on the progress of our global alliance with DuPont. First, in the area of human nutrition our, So lei joint venture in [sow] ingredients came to life this quarter. So lei is a combination of the ingredients businesses of Bunge, Cereol, and DuPont PTI, and is focused on the fast-growing market for vegetable proteins. This market-leading company will benefit from Bunge's great science, from DuPont's great science and Bunge's expertise in (inaudible).

Next, our collaboration on the development of biotech products for animal nutrition and Edible oils is beginning to produce some very exciting prospects. These opportunities are long term in nature, but point the way to a bright future. Lastly, our alliance in production agriculture to sell DuPont products through Bunge's network to farmers in Brazil and Argentina is gaining momentum. Initial results are good and we are expanding the reach of this program.

We had a good start to the year, both in terms of results and achieving long-term strategic objectives. The outlook for the second half of the year is encouraging. Aggressive planting intentions from South American farmers are positive for fertilizers, and conditions seem right for a large North American harvest. I would like -- I will now turn the presentation over to Bill, who will comment further on our results.

Good morning. The second quarter typically represents a higher level of activity for our South American agribusiness operations, and the low point for crushing activities in North America and Europe. The major drivers of our second quarter results were. The appreciation of both the Brazilian real and the Argentine peso; weakness in U.S. and Western European crush margins, driven by the short U.S. crop; rising international fertilizer Prices, which expanded our margins; and Cereol's contribution to Edible oils. I am sure it has not escaped your attention that operating income, excluding the gain on sale, declined in the quarter while net income increased by 42%.

This is due to the effect of the revaluation of the Brazilian real on commodity inventories, which creates a large mark to market loss in cost of goods sold, reducing operating income. This loss is compensated by an equal gain on debt financing these inventories recorded in the non-operating income expense line.

This artificially reduces operating income and is completely non-economic. For this reason, we emphasis our operating performance measure, which is a non-GAAP measure that adjusts for all these effects and we feel provides a good pictures of the company's operations. Operating performance, excluding the gain on sale, increased 15% for the quarter.

In our agribusiness segment, volumes increased 21% to 23.9 million metric tons. Absent the impact of Cereol, growth was 7%, primarily due to volume increases in international marketing. Gross profit declined 60% to $84 million, and operating income decreased to 5 million, from 155 million. This decline was almost completely offset by gains on debt financing commodity inventories recorded in the non-operating income expense line. Sales volumes increased in oil seed processing and international marketing, driven by the large South American harvest. Margins were affected by weakness in North America and western Europe, as well as overall higher energy costs. South American results, adjusted for currency effects on commodity inventories, match the outstanding performance of the previous year's quarter, despite a more difficult foreign exchange environment.

Volumes of Bunge's international marketing operations were 20% above last year, mostly due to increased sales to China. In our fertilizer segment, volumes decreased 3% to 2.4 million metric tons. Operating income was 94% stronger during the quarter, increasing to 64 million, primarily due to higher margins. Fertilizer prices rallied as higher global energy costs drove up international prices. Brazilian fertilizer is priced to import parity. This positive effect from higher energy costs partially offsets the negative impact of these costs in other areas of our business.

In food products, results improved significantly, primarily due to Cereol's contribution to Edible oils. Bunge's Edible oil operations improved as well. Operating income in the Edible oil segment rose by 23 million to 26 million. Excluding Cereol's incremental contribution, operating income increased by 6 million, primarily due to our businesses in Brazil.

Results in the milling and baking segment were down slightly as operating income decreased $1 million to 8 million for the quarter. Strong wheat milling performance was more than offset by results in U.S. bakery mix and frozen bakery operations, which continued to fall short of our expectations due to lower than expected volumes, and aggressive pricing by our competitors. Non-operating income expense improved by $146 million. The improvement was due to foreign exchange gains on debt financing commodity inventories as previously discussed. Net interest expense increased to 24 million from 21 million, due to higher debt levels associated with the Cereol acquisition.

Excluding the impact of the gain on sale our effective tax rate was 33%. We anticipate our rate for the full year to be slightly higher than this level. Our net financial debt decreased 280 million to 2.6 billion for the six months ended June 30th. Of that amount, 251 million is attributable to net proceeds from the SOLEIL transaction. The 215 million in proceeds from the Lesieur joint venture are not yet included in this number, as the transaction closed in early July. After adjusting for readily marketable inventories, our net debt declined from 1.4 billion to 692 million.

