Bunge Global SA (BG) 2006 Q1 法說會逐字稿

Good day, everyone. And welcome to Bunge Limited’s first 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 Mark Haden. Please go ahead, sir.

Thank you, operator. And thank you, everyone, for joining us this morning. Welcome to Bunge Limited’s first quarter 2006 earnings conference call.

With me today to discuss our results are Alberto Weisser, Bunge’s Chairman and CEO, and Bill Wells, Bunge’s Chief Financial Officer.

Bunge’s reconciliation of non-GAAP measures disclosed orally on this conference call to the most directly comparable GAAP financial measure are posted on our web site, www.Bunge.com, in the investor information section.

Before we proceed, I would like to read the Safe Harbor statement. This call may contain forward-looking statements within the meaning of the Safe Harbor provision 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.

And, now, let me turn the call over to Alberto.

Good morning, everyone. Overall, we performed as expected in the first quarter of 2006, but with some shifts in the relative performance of our segments. Agribusiness results were weaker than anticipated due to freight management losses and reduced volumes in South America and southern Europe. Results in fertilizer were better than expected due to improved hedging of foreign currency. [Many of the] results were better than expected due to higher margins.

Many of the challenges experienced in 2005 continue, but we remain focused on delivering results and continue to focus 2006 to be a year of improved operating performance for Bunge.

The operating environment in Brazil is still difficult but we are making progress managing through it. Measures taken at the end of last year to improve performance have begun providing benefits. We took additional steps during the quarter, as well, by permanently closing [oilseed] processing plants in Brazil to improve the efficiency of our global footprint and further reducing our workforce to decrease costs.

To date, we have reduced staff in Brazil by over 10%. This represents over 1,400 people. We have now closed five oilseed processing plants and idled seven fertilizer facilities as other measures. We expect these measures help offset the affects of a stronger real. The stronger real high transport costs and large global stocks are contributing to lower local soy prices in Brazil, that will pressure farm economics through 2006. The

Agribusiness market is efficient, however, as current world commodity stocks are reduced by steady demand call for protein meal and vegetable oil, the market will price crops at levels that encourage the Brazilian farmer to expand production.

Our assessment matches that of the USDA, which forecasts that substantially all of the medium to long-term growth in global soybean production will occur in South America, especially Brazil. This is positive for both our Agribusiness and fertilizer business in Brazil.

Our strategy has always envisioned processing at both origin and destination, with large scale facilities in advantaged locations, linked by dedicated low cost logistics assets. Our recent closure of oilseed processing plants in Brazil should be seen as part of this long-term strategy. In fact, over the past decade we have taken numerous steps to consolidate our Brazilian capacity in larger, better located facilities.

At the same time we have increased or are increasing capacity in Argentina, North America, Eastern Europe, and China. This is part of a constant process of upgrading our global footprint to improve balance and efficiency.

Bioenergy is much in the news of late and represents a significant new demand source of our industry’s products. Bunge is positioned to benefit from the growth in demand for biofuels. We will increase our participation in this industry but in a way designed to maximize our returns and minimize the capital employed.

Our core businesses are well positioned to supply raw materials for biofuels, handle the byproducts of their production, and provide risk management services to biofuels producers. We will invest in selected biofuel projects, often through the core location of plans with our existing assets and provide raw materials and services.

Recently we formed the [Industries International], a biodiesel joint venture that operates plants in Italy, Germany, and Austria. The Industries International is the leader in the European biodiesel industry and is building a new biodiesel plant in Mannheim, Germany that Bunge will supply with vegetable oil from our adjacent crushing plant. Bunge is currently working on a number of biodiesel and ethanol ventures in Europe and in the Americas.

Our new global sugar business, while still small, will also provide insights into the global ethanol market. 2006 will bring challenges, but the Bunge team is responding objectively to deliver results. While we always experience market fluctuations [fundamental] demands will drive long-term growth. We will continue position Bunge to benefit from it.

Bill now provide an overview of our results and outlook.

Good morning. The first quarter is typically the weakest quarter of the year. It is the end of the North American harvest and the beginning of the South American. South American oilseed processing plants perform annual maintenance and fertilizer sales are at a low point for the year.

