Bunge Global SA (BG) 2003 Q3 法說會逐字稿

Good day everyone, and welcome to the Bunge Limited's third quarter conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Ms. Susie Ter-Jung, Colobel [ph] Communications Director.

Thank you everyone for joining us this morning. Welcome to Bunge Limited's third quarter 2003 earnings conference call. With me on today's call to discuss our results, are Alberto Weisser, Bunge's Chairman and CEO, and Bill Wells, Bunge's Chief Financial Officer.

Before I turn the call over to Alberto, I would like to read the safe harbor statement. This call may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about future financial and operating results. These statements are based on management's current expectations and beliefs, and 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 can be found in our SEC filed reports. Now I'll turn the call over to Alberto.

Good morning. The third quarter was a challenging one for Bunge, but overall we are very pleased with our results. This quarter clearly demonstrated the benefit of balance in our business, with strong results in our fertilizer and food products divisions helping to offset weakness in our North American agribusiness operations. These benefits from fertilizer and food products were actually greater than we had expected. Recent increases in soybean prices, due to crop problems in North America, and continued strong demand, have been good for South American farmers. Farmers in Brazil have increased soybean acreage in response to higher bean prices, and this helped our Brazilian fertilizer operations as the planting season is underway in South America.

In addition, our food products division particularly benefited from the acquisition of Cereol. You will recall that when we first spoke about this deal, two of the primary reasons for the transaction were that Cereol is well established in Europe, with a number of strong edible oil brands, and that the acquisition greatly enhances Bunge's presence in Europe. Our strategy was validated this quarter, as the European edible oil business played a significant role in helping to offset the challenging oil see processing environment. Undoubtedly one of the major factors in this quarter was our expectation in July for a record year soybean harvest and the strong crushing margins in North America as a result.

Instead over a one month period in the late summer, hot and dry weather conditions in the Midwest turned USDA soybean harvest forecast 180 degrees, and we now expect the lowest crop yield since '96/'97. This, after last year's short crop, means raw material availability will continue being scarce, pressuring crushing margins and operating profitability. As we have said to you before, drought is a significant risk in agribusiness, and regrettably that has clearly demonstrated this quarter.

Nevertheless, there are positive aspects to this situation. Demand remains strong in all of our three divisions. The South American farmer is responding to higher prices by planting record acreage. This may potentially benefit South American margins and fertilizer demand. In addition, higher edible oil prices are generally good for Bunge's food product division. We are also making good progress on our Asian strategy. During the quarter, Bunge in India acquired an oil seed processing plant, and also Hindustan's viable edible oil business. Both transactions strengthen our ability to deliver quality edible oil and margarine to the world's largest importer of these products. It is an exciting market. Edible oil consumption has grown at 5% per annum over the last five years, and Bunge is now well positioned to capitalize on this growth. I will now turn the call over to Bill.

Good morning. Let me begin by giving you some perspective on the third quarter. The third quarter typically represents the tail end of crushing activity in South America, and the beginning of the harvest in the United States. It is also the midpoint for the fertilizer selling season in South America. It is important to remember, when comparing this quarter to the third quarter of last year, that last year's results were assisted by a 27% devaluation of the Brazilian real, versus a 2% devaluation in the current quarter.

As stated previously, Bunge's agribusiness segment experienced a tough third quarter. While sales volumes increased 42%, income from agribusiness operations decreased 75%, or $213m, to $71m. However, a reduction on foreign exchange losses on U.S. dollar denominated debt, financing commodity inventories, substantially offset the reduction in income from operations.

The drop in results was primarily due to short 2002/2003 crops, and the sharply reduced outlook for the current U.S. soybean harvest, which decreased the effectiveness of our hedging strategy, and negatively affected crush margins in North America and Europe. The difficult environment was partially offset by sales volume increases in grain origination, oil seed processing, and international marketing, due to the Cereol acquisition and increased sales to Asia and Europe.