We are pleased by the strong first half of the year. Prospectus for the second half of 2003 are encouraging. Our fertilizer business is benefiting from higher international prices, and aggressive farmer planting as we come into the seasonal peak for planting in South America. Edible oil results remain solid with good prospects. In the agribusiness segment, we expect Continued volume growth in the international marketing and a normal seasonal slowdown in South America. Prospects for corn and soy appear excellent in North America due to very good weather conditions, which is positive for grain origination in that region. An increased raw materials supply is bullish for crush margins in both North America and Western Europe. However, strong currencies in Brazil and Argentina, and higher energy prices continue to be of concern. -

In light of this outlook, we are reaffirming our guidance for the third quarter of 90 to 95 million, or $0.90 to $0.95 cents per share, and for the full year of 380 to 390 million, or $3.81 to $3.91 per share. We will be happy to take your questions now.

Thank you. The question-and-answer session will be conducted electronically. If you'd like to ask a question, please do so by pressing the star key followed by the digit 1 on your Touch-Tone telephone key pad.

Again, if you do have a question please press star-1 on your telephone key pad. We will take our first question from Ken Zazlow (ph) from Morgan Stanley.

Good morning. Looking at the agribusiness results, they were, I guess somewhat uninspiring. Can you give a little bit more color to why the performance lagged, I guess last year, particularly in light of South America and the cost of energy from Cereol.

Certainly. First I think we have to remember that we have an extremely difficult comp this quarter because we had a fantastic quarter last year, particularly in South America. We did have some issues this quarter. As you said, it was not an inspiring quarter in agribusiness. The principal issues were in North America and in western Europe because of weak crush margins in both of those locations. That is being driven by the short soy supply in North America from the short harvest last year.

That, I think, is something which is not unexpected, given the harvest situation. In South America, we were able to match our results of last year, so we are roughly equal. However, we did miss some opportunities in foreign exchange. We did not have the right hedging strategy with regard to some of our logistics costs. We contract logistics costs in advance of the harvest, and price that in when we are buying grain. And we did not hedge that appropriately. And so we did not perform as well as we had hoped in South America. And we also had some missed opportunities with the euro in Europe, in the agribusiness segment.

So we were definitely not as sharp on the foreign exchange hedging as we should have been. Now, this relates to our variable cost, this doesn't relate to the inventory effect that you're all familiar with, which is a natural hedge that completely offsets the impact of foreign exchange on our inventories.

There is a positive message in all of this, however, which is that the balance in our business with fertilizer being integrated with agribusiness and food products being integrated with agribusiness is strong enough that we were able to offset this and still exceed our targets for the quarter. So I think that's a very positive thing.

Just one more follow-up on that, have we hit rock bottom in the U.S.? July's soy crush margins look much stronger. If things work out, or they stay the same, I guess (indiscernible) comparisons in soy crush-- Can this be basically the bottom of the cycle?

It looks that way. The -- certainly crush margins in the U.S. are turning up, both in the replacement margins and looking forward. But a lot of that is dependent on the harvest, and as you know, the soy bean harvest is not yet made, so there's still some risk out there. Bud certainly perspectives for the fall look a lot better.

I also think, Ken, that we see strength in demand from the meat side, internationally. But also some strength domestically. We have better balance in supply and demand on the capacity side. So we are cautiously optimistic.

Great. Thank you.

We will take our next question from David Nelson, with Credit Suisse Boston.

Good morning. Before I go to the more fundamental issues, in terms of,---sometimes we have issues with reversals of tax reserves have been conservative looking forward in that regard?

I'm sorry, David, I didn't understand the question.

In the March quarter, you ended up having a -- beating expectations by quite a bit, because you had a reversal of I thought it was Argentina?

In the March quarter, I think we actually increased provisions for VAT in Argentina, but let me give you an update on what's happening with the VAT in Argentina. There, the situation appears to be perhaps a little more stable than we had seen in the past. The new government that has come in certainly seems to be acting in a prudent manner. We are seeing an acceleration of some payments on VAT, and we are starting to see lower VAT balances in Argentina. So that gives us some positive feelings about the situation there. We continue to monitor it closely, and we will see how things develop as we get further into the year.