In Agribusiness volumes were lower due principally to slow farmer selling in South America and reduced Argentine grain crops. Grain management results were negative by over 20 million. Grain management was the largest component of varying results with the same period last year.

In Brazil a stronger real increased local costs and reduced results when translated into U.S. dollars, despite the lower local currency costs. The average real/U.S. dollar exchange rate strengthened 18% when compared to the first quarter of 2005.

Soy volumes and margins in southern Europe were affected by local outbreak of Avian influenza. Bunge’s North American businesses experienced good margins and produced stronger results despite higher energy costs.

First quarter 2006 results include 18 million of impairment charges related to the closure of three oilseed processing plants in Brazil and 2 million of cash restructuring charges.

Fertilizer results rose in the quarter, despite flat sales volumes. Improved foreign currency hedging offset the impact of a stronger real on margins and costs. First quarter 2006 results included a 2 million cash restructuring charge related to workforce reductions.

Stronger edible oil results in Europe due to higher volumes and better margins more than offset weaker results in the Americas.

First quarter 2006 results included a 2 million impairment charge related to the closure of the refining and bottling operations at two oilseed processing facilities in Brazil. Milling results rose due to improved product mixes in wheat and corn milling.

Interest income increased primarily due to higher levels of interest bearing accounts. Interest expense increased primarily due to higher short-term interest rates, partially offset by lower average borrowings.

Foreign exchange gain, which helped offset currency affects on constant margins in the first quarter of 2006, resulted from the affects of the appreciation of the Brazilian real when compared to the U.S. dollar at March 31st, 2006 versus December 31st, 2005 on the net U.S. dollar denominated monetary liability position of Bunge’s Brazilian subsidiaries.

The effective tax rate for the first quarter of 2006 was 16% compared to 30% in the same period in 2005. The decline in the tax rate from 2005 was primarily due to higher earnings and lower tax restrictions and the affects of a legal restructuring completed in 2005.

Measures taken to reduce foreign exchange exposures at the beginning of the year were responsible for most of the improvement in effective tax rate versus our original guidance for the year. And our interest increase when compared to 2006 due to lower earnings at [Respeto].

Net financial debt at March 31st, 2006 increased 141 million from December 31st, 2005. Cash flow use by operations was 54 million for the quarter ended March 31st, 2006 compared to 226 million used by operations in 2005. Cash flow from operations increased from last year, primarily due to reduced inventory levels

Now, let me discuss Bunge’s outlook and guidance for 2006. We are making progress managing through a weak operating environment in Brazil. Slow farmer selling should continue to affect Agribusiness results. The Brazilian fertilizer industry continues to expect flat to retail fertilizer sales.

North America should have a good year but a difficult comparison to excellent results in 2005. A strong domestic market for wheat milling and lower European seed prices benefiting edible oils results should contribute to improved performance in our food products businesses.

The Agribusiness market, especially in Argentina and southern Europe, will be more difficult and freight results weaker than originally anticipated. These factors should result in lower Agribusiness operating profit, especially in the first half of the year. We have adjusted our freight management to current market conditions and fully factored in the affects in our current guidance.

Our enhanced foreign currency hedging programs are working well. Net income affects of the continued appreciation of the Brazilian real should be mitigated by our initiatives to improve margins, lower costs, decrease our effective tax rate and reduce exposure to the real throughout our business.

Our 2006 guidance is 495 million to 515 million, representing $4.08 to $4.25 per share. This fully diluted per share guidance is based on an estimated weighted average of 121.3 million shares outstanding, and includes $0.06 per share for stock option expense, as well as the affect of impairment and restructuring charges taken during the first quarter. Further details are available in our press release issued this morning.

This guidance assumes the following: stable currencies in South America and Europe, normal crops, stable international fertilizer prices, and flat Brazilian retail fertilizer market sales when compared to 2005.

Due to a favorable recent court ruling in Brazil, we expect to be reimbursed certain amounts owed to us by the local electric utility in 2006. The value of these reimbursements has not yet been determined, and while likely to be significant is not included in our guidance.

Before taking your questions, we would like to formally introduce Mark Haden, who has joined us as Director of Investor Relations. In his previous job, Mark worked as Chief Administrative Officer of our corn dry milling business in North America. Mark will serve as our primary IRR contact and manage our investor relations function. Welcome, Mark.