Turning to Bunge's fertilizer segment, sales volumes increased 10% and income from operations increased 18%, or $13m, to $85m, a record for this segment. Fertilizer prices continued their rise from last quarter, due to international raw material price increases. Brazilian fertilizer is priced to import parity. Retail fertilizer product sales were robust, as South American farmers increased their acreage in response to higher soybean prices and bought nutrients in preparation for the upcoming planting season.

In Bunge's food product segment, sales volumes increased 29%, and income from operations increased 43%, or $9m, to $30m, reflecting improved results in both edible oil and milling and baking products. Edible oil results were driven by Cereol and improvements in Brazil, specifically margarines and mayonnaise. New branding and packaging strategies, cost cutting, and portfolio rationalization measures were implemented in Brazil, helping to drive results.

Non-operating income improved by $165m this quarter compared to the same period last year, primarily due to a decrease in foreign exchange losses in Brazil on our U.S. dollar to nominated debt. Our quarterly effective tax rate decreased from 35% to 28%, largely because we recognized U.S. foreign sales corporation benefits relating to exports.

This quarter we also completed the sale of the Lesieur business in France, to Saipol, Bunge's existing joint venture with Sofiproteol. We used the $491m net cash proceeds from this transaction, and from the sale of our Brazilian ingredients business to Soleil to reduce outstanding debt. As a result of this, and strong operating cash flows, our net debt reduced by $849m since the beginning of the year. Bunge's balance sheet and debt coverage ratios are extremely solid.

Now let me say a few words about the outlook for our business. The U.S. crop situation will continue to cause volatility. Nevertheless, it will also create opportunities. In particular, operations in fertilizer and South American agribusiness are likely to benefit from increased volumes and margins if the current planted acreage delivers a large soy crop. Also, large crops of sunflower in Eastern Europe, canola in Canada, and soy in India, may potentially benefit our edible oils business as we move forward into 2004.

Overall demand in all three of Bunge's divisions continues to be strong, providing a firm underpinning for our results. In light of this outlook, we are providing earnings guidance for the fourth quarter of $59m to $69m, or 58 cents to 68 cents per fully diluted share. For the full year, we are increasing our guidance by $10m to $370m - $380m, or $3.67 to $3.77 per fully diluted share, based on 100.9m fully diluted shares.

We are confident that we remain on track to achieve all of our main business objectives for 2003, and to deliver our long-term financial targets in 2004. Now we will be happy to take your questions.

Our question and answer session is conducted electronically. If you would like to signal to ask a question, push star, one, on your touchtone phone. Please make sure you haven't muted yourself, that will block your signal. Our first question comes from David Driscoll at Smith Barney.

Good morning everyone. I just wanted to go over the third quarter EPS results for just a moment, and for the full year. Back on September 16 you issued guidance between 75 and 80 cents a share. My first question here is, did this guidance include what I think is a one time gain of $11m from this post retirement benefits?

The guidance did include that gain. Now the gain was a little bit higher than we had anticipated, but the primary effect of us having higher results for the quarter than we had indicated in our previous guidance, was that the fertilizer business and the food products business were both a bit stronger than we had anticipated, and in fact agribusiness in North America was also a little bit better than we had anticipated post that guidance.

But it is accurate that that $11m gain in the quarter is not going to reoccur next year?

That is correct. Now let me remind you, however, that in the same quarter of last year we had about $10m in unusual items. If you're looking forward into the fourth quarter, the fourth quarter of last year had about $30m in unusual items. So you should probably maintain that in your mind when you're thinking about comparing the numbers.

The $30m of unusual items in the fourth quarter of last year; that was related to the tax issue that we've talked about in the past?

That's correct.

OK. The nine-month results also indicated that the post retirement gain was $17m I believe, which indicates that there's a $6m number in the first two quarters of '03?

That's right, it was in the second quarter, and what both of these gains relate to is, first, in the second quarter, a transfer of some employees to Soleil when we sold the ingredients business to Soleil. The most recent gain relates to aligning the benefit plans between Bunge and Cereol, which created this gain.