Okay. In Brazil, ADM is talking about some expansions they've had, particularly of elevators. Do you see any risk of excess capacity developing there at this point?

I think ADM announced -- you're probably referring to the silos or let's address both cases. When I look at, three, four years ago, the crop was 30 million tons. This year we'll be short of 50 million tons, and expect it to be next year even higher. So we clearly have a significant need for new silos. So we also basically build on a yearly basis, something around five silos per year. So this is just to keep up with the growth in the crop. And I think everybody is being very, very cautious. So we're not seeing any unreasonable expansion on the origination side. Now, also on crush capacity, I also see -- we also see there is some increase, but we also have to realize that the whole agriculture is moving, so there are certain areas that are not very competitive anymore and you are seeing also, shutdowns. So we might see a little bit more than usual increases in capacity but I think this is -- I would consider this very normal and all digestible.

Lastly, trans-fat, you can't pick up a newspaper anymore without reading about consumer concerns there, and new labeling requirements that will go into effect in 2006. How do you, with So Lei now, positioning yourself for some potential upside there?

I think that's a good point that you're seeing. We see this more as an opportunity than a threat, because trans fat is something, first of all, is something which is not new. I think all of us competitors and customers, we all have been working on solutions. We have to remember that Trans fats occur naturally in meats and dairy, so it's not something bad. What people are now realizing is that it is the hydrogenation of the vegetable oils that are a little bit in the lime light. I think overall you're right, this is more of an opportunity. There are tons of solutions out there, and we will probably see a shift to other kinds of solutions. We all need the oil, and we don't want to talk too much about it, but obviously there's discussions going on with different customers about solutions. This has been a trend already over the last five, six years or even longer, and it might accelerate a little bit. So we see this from you might have one or the other moment there might be some disruption, but we see this as an opportunity.

Okay great. Thank you very much.

Thank you.

We'll take our next question from David Driscoll with Smith Barney.

Good morning. First I'd just like to say it's a fantastic result in fertilizers congratulations on that. Second, Hunter, congratulations on the new job and good luck.

Thanks, Dave.

I have a reasonably detailed question here. So as Bunge is the largest soybean player in Brazil, I'm curious what you're seeing in Brazil specifically. The perception is, is that the Brazilian farmers holding beans in what appears to be a lower-priced forward scenario, so I have three questions related to this. Number one -- and I think the North American market is ripe with this speculation is, are the beans really there? In South America? Or are some of the statistics inaccurate, whether they be the export statistics or the actual production statistics? The second question on this on, following that one is, if the beans really are there, then why on earth would the Brazilian farmers be holding these beans when they face a declining price scenario? And then the last question, again relating to all of this is, you sort of alluded to it a moment ago, Alberto, but how did these factors affect your profitability in the third quarter and maybe more importantly in the fourth quarter when both South America and North America are head to head competing in the export market?

It's a long question. Let me start by saying, we believe that the statistics are correct, because obviously we have a presence all over the place and we see it. And we do our own crop tours and we visit most of the farms, and we do our own analysis, not only in South America but also in North America. So we have a very good feeling that the crop is there. This is a very normal pattern. We see it every year. There are moments in time when farmers hold on to it. You remember last year in Argentina it was even more dramatic, so I think this is a normal type of pressure. They all know that there's probably a good crop coming out in North America, so the farmer knows that he's under pressure that at one point he will have to start selling. I think we are well-positioned in terms of inventory, so we see this as a normal part of business. We have no concern about this.

I was just going to say Argentina last year is a interesting parallel, because the Argentine farmer held beans all year and really started selling just before the new crop came in. And as a result of that selling, you then had a much larger amount of beans available during the new crop than normal, so we experienced extremely good margins in Argentina. The same pattern is likely to develop in Brazil. The Brazilian farmer is very well capitalized at the moment.They have had a number of good years, and they had a very big -- the corn harvest in between the soy harvests. So they're well capitalized. They have enough money to buy inputs, and they can hold on to beans as a store value. The exchange rate is a big factor. If you see weakening in the real you're likely to see some of those beans coming to market.