We will now be happy to take your questions. Operator.

[OPERATOR INSTRUCTIONS.]

And we’ll go first to Ken Zaslow of Harris Nesbitt.

Good morning, all.

Good morning.

Good morning, Ken.

Just a quick technical question, you said in your remarks that this quarter came in as expected and this quarter is only a relatively small part of the full year, but yet you did take out full year guidance, what changed?

It’s basically the results in freight that we’re anticipating through the rest of the year, but more concentrated in the first half of the year, Ken. And, also, slightly weaker outlook in Argentina and southern Europe. Those are the main elements to the reduction, and that is concentrated in the Agribusiness segment. Everything else is as we saw it for the year.

The only other change is in the effective tax rate guidance, which has come down. We’re now looking at a range between 14 to 18%, and that’s because the hedging strategy we put in place at the beginning of the year related to our tax exposures, has worked extremely well.

We did see a reevaluation of the Brazilian real of between 7 and 8% in the quarter and, consequently, we got some benefits because of that hedging strategy that we think will remain with us for the rest of the year.

If I look out another year or so, do you think your long-term growth targets may be at risk given the potential for bird flu to create some sort of, or a reduction of chicken production out there, and the Brazilian real staying at these levels? Is there a risk to your long-term growth targets?

We don’t believe so, Ken. We believe that absolutely the same, our expectations have not changed. When you take the example, first, of soybeans, the demand is strong. The USDA estimates for this year a growth rate of real oil and beans of the whole complex of around 5%. We see the same.

You have to remember there was an outbreak of Avian flu in Asia in the past, but consumption of hogs and poultry is back, so it normally comes back relatively soon. And most of the pressure in the case of these outbreaks, most of the pressure is on the meat processing industry.

So, when you – the way we see it is that there is, because of the two strong crops we had in the past, the stocks are fine, so there are enough beans available for being processed. But if you do not have an expansion in the U.S. or in Argentina in the amount that is necessary, which are something, if you take the 5% rate you need something like 10 million tons of soybeans, additional soybeans every year. So, the additional demands will reduce the stock quite fast.

So, if the real, if the real stays where it is, let’s assume, and that’s the way we are preparing ourselves, when you think about our cost-cutting we have been doing. We are just assuming that this is the way it will stay, and we have to adjust the Company to this exchange rate.

What will happen is that the commodity markets are efficient, and the markets will need the soybeans, so if the real doesn’t give in, what will happen is that the prices of the commodities will go up. So, we are as convinced as before that we will continue seeing the growth rates.

If chicken production does get cut in ’07, doesn’t that represent a bigger component of soybean meal demand than hog production and the other proteins? And is that a concern to you?

Look, in the strongest outbreak we had in 2004, I think it was, the meal consumption was flat, so the bird flu crisis in Asia. So, we don’t see and the USDA also doesn’t see a reduction in significant reduction in the demand.

I would like to remember the situation of the mad cow disease in England. Six months after the outbreak of the crisis the consumption of beef was at the same level as before the crisis. So, the consumption of the meat picks up quite fast, and you can see it basically with the meat processing industry that they did not reduce significantly production.

We also have the factor of the demand for biofuels, which is something new, Ken. The amount of capacity which is under construction that should start coming on in the second half of this year and will be on for 2007 is huge in terms of biodiesel. That represents a lot more demand for vegetable oils, and that piece, consequently, the margin should consequently be healthier.

Not only in Europe but in the U.S., and also some of that in other parts, in Singapore and also in South America.

In terms of the crush margins globally, to what extent can you lock-in soybean meal prices in the future? It seems like the futures of soybean meals looks a lot lower than the current prices? So, how do you work through that in the shorter term in terms of locking in your margin?

We normally only do that for a couple of months because every six months there is a new harvest, either in North America and South America. Because normally you work through this over a couple of months, and the margin picture it looks decent. In North America the margin is decent, and it’s good. In Europe it is good. And despite the lower volumes in South America the margins in Brazil have also been good. So, the margin picture is okay.

Great, thank you.

Thank you.

Thank you. We’ll go next to John McMillin of Prudential Equity Group.

Good morning, everybody.

Good morning, John.