OK. So I think it's accurate to say that the earnings from the company from its core operations, excluding all the one time gains, the Soleil transaction and this post retirement issue, in the third quarter it would be 77 cents a share and then again if I stripped out all these items for the full year, I would calculate a range of $2.39 to $2.49. Again, all I did was take your numbers, subtract off the 111, and then again knock off the $17m for the nine-month number in terms of those post retirement benefits. I'm really trying to understand the full operation, so that's the base that I'll think about, when thinking about 2004.

I understand, David. I also think when you're looking back to 2002, you should consider that $40m of unusual items in 2002.

I always have. OK, very good. I want to move on and ask a couple of other questions. In terms of--Alberto this is kind of a question for you. We talk about the negative impact from what happened in the North American market because of the poor crop. However, clearly Bunge has very significant offsets in its fertilizer division, of which you're the largest player in South America. Certainly you're the major player in phosphates. So the company accrues very big benefits when good things happen to South America. Although the North American crop is a bad thing to your assets here, I feel like the net benefit is positive to Bunge as a corporation overall when we include the higher margin that you'll likely see on crush margins in South America, in combination with the benefit your fertilizer division will get through additional fertilizer sales, and also probably higher margins. Do you agree with that, and if not, what do you think?

We agree with you, David. The only thing is, obviously we had a very good example this year with the crop. In July we were out there saying this will be a fantastic crop, and August was not very good. So we are at the very beginning of the season in South America, and the planting is happening. So, we have to be very cautious about it.

But we do feel with the balance we have, we have a significant amount of the agribusiness in North America, but more significant in South America. Now in Europe, we have a very good balance on the agribusiness side. And Fertilizer helped significantly in South America. So, probably net-net, it's either the same or net positive for us.

David, let me make the point that despite considerable volatility in the North American agribusiness this year, when we were actually expecting a reasonably good year at the beginning of the summer, and also some pretty strong headwinds from currencies in South America, we're still on track to deliver the same earnings targets that we gave to you at the beginning of the year. So, I think that speaks very well for the balance of the business.

Right. I think that a lot of clients assumed that the South American business would continue to perform as it has. And then, next year if North American Oil Seeds does better, they'll just want to add those profits. And it's my opinion, though, that South America gains a benefit from some of North America's woes. So, it's not always very clear exactly what's going to happen in a future period when the crop rebounds.

I think you are right. If one has more benefit because of the drought, it's South America. So if you have a normal environment here, you will have a more normal environment in South America. That's correct. And that's exactly why we like the balance that we have.

Very good. On the fertilizer division, the gross profits were up, I think, $27m, or 27%, and operating profits were up $13m, or 18%. What's going on in terms of--I would've expected operating profits to maybe be a bit stronger. Am I thinking about that right? Was there something that happened? Or, did you have to add something on the SG&A line for the fertilizer business down there?

We have a strong currency effect going on in the SG&A line this year. Because of the stronger currencies in South America, that is clearly affecting the costs when they're translated back into U.S. dollars. So, I think that's part of the effect that's going on.

Also, the other big issue in the SG&A line is Cereol, of course, adding Cereol's SG&A.

And the last quick question would just be on your unallocated expense in the operating income section. It was down, I think, $8m to $5m, from $13m in the year-ago period. I think last quarter it was, oh, I don't know; I think it was $10m or so. What's going on with that particular number, and how should I think about that, going forward?

I think we would continue to see a smaller number, and perhaps even declining a little bit more. We've been doing more work internally to make sure that we're allocating all of the expenses that are possible, and correct to allocate to the operating divisions.

OK, super. Thanks a lot everyone.

Our next question comes from Ken Zaslow at Morgan Stanley.

Good morning everybody. Can you give a little bit more color to what happened in the last two weeks of the quarter, that really improved your performance by, I guess, about 10% or more?

We saw an extraordinary September in Fertilizers. Susie actually has some statistics on fertilizers. Why don't you mention those, Susie?