Can you guys tie this again back to the fourth quarter specifically -- I guess what I've been struggling with for a while is just understanding what happens in the export market. When the largest South American crop ever, you know, which of course every single year that metrics is true, but when the largest crop ever is very significant in the fourth quarter, when the U.S. is historically strong, you know, at this moment, Alberto, I think you mentioned that capacity was much better balanced than it had been previously. It is my supposition that that's due to the shutdown, the idling of the capacity that we've seen many of the North American players, such as yourself take.

However, I question whether or not the industry truly will remain with keeping those facilities idle in the fourth quarter, when that's the moment when North America needs to crush and needs to make their money. So the question seems to be that if South America runs full out in the fourth quarter what's going to happen in the North American business and to those margins specifically?

At this stage, we still think the flow will be very natural. You see the big demand from China for beans, so the flow is steady. There is a balance. Globally there's a balance between demand and supply. So at this stage, we do not expect to have, kind of what you call a disruption affecting the North American harvest or the North American crush. So it's a little bit early to talk about this. So we still believe that the demand for beans are strong enough. We see a pickup on demand on the meal side, meat business, so we do not see a disruption yet there.

One thing is certain is that lots of beans is good for crushers. There's certainly lots of beans in South America and the perspectives are for a good harvest for North America. So, if the North American harvest plays out, I think we're looking at a positive scenario.

For crushers.

And one of the very negative factors in prior periods was, you know, when you have a short crop right there in the (inaudible) out of American crushing, and you have Chinese demand competing for those raw materials, that raises the pressure on raw material availability for a domestic crusher. If you have South America as an alternative supplier of unprocessed beans during that time, you, in effect lower that pressure.

Great, just a one - a detail question. Could you give us some guidance on SG&A, and then maybe specifically if you could talk about SG&A and the agribusiness side and again on the fertilizer side, the sequential numbers were up significantly in the agribusiness side. And of course fertilizers, although that may be just related to what happened in the quarter on prices. Do you have any comments on that? Any help you might be able to give us?

Let me tackle the SG&A first on a macro basis. I thing we were at 172 million for the quarter, 38 million of that was Cereol. So if we exclude the - if we exclude any effects from our gain on sale, and we exclude any effects from Cereol, I think we were up 11 million in the --

Quarter on quarter.

Yeah, quarter on quarter. If we look at a run rate going forward, I would expect that run rate of around $172 million a quarter is fairly reasonable. Some of the reasons for the increase was we did have some slight increases in bad debt provisions and some fiscal and labor provisions as well. Can I get an update on the second part of your question David?

The second part of the question was just specific on the SG&A side with, you know, the agribusiness side, those numbers, I think as we discussed a bit in the last quarter was up enormously over the first quarter from a year ago, so we've seen 64 million in the first quarter, 79 million this quarter. I'm just trying to get a sense of where I should expect these numbers to come out.

: Yeah. Some of the effects that you were seeing there, the first part of it was growth in Bunge global markets, but we were also seeing some increases in provisions related to VAT in Argentina and some bad debt provisions as well. So I think that was probably the major effect you were seeing in that growth. It's a little hard to predict what your provisions are going to be going forward, but I expect that we will probably not see significant increases beyond what you have seen historically in those numbers.

Great. Thanks a lot, everybody.

Thank you.

We will take our next question from Eric Katzman with Deutsche Bank.

Good morning everybody. The one thing that we've been struggling with a little bit since Cereol was acquired and integrated is trying to get a better sense as to how Cereol is going to impact the seasonality of results. Perhaps you can kind of touch on that a bit, with particular attention to agribusiness.

Sure. Cereol's seasonal effects can be divided between North America and Europe. They're different effects. In North America the business here is primarily agribusiness, and there the seasonality is the same as our North American business, so you're getting to see the strongest results in the fourth quarter and first quarter of the years, and then probably the weakest quarter being the second quarter. Cereol's European operations are primary Edible oil operations, and those are included in food products and those are flat during the year.

And then kind of as I guess a follow-up to I guess maybe it was David's question, but the reason why the fact -- if the farmers are holding the beans that Euro came from an inventory position, is because you're vertically integrated, you sell them fertilizer and you can kind of get the beans back when you need them?