I’m trying to get at an operating tax rate, if you look at kind of a 58, a 61 operating number, or even a 63 if you add-back stock options. It looks like the tax given to these items was higher, so can you just give us – is the operating tax rate even lower than 16?

I’m not sure what you mean by operating tax rate, John. Could you explain that a little further?

Okay. I think you’re giving a tax rate on a reported number, correct?

Yes, that’s correct.

Okay. And I’m trying to back-out the charges taken in the quarter to get a $0.61 operating number, but when I do that I get an even lower tax rate than the 16 given, and I’m just trying to see what number you have for a tax rate?

I’m afraid I just am not following the calculation. Perhaps if you could explain it to us a little bit more offline we’ll try and do the calculation for you.

Okay. And then, and just in terms of other issues related to the tax, in the past you have said your expected tax rate for 2007 and beyond is in the 23 to 28 range, is that still an accurate statement?

Yes, that continues to be our assessment of what it should be.

Okay. And if this happens in 2007 it wouldn’t limit, I mean it wouldn’t limit your projection for long-term growth rates? As your tax rate goes down and down, this long-term tax rate just becomes somewhat of a hurdle.

Well, the long-term tax rate I think is reasonable for you when you’re projecting out the business. This year we’re experiencing a lower tax rate, primarily because of the hedging activities we undertook at the start of the year to protect ourselves against the revaluation of certain currencies.

If you have a reversal of an allowance for recoverable taxes in the quarter, there’ll be something in the cash flow statement of about $6 million that I see.

No, we did not have any reversal of allowances related to taxes.

Okay. You know, these hedges that you put in place, it seems to suggest that you thought the Brazilian real would stay stable or even improve, or is that correct? Because now as I understand the hedging activities on your tax rate, it essentially would be based on kind of putting these obligations into dollars. Am I reading that right?

As we have said in the past, what we’re doing is we’re hedging the inter-Company funding which is going into Brazil. And we’re concerned about the revaluation of the Brazilian real, the strengthening of the Brazilian real, so we actually swapped the inter-Company funding into reals out of dollars, so we’re in reals at a higher interest rate which creates a greater tax reduction for us.

Alberto, you know, I asked this last September, you know, just dealing with kind of this black box perception that some people have in terms of your – you know, you’re in a very volatile business. Clearly, there have been some negative trends in some of your core businesses, yet you still kind of want to show linear growth, you know, that you can kind of do this 10, 12%.

And I just, you know, you read your press release and it kind of, it appears like things are I mean you’re pretty straightforward about the challenges, yet you seem to try to get things on the bottom line to show something different than fundamental trends. Can you just kind of comment to that statement?

I don’t really know exactly what you mean. When we look at our business, first of all, you have to look at it on an annual basis. When you look at last year, we had an operating profit, $300 million lower than 2004, in [fertilizer business], so that was a very tough year for us.

So, we believe that we will recuperate a good portion this year. We will not be able to get back to trend line this year, but we will be able to be back probably at trend line next year, so that’s the way that we look at it. So, [fertilizer business], which is something like one-third of our business will recuperate this year partially and next year possibly completely.

Now, when we look at their volatility, and we saw it with freight and so on, but obviously the first quarter is the lower component of the year. And we look at it as the whole year. We see relatively strength in demand, the USDA sees the same with 5%. We might see a little bit more strength in demand from the oil side because of the biofuel component. We are comfortable with the growth from the demand side, so there are always going to be some issues.

You know, we have the strong real that reduced somewhat profitability in Brazil. At the same time, we are doing quite well with the domestic business in Brazil. We are doing quite well with the export of raw materials out of Brazil, processing them, and in Spain and China, and so on. So, the one component that is suffering more in Brazil is the processing locally for exports, so then I think we have adjusted that with the shut-down of the smaller plants.

We have some issues, like in Argentina there’s a little bit more capacity than the market needs, but it’s the right place. And probably if it’s not this year, it’s next year, the demand will even it out.

And so I’m – we feel – I feel comfortable with the fundamentals. We are obviously upset with, it was volatile last year and the miss in fertilizer was much bigger than we hoped. But we see it coming back, as you know the sugar cane business is doing very well in Brazil, the demand is very strong for fertilizer, coffee is doing well, orange juice is doing well, even the soybeans or grains who are close to the ports they are not suffering.