These were published by ANDA, which is the Brazilian Fertilizer Association. And if you compare retail volumes in September of 2003, vs. September of 2002, they increased 20%. And raw material volumes in the same period were up 23.6%.

So, is most of the variance in those last two weeks from the Fertilizer business?

It's a good piece of the variance. In addition, when we did the final calculation on the curtailment gain, that came in a little bit higher than we had anticipated. And also, I think the situation that we had thought would be relatively negative in North America, post the USDA announcement in early September, turned out to be not quite so negative.

OK. The next question I have is, you know, notwithstanding the benefits of the Cereol acquisition over the long-term, do you think it played a role in somewhat limiting your growth in the near-term, because of the focus on North America? Or, do you think it balanced out throughout the quarter? How do you perceive the Cereol impact during this quarter?

I think the growth continued, as before when you see the growth rates. And obviously what Cereol brought was even more potential. When you remember, one of the reasons was to have access to the Eastern European markets. We are having now a very good Sun Seed crop in Eastern Europe. We're also having a very good Canola crop in Canada. So Cereol is adding good volume, good growth to it, in addition to being more efficient.

You know, the U.S. eastern Corn Belt is a little better than the western Corn Belts over the plants of Cereol. And the eastern Corn Belt, we are very, very happy with that acquisition. In addition to the savings in logistics by shipping all the needs of the 4m tons of soybeans that before Cereol had to buy in the market, we are originating and shipping it ourselves internally, with the same fixed costs. So, between efficiency and growth we are quite happy where we are with Cereol.

It clearly would've been a worse quarter without Cereol. Cereol, year-to-date has been accretive and we expect that Cereol will hit its accretion and synergy targets for the year.

And my lat question is, were there any lessons learned from this quarter's hedging strategy related to the poor soybean crop that would make you do things different, besides 20/20 hindsight?

When we are putting our hedging strategies in place, we're always doing it based on a scenario of what we expect is going to happen with the crop, going forward. I think the process actually worked perfectly well. It worked exactly as it is supposed to work within the Company. We've taken a look at that and we're very comfortable with the way that we did things.

I think we may want to try and do things a little bit quicker, in terms of adjusting when we think that scenarios are changing. So, there are some things that we need to be critical about and we can always improve this process.

But let me remind you that what we saw back in August was a swing-in, in a one-month period from one of the largest crops ever, in U.S. history to a relatively small crop. And that swing was one of the fastest that we've ever seen in the commodity markets. It had an extremely strong result on shifts within the market. So it really was quite an abnormal situation.

OK.

Our next question will come from David Nelson, at Credit Suisse First Boston.

Good morning. Sorting through all these unusual items, you get to about $2.60 this year for guidance. Would you say that $2.60 level is a usual level, from which we would then grow per your expected guidance?

Within that, there are a few unusual items. The $17m, for example, of curtailment gains is something that I would term unusual. Obviously, when you're giving us that number, David, you're excluding the $1.11 in gains on the sale of the Brazilian Ingredients business. So, those are probably the two major things I would focus on.

So, it would be $2.60 less the $17m, would be the proper base?

I think that's logical.

Great. Looking at currency, the real is certainly, vs. a year ago, stronger than it was. If rates between the real and the dollar stay the same way they are today, what kind of headwind in earnings, profits or however you'd like to say it, would that be in '04, do you think?

Well, for our projections and guidance that we have given, we've been assuming both the real rate and the rate on the Argentine peso at the current spot rates.

For Q4?

For Q4. As we look forward, into next year, the biggest headwinds we have from foreign exchange are actually in Q3 of this year, and Q4 of this year. The headwind becomes less as we go into next year, because the real has been devaluing for most of the year, this year. I'm sorry. The real has been strengthening for most of the year, this year. But each quarter that goes by next year, the currency effect becomes less.

By the time we get into the third and fourth quarters of next year, if the real and the peso are at the current levels, we would see no negative impact from currencies.

But quarters one and two, how material do you think that might be?

There will be some effect, but it will be far less material than in Q3 and Q4 of this year.

OK, thank you.