No, first is because, we have, remember we have a significant network of silos. We have over 170 silos just in Brazil, plus another 12 in Argentina. So when the harvest comes out, like happened between March April, we buy a lot of beans and we keep them in our silos. So we have inventory for quite a while. So that is one of the reasons. But also, there is that is the main point where we can hold on for quite a while. You also have to remember that the farmers do need to turn over and have to start buying inputs. Therefore we can see it when they're moving, when they are buying our fertilizer products. But basically, the answer to your question is, we have enough inventory for quite a while.

Last question, Bill, if you could update us on some of the other non-operating kind of metrics for both this year and maybe looking into 2004 in terms of CAPEX, depreciation, completion, amortization, tax rate, interest expense, those kinds of things?

Okay. In terms of CAPEX, I think we're expecting around 300 million in CAPEX for this year. Looking forward into next year, I would expect a slight increase I think we'll be between three hundred and four hundred million in CAPEX. Looking at effective tack rate, this year I think we'll be between 35% and 40% effective tax rate -- for next year, very hard to say at this point because I don't have a perspective on what the currencies are going to do next year , and you know, movements in the Brazilian real, particularly can affect our effective tax rate, but I think the prudent thing to do is to assume that the effective tax rate would be in that same range between 35 to 40 percent. As we're looking at the depreciation, depreciation we should be around $200 million on a run rate going forward, and interest expense, I think our effective interest cost is between 6% and 7%.

6% and 7%. Okay. Thank you.

You're welcome.

We'll take our next question from John McMillin with Prudential Equity Group.

Congratulations. Hunter, good luck.

Thank you.

The lower tax rate in the quarter of 33% is just strictly a function of currency?

The lower tax rate -- well, first the 33% excludes the effect of the gain on sales. So the gain on sale is net of taxes. So If you included that it would actually be a much lower tax rate. The 33% is a mix of various different factors, John. Currency is one of those,

I can't really point to any single factor which causes it to be a little bit lower than the range of 35 to 40 we've given you.

It's just, you know, I'm trying to fully understand the impact of South American currencies on your business. I guess after two years, I sort of understand it. It's the tax rate line that sometimes confuses me a little bit of how much you build into your operating performance, your non-GAAP measure, the adjustments in tax rates. When you say the quarter was up 15% does that factor in the tax rate benefit?

No, it does not. Operating performance is operating income, adjusted for the cost of carrying working capitals, interest and also foreign exchange effect on that working capital, and there's a reconciliation in the earnings release. For the exact numbers.

But if you wanted to get a pure number, because you are getting a tax rate gain, that would be lower?

The other way around. Because the real has been strengthening, it has been increasing our effective tax rate. So this year we've been having a negative effect from a strong real.

But then if it's increasing your tax rate, why don't we see it in this quarter? In the operating rate of 33%?

This quarter we see a 33% tax rate, which is substantially higher than the effective tax rate we saw in the same quarter last year, so I think we are seeing it.

I have you as a 36% tax rate last year.

In the quarter?

Yeah.

If we look at the effective tax rate for the whole year of last year, it was much lower, I think it was approximately 28%.

Okay, I was just looking at the quarter on quarter. I'll talk about it off-line. Just the optimism you have towards two things I just want to address. And you've been very, very conservative with your earnings guidance over the last two years to the point where, you know, some people said you've low balled, but currency has obviously been difficult to predict. What kind of currency in South America are you building into this second half earnings forecast? Are you assuming stable rates in South America, or devaluation? If you can just talk about what you're building into the forecast.

We're assuming stable rates at the current spot level.

Okay. And just why you think that -European, I mean, Cereol had a big European soybean crush business, why you're optimistic about margins in that area -- Alberto, I think you were the one who said it. You were optimistic about European crush margins, I'm just trying to -- I guess I see the demand side, but, you know, I'm just curious why that area would do well.

Well, I don't remember saying that I'm optimistic. The only thing is they were not good in this harvest, so we are, I think probably - we mentioned, we have to remember that most of our business in Europe is the Edible oil, which is rape (ph) and sunflower oil, and the bottled oil is margarine, so it's kind of an integrated complete going from farmer all the way to the retailer. And our agribusiness is basically Spain, a little bit in Italy, and some in Germany, and that is a smaller piece, and it was not easy this harvest. So we believe that with a more normal crop that we are going to see, we expect to see with North America, then we will have more decent prices for inputs for Europe, and therefore we will have a better crushing margin environment.