So, the area where we have some issues is with the grain and oilseeds that are being produced much further in the interior of the country. You have to remember that most of the inputs are in dollars, so with the strong real, also, the farmer is getting a break on the inputs, crop chemicals, crops, fertilizer and so on, but the freight is not.

So, I don’t know exactly the direction your question was, but when I look at it I see the trend line drawn, I see it perhaps because we are in the business we see how the year is evolving. I like always to say we have these 15 variables and if 11 are fine, it’s great. We had in 2004 more than 11 in our favor, and in 2005 we have less than 11. This year it’s probably still also less than 11, but we are moving our way back.

We look at it at as [growing] in operating profit, that’s the way we manage our business. So, we feel comfortable about this year, that we are getting back, we will not be back this year as you can see from the guidance, where we were in 2004. It will take a little bit more time, but I’m comfortable with the fundamentals, John. I do not see so much clouds out there. There are issues, and I tried to describe them now. And we have to manage it through, but I think we also have enough instruments in our hand to manage it through.

We made mistakes last year, I think you could argue, what I argue internally, also, why did we have a higher tax rate in the past? We could have perhaps done better, but these legal restructurings takes times, and we have also made mistakes in hedging last year. I think we have gotten it right the second half of last year and this year. So, it’s volatile but the fundamentals are strong.

If I could also just comment on kind of why we do this hedging of the tax exposure, it’s because it is a potentially huge cash cost to the Company if we don’t do something. The exposure is there, and if we did not hedge it appropriately we would have large exchange gains which would be taxable in Brazil, and we would end up paying a huge amount of cash taxes. And so by, that’s an exposure which is hedgeable and so we do hedge it in order to reduce that cash cost to the Company.

Yes, I don’t want to drag it on. It just seems to me when you call something a ‘bad’ hedge like you did in the last quarter, there is something of a black box, not gambling, but taking positions approach to it.

No, if you don’t do anything you take one. So, you have to take actions to minimize your risk. If you don’t do anything you are taking a gamble.

Okay.

There’s a difference.

I’m learning. Thanks.

Thank you. We’ll take our next question from Christina McGlone of Deutsche Bank.

Good morning.

Good morning.

Good morning, Christina.

Hi. I want to take [go into] fertilizer a little bit more. I’m thinking since you last gave guidance it seems like the environment has actually worked, with the real a little stronger, [prices] are down, and the Brazilian crop potentially coming in even under where the USDA is currently estimating.

So, I guess I’m a little concerned with the industry fertilizer sales, especially as we get into the season in July, and you report back in quarter, I’m worried if there could be maybe some down side in fertilizer that we’re not incorporating today?

Look, we spent quite some time last week in South America also to visiting different, including farmers and the business. The environment is tougher because of the stronger real, and that’s why we reacted by cutting costs.

And, now, you have to remember that the way you have to slice the fertilizer business is that probably 40% is grains and soybeans, or something like one-third to 40% soybeans, so 60% of the business is doing very well. Sugar cane is doing well. Coffee is doing well. Vegetables, orange juice, that’s doing well.

Now, all the grain crops which are a thousand kilometers away from the ports, they are, the prices are above variable costs, so the farmer will plant. Now, the reason we are seeing flat is that our assumption, you might be right that at the end there will be even less, but the farmer, if the farmer has a piece of land, these are fixed costs and as long as the crops for the expectation is higher than variable costs the farmer will plant.

So, we will know much better in June when the one-third of business is done in the first half, two-thirds in the second half. In June we will know much better how it will really evolve. So, but we still, you know, when we say ‘flat’ that’s not a good picture, especially when you think about the world needs the additional crops.

There’s another very important factor, which is that inventories appear to be well aligned in Brazil this year, as opposed to last year. Our numbers, I think we’re down 19% in terms of value of inventory at the end of the first quarter versus same period last year. And this is a huge factor that gives us some confidence about the performance of the industry.

Okay. And, Alberto, if you could maybe shift to Agribusiness, and can you talk about how much, what percent of capacity the [closed plants] represented? And how is that impacting utilization in Brazil and Argentina? And then what is going to make Argentina better going forward? Are we going to see more closures in Brazil or are you waiting for demand to catch-up with the current supply?