Our next question will come from Christina McGlone, at Deutsche Bank.

Thanks, good morning. About a month ago when you had revised third quarter guidance, you talked about South American farmers holding on to beans longer than usual, and that you anticipated that they would be selling those and that would ease the fourth quarter. Has that met your expectations? And how much should that help the fourth quarter?

I would say that it really did not affect us, because pretty quickly after that, after September 11th, when the USDA announced a crop report, the bean prices went up and the farmers continued selling, and we had stock. So, probably it improved the margin picture a little bit. So, it did not affect our inventory situation in either country. Overall, it has been positive for the farmers and therefore we saw a slight expansion on the margins after that, in South America.

So, it's not really providing a benefit to the fourth quarter, this increase in selling?

Probably a little bit, because we believe that last year's crop was very large. So it's a question of how long it can last into how long they continue selling and how long we can continue crushing. But we see a slight benefit in the fourth quarter.

And then, following on Dave Driscoll's question, is there any sort of one-time item expected in the fourth quarter?

If there are any one-time items, then we would have put them into our guidance.

OK. And, given the recent direct stake in Fosfertil, is there any way, Bill, you can give us some sort of guidance around minority interests for next year?

The minority interest number, I think, will be slightly less than it has been for this year, because of our acquisition of some shares in Fosfertil. I don't think that we will see a really material difference, however.

OK, and then the last question is, could you give us an idea of what the full-year tax rate will come in? Because, this quarter's tax rate was lower than I was expecting.

We're still expecting that the full-year tax rate will be between 30% and 35% effective tax rate.

Thanks very much.

Our next question will come from John McMillin at Prudential Equity Group.

Good morning, everybody. Bill, when you say they're built into your guidance, I guess I'm asking, when you give this fourth quarter guidance number, are you building in--or what are you building in for continuing non-operating gains like we've seen in the third quarter?

In our guidance, John, we're giving you our best picture of what we think is going to happen in terms of the bottom line number for that quarter. I'd rather not get into what the different elements of that are, operating or non-operating etc., and if there are any one-time expenses or one-time gains associated with it. We'll give you all those details--.

Well, can we just go through it, because I didn't know anything about this second quarter 6-cent gain. And maybe it wasn't as big as the 11-cent gain in this third quarter, but I think if it happened in the second quarter, and it happened in the third quarter, why won't it happen in the fourth quarter?

Well, because we've completed the process of merging those pension funds.

OK.

That 6-cent gain, by the way, was disclosed in the 6K.

But not in the press release?

No, because it was not material enough to make it to the press release.

OK, I must've missed it there. OK, I'm just trying to--but, and you're just not going to go into fourth quarter assumptions, operating or non-operating?

I would prefer not to.

Just in terms of the hedging strategies, Alberto, you know, I might not read all your footnotes, but it does seem to me that you have a kind of thicker list of footnotes than ADM and some of your competitors. I don't know, you know, hedging activity, but it appears to be a little bit more aggressive than your competitors. Albert, would you agree with that? And, you know, I guess the good news here is this hedge has gone. You've cleaned it up, and it's gone. But, do you feel like you're more aggressive than your competitors in hedging?

I don't know what they do. What I know is that what we do is, I feel very comfortable and I feel that we are very conservative. When you think about it, we have 36m tons of crush capacity on our agribusiness sector, and you start the year long fixed costs. So what you have to think about, and you have customers to attend, so when you start thinking about it we look at all our different risks, and we try to minimize the risks.

So probably the worst you can do is not hedging. We feel quite comfortable, and we feel that we are conservative. I don't know that the others do, but we feel good about it. I think it has shown even in this quarter, which was probably one of the most volatile, most difficult quarters if you have to hedge yourself on price risks. So I'm very comfortable.

The mid-September press release talked about an erosion of crush margins, that frankly I did not see at the time, and I still don't think it looks that bad. Can you comment, or update us, on some of the things that were said in that press release, and what you're seeing now?