And the reason is, John, because a major part of the supply for those plants of soy beans comes from North America, and so if you have a short crop in North America, it pushes up the raw materials price and consequently compresses crush margins. So a bullish harvest in North America means plenty of beans which should mean lower raw materials costs for those plants and consequently better margins.

And then just in terms of fertilizer, you know, to the extent if I were to characterize the last year, when the North American crop came in short last year, it added some incremental acreage and demand in Brazil and Argentina, and that helped your fertilizer business, which has really been nothing short of sensational for the last couple years, but on the margin it helped your business on the short crop in the U.S. Why wouldn't the reverse be true? If you have the mother of all crops here, and again the crop's not made, why wouldn't that on the margin hurt your fertilizer business down there?

I would say that the key one is that the demand is there, John. We have seen this dramatic increase in Asia in demand, in China. China has become every year a bigger and bigger importer of these products. You have to remember, we have in China the issue also of (inaudible)-- so the agriculture in China cannot expand. In fact, it probably will get in fact smaller. So we will see in the future, when you look at all the USDA statistics, there's going to be more and more export into China, not only of soybeans, but also of corn. So you will see over the next ten years an expansion of the corn plantations also in South America, and this having normal crops in North America, so by just having normal crops in North America, we'll have to see the increase in agriculture just to feed the expansion in Asia, and we believe the USDA is probably the best source and has a very conservative statistics. They talk about ten million tons of exports of corn. So that's why we have seen in the past, the 7% increase in demand for fertilizerser, and we expect over the next year, also to see a six, seven percent increase in fertilizer. We've had now three or four years, or, in fact, many, a couple years of not very good crops in North America. If you have a normal crop this year, as we all hope and we are expecting, that should bring it a little bit more back in balance, but the demand is very strong.

If you have a large amount of beans in South America and large amount of beans in North America the likelihood is you will see lower prices for beans. But even at much lower prices for beans, the south American farmer is still making good money, and so the likelihood is they will continue to plant.

Okay, well thanks a lot.

WILLIAM M. WELLS and ALBERTO WEISSER :You're welcome.

We'll take our next question from Leonard Teitelbaum with Merrill Lynch.

Good morning,

Good morning Lenny.

Hunter before you get deported, let me tell you it's been a pleasure and I wish you very good luck.

Thanks, likewise Lenny.

Just ask about China a little bit, I think everything else had been pretty well beaten to death here. In China, you act as both agent as well as processor? Is that correct or incorrect?

We only export beans and oil, and buy also some corn-- export corn out of China.

But don't you----your crushing plants in China do they use -- what is their source of raw material?

We have no processing facilities yet in China.

You're building them, though, right?

No, not at the moment.

Okay. Then let me ask about --

We are building in India, we have a couple of them in India, but not in China.

Is that a decision that's going to be reserved until later or you're going to not be a processor of beans in China?

Let's leave it open at the moment.

Okay. As far as your plans for expansion, you've tabled some plans for expansion in the United States, vis-a-vis soybeans. Is that still in effect, or has that that been finalized, you will not be expanding any crushing capacity in the U.S.? Or that's a decision also to be reserved until later?

What you have seen is we have idled two plans, but-- you're probably referring to our Morristown plant. What we will be always looking for is to have a good balance between supply and demand, but we might invest to have a very efficient plant. So if we feel that we should expand Morristown, because it's the best location, but at the same time idling other plans, we will consider that.

Isn't really the key to this, ---what has helped in the U.S. outlook considerably is that Cargill and Archer, and maybe your planned deferral , if you will, of expansion of assets in the U.S. has had its impact on capacity and why in the name of common sense would anyone even think about increasing when for the first time in about three years we're starting to make money in the soybean crushing area here in the U.S..

Unfortunately we have two new plants in Minnesota so -- from co-ops, but we have seen that is an area where there are more crops available. But I think we've seen more rationality. We're all under pressure to make money, so that is why we took out inefficient capacities, so I do see that we are -- with the -- with a good -- we have a little bit probably based on NOPA, a little bit capacity utilization this year, but I think this should be in balance very soon. I think there is rationality out there.