When you add it all up, the five plants, we are talking in Brazil, I think the total capacity is something like 6,000 tons per day, plus or minus. We could give you the exact number later.

But when you think about five plants, 6,000, it’s not a lot, so these were small plants. And just remind you the expansion we did in Argentina was 8,000 tons per day. So, it’s offsetting somewhat, but they used with a higher, with a devalued currency, they were profitable at that time. With this currency, they are not.

So, when we take them down it’s pretty sure at least from the 5, for sure 3 or 4, they will not come back because we shifted the production to Argentina and we shifted the production to China. So, Brazil will continue, we will continue doing grain origination or the logistics and the beans will come from Brazil, but we will process now in China, so with this new plant we have there.

Now, the additional capacity that came on stream in Argentina over the last three years, not only this year and last year, so it was partially compensated by shutdowns in Brazil, not only ours but others, many others shut down. There was a shift in Europe also from us and from the competitors away from soybeans to rape seeds because of the strong biodiesel demand there.

So, not all of the additional capacity in Argentina was picked up by reduction, so some of them will happen through the increase of demand. And Argentina is the right place to produce, it has a superior advantage in terms of location and being so close to the port.

So, the capacity utilization of our other plants in Brazil will be much higher, that’s why we will be more competitive in Brazil, and it helps mitigating the additional capacity in Argentina. So, our position is going to much stronger in Brazil in relative terms, although at lower volumes.

Okay. I think, did you mention your [inaudible] in the ethanol market in North America? Or did I hear that incorrectly?

We are looking at, our view is when you look at what we did on biodiesel in Europe, we have a partner, and what we are trying to do is like with a partner we are building, we have plants in Austria, we have in Germany and Italy, and we are building, expanded in Italy and Germany and we are building a new plant in Germany. So, informal partnerships.

Now, we, if there is an opportunity in the United States of where we would participate with somebody close to one of our facilities we would welcome that, and, obviously, we would be exploring these kinds of opportunities, as well.

Okay. And then I guess a last question, Bill, following on John McMillin’s question, when I actually strip-out the restructuring impairment charges but leave in the option expense I get a tax rate higher in the quarter than what you said was your effective rate. So, my question going forward would the tax rate be fairly even or is it going to, decline as the year progresses?

We think that tax rate in the subsequent three quarters should be within the range that we’ve given, which is between 14 and 18%.

Okay, thank you.

Thank you. We’ll go next to Christine McCracken of FTN Midwest.

Good morning.

Good morning.

Good morning, Christine.

Just backing up to your comments on biofuels, because you’ve followed this kind of partnership relationship in Europe and in biodiesel, I’m wondering is that the strategy you expect to take in Brazil?

And what is, I guess, slowing you down in terms of investing in Brazil, that market or that industry is fairly well established, and it seems like it would be a very good overlap with your existing infrastructure.

Well, we have to be – one of the characteristics, we are very focused. So, you see, we limit ourselves to our cash flow in terms of CapEx, so our guidance is around $500 million. And we have to focus a lot on the businesses we are in, so we are not really in the biofuel business, so this is more like we try to optimize the business we are in, plus investment in other areas.

Now, if there might be, that’s one of the reasons we are expanding, also, into sugar, because this fits very well to our capabilities. Now, if one day we invest in a sugar mill or expand in sugar mills, very naturally we would have to go into the ethanol business because in Brazil you have to be in both if you have, if you process sugar cane, you have to do both.

Now, if you do it, if we will do it and if it’s going to be along with a partner this is to be seen – you remember in China we also have said eventually we’ll go in there but one of the characteristics we have, we want to be very disciplined in terms of it has to make financial sense. And the opportunities we have seen so far in South America have not made too much sense from a financial point of view.

But long term, I think that you could expect we would be participating one way or the other in the sugar and in the ethanol business in South America.

All right. And then just in terms of the aid package that came out to help the farmers in Brazil, it seems relatively small but did that help in terms of the financial health of the farmer? And could that, I guess, support your outlook in terms of fertilizer sales for next year?

Yes, you know, you remember last year there was an announcement and nothing happened, so but this year at least it seems to be much more realistic and at least the first part of the package is a renegotiation which is already positive. So, but we have to be always careful with Brazil in how much money really makes it to the farmers between announcement and execution.