The crush margins have been lower in the U.S. this year vis-à-vis previous years. Because of the smaller crop in 2002/2003, there were not enough available beans, so you remember we shut down two plants, Kerr and Marion, because of lack of availability. So by shutting down plants you end up having more fixed cost to cover. So the cash crush margins were lower. You have to separate between the future crush margins and the cash. So the cash margins were lower this year vis-à-vis last year. It was a much more difficult environment.

I just take cash prices that I see every day in the paper, and I don't pretend to do it better than you do. But I just look at cash margins every day in the paper, and it looks to me to be better than last year. I'll go through the math with Bill or somebody, because I don't see that.

If you are mentioning today, today the margins are better. But if you take the nine months, I understood that you were talking about the whole nine months.

No, I was talking about the quarter, when you came out with the press release talking about how--.

The quarter was lower overall than last year.

We were anticipating that this reduction in the crop would have a severe negative effect on the cash margins. I would actually have to say that we're pleasantly surprised that cash margins are a little bit better now than we thought they would be.

When you talk about cash prices, John, you have to remember the one you see, there's still a lot that goes on between when it comes from the farmer till it ends up in your silo, from your silo to the plant, there are lots of other items that come in. Humidity, all kinds of different components that change the real cash price and the one you see.

OK, well thanks for everything.

The next question will come from Leonard Teitelbaum at Merrill Lynch.

Good morning. I'm afraid I'm, like my colleagues on the call, still a little hung up on a couple of things. Maybe we can try and get it straight. Bill, I thought your response earlier was that in your guidance for the fourth quarter it didn't include unusual items. Then your response to John was that you don't want to go into the details. I hope I'm not reading too much into it, but it implies that there might be some unusual items in that guidance. I think, without going into detail, could you tell us whether your guidance includes any unusual, or what would be considered by us to be unusual, items?

I just would prefer not to go into that detail at this point. My first response was to say that if there were any unusual items anticipated in the fourth quarter, we would include them in the guidance. I'm not saying that there are, I would simply prefer not to get into the different components of fourth quarter numbers at this point.

I guess we've beaten that one about as much as we can. When you adjusted your earnings back in September, how far out of position were you on your hedge? Were you open, and decided to put the hedge on after the crop report? Can you talk to us on the earnings revision now? How much of that related to where you had to put on a hedge versus operations?

Normally when you go into a situation at that time of the year, you're normally all very hedged. You don't want to have any risk out there. So that is the simple answer. Obviously no hedge is completely perfect, the difference between the bases. But normally when you go into - we, when we go into this more volatile time of the year, we are completely hedged.

Well we know you can't hedge bases, and my assumption had been that the bases got away from you and the price of beans shot up over and above the hedge, and basically that hurt your crush, and that's what led to the downward revision. But I don't want to read too much into that. Is that really what happened?

No, I think you're reading too much into it. What we saw in the revision was that we would see a smaller crop; we would have less available products to crush. Then there would be more pressure on the beans, so you end up - when you have a smaller crop there's a tendency that you would have smaller crushing margins.

Right. Well I guess the presumption is that if you were fully hedged that would have been immaterial. But I'll follow up offline with that. The second thing is, your hedge strategy for now. Have you hedged in your crush margins for the December and March periods?

We have a hedge strategy in place that we think is oriented toward the current market conditions. We don't want to get into too much detail on how far forward we are hedged. I think we have a good position through the end of the year. A lot of what we're concerned about is the pure physical availability of beans, having beans to crush. I don't think any of us should kid ourselves. We have good cash margins at the moment, however, those cash margins are almost certain to decline at some point in the future when beans start running out in the U.S. The function of this market at the moment is to ration beans in the U.S., because there's not enough of them. So the question is, when those margins will begin to decline.

We knew that this situation was likely to develop when we revised guidance. We are, as I said, pleasantly surprised that it has not developed yet. However, we do believe that it will develop at some point in the future.

That is the beauty of the balance, having North American and the South American business.

Lastly, what is the tax rate assumption for the fourth quarter, please?