I certainly hope so, Alberto. If we look at, also the prospects, or ,demand in the U.S. versus demand in the world, aren't we going to have to continue to expand that international demand if animal numbers will be down in the U.S.? Is that what you guys are really looking for? To keep the demand curve pretty stable and rising? Is the international demand for the U.S. product, not necessarily U.S. demand alone?

I'm not sure if I understand your question.

If I could restate the question, Lenny to say, are we expecting the greater growth in demand for meal to come outside of the United States than in the U.S.? The answer is, obviously that is correct.

That must be my Toronto accent, that's exactly what I meant. I'll translate it for you.

Thank you very much.

Thank you very much. A good quarter, and no reason to stop here.

Thank you Lenny.

Just a reminder, if you do have a question, please press star-1 on your telephone key pad. We'll go next to Christine McCracken with Mid-West Research.

Good morning.

Good morning Christine.

I have a few follow-up questions that were addressed earlier. One on China specifically. They've been relatively disruptive in the last couple months, buying and then stopping ships at the port. How is this impacting your flow of the business? It looked pretty good in the quarter, what is your outlook going forward?

ALBERTO WEISSER ; You're right, it has been a little bit let's call it a little bit disruptive, but with the kind of flow I think that we all have, that can be mitigated and can be rearranged, the ships and so on. So it did not affect our business in any relevant way, in any significant way. It is more like bureaucratic little things. We continue being surprised about the strong demand of China so we believe as I said a bit earlier, as the economy grows; and the diet changes, we expect the growth in China to continue.

And with regard to the GMO certificates, and I guess at this point Brazil not yet approving GMOs for planting, wondering how that's going to affect your business if they indeed -- if technology firms like Monsanto attempt to force you to pay technology fees, how would that impact your margins?

I don't expect that it would affect the margins. If Brazil changes its law and accepts GMO, then you will have every major country, U.S., Argentina and Brazil having a GMO and GMO products, I think then China will also reverse its policy. They need the beans. So I do not think it will affect our margins of the industry, fee or royalty, whoever has to charge it or collect it.

Alright, and then you had mentioned that you're expecting a fairly good crop I think in Europe. We're hearing reports that there's actually some drought conditions, particularly in central Europe. Is that expected to impact your businesses there?

: Actually, I don't think we said anything about Europe, Christine, we were talking about North America. But, with regard to Europe, there are some drought conditions in some areas in northern and central Europe which could affect the rapeseed crop there.

And also the wheat crop in France. But not sunflower.

The sunflower conditions however, are excellent. When you look at the overall mix, for our business, we actually think that it looks relatively positive, because we're more heavily weighted toward sun oil then we are toward rapeseed oil.

Can you give us a rough breakdown? Sun versus rape.

I'm sorry. I just don't have those numbers in my head.

Alright, I can follow up with you later.

Okay.

One last question, you know, about a year ago or so on the foreign sales credit I guess debate, that looked like it might affect companies like Bunge. Has there been any progress there? Do you expect that to impact your outlook?

Well, we only know as much as we read in the newspapers. It certainly appears like there's lots of activity on the discussions about various different tax packages in Washington. One thing I think is for certain is that the foreign sales credit is going to disappear. We have not built that into any of our numbers as we go forward. We do expect that with the various different alternatives that are being discussed in Washington that some of those may benefit us, but we'll just have to wait and see what final tax package comes out.

All right. Thanks.

Thank you, Christine.

We'll take our next question from David Driscoll with Smith Barney.

I just wanted to come back with a quick follow-up on something you said a moment ago. So in 2000, we saw good bean crops in both South America and North America, but that was when we had, I think, the worst North American margins that we've ever seen. This would apparently contradict the statements that low bean prices are good for crushers, so I think, if I may, that what you guys are saying is that the low bean prices projected for the fourth quarter should be a good result for you. I guess the only thing I'm coming back at you with is that we saw low bean prices back in 2000, and that did not result in good margins. So is there some color that you might be able to add to this?