This time we see concrete steps and the local State Bank of Brazil, is already talking to the farmers, so this is in line, it’s probably a little bit more positive than we thought that would happen. And this is an election year so we are a little bit more optimistic that it should work out fine this time, but there it is probably more refinancing of the existing debt of the farmer than additional money. That’s why we do not see expansion in agriculture there, and, therefore, we do not see also an expansion in fertilizer consumption.

All right. And then just in the U.S., USDA is obviously looking for a pretty big increase, I guess, in soy acreage this year and a drop in corn, but it seems like at least from your comments that more corn might be going in given the current pricing environment, do you have any comments on what you’re seeing in the marketplace in terms of acreages?

We were a little bit surprised, as you were, as well, with the USDA estimate. And in total we see the same situation that probably we should not see such a large expansion in soybeans as the [figures] showed. So, but we will see soon. At the moment we probably also believe more that it should not be as much as it was originally said.

Right. And then just in terms of oil yield here in the U.S. they’re up I guess around 74% YOY, a pretty big increase. Is that just in front of expected biodiesel capacity, or what would you attribute that to? And is that a concern for you?

It is not a big concern, but it is a concern. And we attribute it to the fact that the yield, the soybean yield, the quality of the soybeans were very high. We had a very good yield and oil yield, and we continue having also very good production in canola in Canada and the imports of palm oil also have made a difference.

So, but these are the three reasons, but we believe that the high oil stocks should over the next couple of months should come back to normal, because the biodiesel demand we are seeing is quite fixed, it is coming up, it probably will not have a complete affect this year but they should be on stream by the end of the year. So, we believe that these high stocks will taper off or will be reduced by the end of the year.

All right. I’ll leave it there. Thanks.

Thank you.

Thank you. We’ll move next to Leonard Teitelbaum of Merrill Lynch.

Good morning.

Good morning, [Lennie].

Good morning.

With the storage capacity in South America is as full as we are led to believe, wouldn’t it be pretty close to where the farmer is going to have to start putting some grain on the market here? As the crop comes in, out of the fields?

Yes, you’re right. And in the last couple of days and weeks we have been buying on the very normal pattern, although it is when you take the YTD figure it is below, a little bit below last year and significantly below the normal years, but the farmer is selling.

When I heard your comments in the beginning, and I want to make sure I’m interpreting them right, Alberto, that one of the reasons the first quarter was below what I thought it was, that I think where I made my mistake I presumed there’d be better movement of grain and operating rates in the plants in the first quarter, obviously better than it turned out.

How do you – when you said, ‘you’re buying in normal patterns,’ do you see the second quarter being normal in terms of operating rates, or would that be much more of a third quarter phenomena?

That’s a very tough question, Lennie, because we look at it on a yearly basis. But I would, from a volume point of view, I would dare to say it probably should not be much different than last year from how we will be able to buy, do the grain origination. It should be normal.

It has accelerated a lot in the last two weeks.

Well, that was what some of the information that I had received, and I was a little surprised by the numbers. And I think it’s a timing issue. Bill, I don’t want to read too much into it and be wrong again, but it does seem like conditions are returning to normal, but perhaps more repetitive than the numbers would suggest. Now, I don’t want to read too much into that, but how would you react to that statement?

Well, clearly, we saw farmers holding back in the first quarter. Based on what we’ve seen over the last two weeks the grain is now coming to market at normal rates, so that would suggest that we would have better conditions in the second quarter.

But the biggest impact in our numbers in Agribusiness, however, in the first quarter was, in fact, freight. And it was the variance in freight fourth quarter on quarter. We lost over $20 million in freight in the first quarter, and we, you know, we’re not accustomed to losing money in freight. And so, and we, of course, made money last year. So, that’s a pretty big variance.

Right. Well, because I’m going to ask the question, respond in small words, I guess, why did you lose the money exactly?

We have to contract freight forward because we have a book of business that we anticipate doing. As you know, we do have [that] on time charter.

Right.

And the – we contract that forward based on expected business. Obviously, we saw less volume than we had expected during the quarter, so that was one, in fact.

And the other is that we take these vessels on time charter at the fixed charter rate, we pass-through the costs at spot rates, and if the market conditions aren’t there, sometimes we can’t pass-through all of the costs, and then that’s what happened to us in the quarter.