We're assuming that for the full year we'll be between 30%-35% effective tax rate.

Aren't you running substantially below that now?

No, I don't think we're that far from it. I think we're probably at the lower end of that range.

All right. That's all for now. I'll follow up offline. Thank you very much.

Our next question will come from Christine McCracken at Midwest Research.

Good morning. Touching a little bit on what you were just saying, relative to the availability of beans. China has been in buying pretty aggressively, and the expectation, I think at this point, is that you are going to be a little tight on beans, particularly in some parts of the U.S. As you develop your strategy in the U.S., are you looking or anticipating shutting down some more capacity? How are you going to source beans here in the U.S. as we head into the spring? Is it possible that you'll pull some beans from South America, or is that highly unlikely at this point? Could you just comment on what your outlook is there?

We believe that the China demand is normal. We had a large demand at the beginning of the year, then there were a couple of months where it was very quiet, and they're buying again. It's a huge demand for this year; I think we're talking about 20m tons. So it's very large. But it's inside our expectations. So at this stage we believe that we are going to have a similar situation in probably 2003/2004 in this crop like we had in the last month. So if necessary, we will take down plants. At this stage it's too early to talk about that.

All right. In terms of shipping from South America, are you starting to move a larger amount of beans? Is that helping your origination volumes from South America at this point, as China starts buying again?

Yes. We are shipping it from both continents, from North and South America we are shipping to China.

Just on this foreign sales corp change here, it's still being talked about I think, that they're coming up with an alternative tax arrangement in place of this current policy. Could you comment on how that might affect you, and if you have any new developments relative to that?

Well we know the foreign sales corp benefit is going away, and that will have a negative effect on us, because it has assisted us in past years. We don't really know what's going to happen with the new tax that will come in to substitute it. What I have seen is that it appears to be a more general tax benefit to corporations, as opposed to targeted specifically at exporters. So we would probably receive a benefit, as will a number of other companies.

At this point it looks like kind of a next fiscal year event?

Yes.

OK. Then just finally, I've been reading lately about this new GMO policy in Perna [ph] seeing some disruption lately. Can you talk about how your ports are positioned relative to that disruption, and if you expect, or if you have anticipated that in your current guidance?

You have to remember that Perna has something like probably 10%-12% only of the Brazilian soybean crop, so it's less than 10 of the South American crop. This is a little bit of a political, emotional situation at the moment going on. They cannot stop the farmers. This is the time that they are planting, so the consequences on the flow of the crop are minimal. So we have so many other ports we operate from we don't have any disruption there. So we believe that this will be settled very soon until the harvest starts. There's probably more noise than substance at the moment.

Thanks.

We have a follow up question from David Driscoll at Smith Barney.

I just wanted to ask you real quick about the crush margins. I think John was asking about this too. What we've seen is it's not necessarily an absolute higher level. I've seen a higher volatility. Just a couple of weeks ago we were calculating board margins down at the 30 cent level, and just yesterday I could calculate one at the 70 cent level. So it's really a question of--I'm just curious as to why you think it's doing this, and how does meal demand look? Again, it's my impression that the major movement in the crush margin itself has been related to the price movements in soy meal. What's your outlook on that basic item, and is that really the item as to what's driving the margin right now? Then any color that you can give us on the sustainability of that would be incredibly helpful, because that really makes all the difference in the world in the fourth quarter and in the first quarter next year.

We believe that one of the reasons the crushing margins are a little bit better than we expected, and one positive component is that the corn prices are a little bit lower. So the livestock producers, the feed millers, they need a little bit more corn than they need soybeans. So there is a balance, so that is helping us on the margins. We are positively surprised that the margins are, at the moment, better than we expected.

OK, thanks a lot.

Mr. Wells, we have no other questions at this time, so I'll turn the call back over to you for any closing comments.

Thank you operator. We'd like to thank you all for attending our conference call, and look forward to speaking to you next quarter.

Thank you. That does conclude our call. We do appreciate your participation. At this time you may disconnect.