I think we have to differentiate a couple things, David. First, what really drives the margins is, one is the demand, supply, and capacity utilization, so what you had in '99-2000, we had really a down cycle in our industry because of excess capacity. We had very high margins in '95, '96, and there was a tremendous increase in capacity. So the issue in 2000 was all about capacity utilization. Very clearly, very, very clearly about that. There's no question about that. The second point is you can see very high margins in '95, '96, and the soybeans had a very high price. We also had high crushing margins with lower soybean prices, so that gives you a little bit idea that the crushing margins, you can have it with a high soybean price and with a low soybean price. Now, we tend to like more the situation when you have a very good crop, because there are lots of beans available. So that tends to be a little bit more positive for us, for the crushing industry as a whole.

Okay great, thanks a lot, everybody.

Thank you, David.

We'll go next to Eric Katzman, Deutsche Bank.

I think in the release you listed that the volumes for the consolidated corporation were up 5% excluding Cereol, but I don't think that you adjusted the operating performance numbers for excluding the acquisition. So that's up 15. Do you have that number, ex Cereol, and obviously excluding the gain.

I'm sorry, I do not have that number. We have not calculated it.

Well, you were assuming that Cereol is going to be, I guess it was 8% to 10% accretive? Is that for the year, isn't that correct?

That is correct.

Okay, so all right. Maybe I can try to back into it. Thank you.

We'll go next to John McMillin, Prudential Equity Group.

Hello again.

Hi John.

On the highest soybean crush margins in China right now? I know you're not crushing there but to the extent you look at different crush margins around the world, aren't the highest margins in China?

Right at the moment I'd say they're probably in Argentina. But soybean crush margins are high and good in China, if that's what you're asking, yes.

Well, I'm just saying to the extent you find yourselves disadvantaged not being there, I don't know if that's been the case in the past, but just to take Lenny's question and go forward a step further with it, Alberto.

That's a very tough question, because when we look at China, you have to be careful when you look at crushing margins in certain areas you have crushing margins that are very high, but the expense is also high. For example, let's take one example. In western Europe, crushing margins in Spain are much higher than they are in other parts, but also the average plant sizes are smaller, and you have logistics, cost, and so on. So you have to look at the total picture in China. Our concern in China has been always it's fine, okay, you make the money and how are you going to get out the money, how is the dividend flow? So we have been following China very closely and looking at the developments there. It's obviously a huge, 1.2 billion people, out of 6 billion world wide, it is very relevant, and at the moment we are quite happy with being a very large significant -- it's a very, very significant being a partner in selling to our customers in there. So it's the law, application of law, governance, so the jury is out there. So we are a little bit uncomfortable. But we are looking at it very carefully. We see there's positive development and we are watching it daily. We have a large team there, but when it coming to value for us it's also value is it liquid? Can you get dividends out? Can you repatriate and so on.

No, that's good. Hunter, can you refresh me a bit, when you reported calendar 2002 earnings, which were 266, you talked about a level of profits that kind of came from really just unusual currency trends, and I think you actually quantified it in that late conference call. Was it 30, 40cents? Do you remember what that number is?

It was 40 million that we disclosed at that time.

40 million after tax?

Yes.

So basically 40 cents --.

Basically 40 cents.

One more time, why that won't flow against you in the current currency environment, or is it and you're just kind of offsetting it?

It is flowing against us.

With a higher tax rate.

With the higher tax rate.

For the full year, built into our guidance.

Okay. Thanks again.

John, if I could just follow up on Asia for a second.

Okay, I'm sorry.

We do have a strategy for Asia, and Asia is both China and India. Those are both enormous consumption markets. You've seen you starting to execute part of that strategy. We made the announcement that we've reached an agreement to acquire the edible oils business of (hinda stand lever) (ph) in India, we already have crushing operations in India. It always pains me to say nice things about Hunter, but we're sending one of our best and our brightest to Singapore as CFO in order to beef up our team there, and we've already got some extremely good people there. So we have a good strong development strategy for Asia, and I think you will see us doing some things there in the future.

Okay. I'll be watching thanks.

At this time we are standing by with no further questions. Mr. Smith, I'd like to turn the conference call back over to you for any additional or closing comments.

Thanks everybody for joining us, and we'll see you next quarter.

This does conclude today's conference. We appreciate your participation. You may now disconnect.--- 0