We are expecting weaker freight results for this year and, particularly, in the first half of the year, but we fully accounted for that in our forecast and we think we’ve got that well under control at this point, so it’s all included in our numbers.

Okay, now, Bill, as I remember last year you bought ahead in anticipation of demand and certain inputs in the fertilizer area, and it came back to haunt you, and you said you’re not going to make that mistake again. Did you – it looked like you almost doubled up a bit in freight, is that too negative a view?

Yes, I think that’s probably a mischaracterization, Lennie. We have customers that we have to service, and we need to have dedicated capacity for those customers in order to meet our service requirements.

And, you know, there are times when that’s going to cost us, providing that service to our customers sometimes means that we’re just going to have to take a hit because of market conditions. Unfortunately, that’s reality, but we’re in this business for the long-term and we’re there to provide that service for our customers.

All right, now back to that first point I made to where, as I said, you loaded in obviously some ag inputs that were bought, you know, in anticipation of demand that didn’t occur. Is it [inaudible] the end of the fourth quarter, does that mean that those lack of negatives are going to start to be seen beginning in the June quarter, or is it going to begin to be seen in the September quarter?

Are you referring to fertilizers?

Yes, sorry, yes, in fertilizers?

Yes, fertilizers I think we’re seeing the impact already. We had a pretty reasonable quarter in fertilizers. We did see a significant amount of cost reduction in the fertilizer business. Actually, also in the Ag sector although it was masked by some of these freight issues.

So, the cost reduction efforts are working well and the reduced inventory levels we think are also having a positive affect, so that’s already starting. But the main selling season for fertilizers, as you know, begins in the third quarter, so that’s probably where we’d see most of the benefit.

But overall the inventory this year is significantly lower than last year, so I think we are very well positioned. And we should also not forget we talk a lot about the cost reductions. Unfortunately, they are masked by the existing costs that convert to the new dollar exchange rate, are also higher. But when you, but we are on track with the cost reduction, as we said at the last call.

All right. I suppose [inaudible] is trying to get back into the corn processing area, but better lock the door. Thank you very much.

Thank you.

Thank you. We’ll go next to David Nelson of Credit Suisse.

Good morning.

Good morning, David.

Bill, maybe I heard you wrong, but I think I heard you say something about you’re concerned that regarding the potential strengthening of the real in Brazil, considering that the strengthening of the currency down there has been the source of lots of stress, most notably on your fertilizer business. And Alberto has talked about the imbalance there, that at some point either beans have to go up or the real has to go down. Can you talk about any – what data points might you be seeing that that might finally start to happen?

Well, it’s difficult to forecast where the real is going to go, but it certainly does seem to have stabilized over the last month, month-and-a-half, at the current level of around between 2.10 and 2.20.

At the same time, we’re seeing interest rates coming down steadily in Brazil. The Brazilian trade surplus is starting to weaken as you have more imports coming into the country. The ability for Brazil to increase its export performance because of price increases on its base commodities that are being exported appears to be limited at this point.

No doubt you saw the information about Chinese interest rates going up today, and I think that suggests that metals exports and iron ore exports, et cetera, coming out of Brazil probably have limited potential for price increases. That would tend to support a reduced trade surplus in Brazil.

Brazilian domestic demand is very strong and growing, so that should bring in more imports, so there’s a whole bunch of different factors that suggest to me that, I think it’s more likely that we see a stable real or a real that devalues slightly other than significant additional appreciation of the real.

Now, we can’t bet our Company on exchange rates, so we do have a very active hedging program in place, which worked extremely well in the first quarter, and we’re confident will work well for the rest of the year. And at the same time we have to adjust the Company to be able to operate at these exchange rates, and so that’s what our cost reduction program is all about. And that, also, is going well, and we believe that we will get our cost structure in line so that we will be just fine at this level of exchange rate.

One other thing, what are the issues in southern Europe?

The main issue was because of the Avian flu outbreak.

In Italy?

In Italy, so the demand was down in the whole area, not only in Italy, but the whole area, also in Turkey and [Imad], and also we have, therefore, we also had some impact on the volume but also on the freight side was affected there, as well.

Do you see the flu situation there stabilizing or still declining?

No, it’s stabilizing.

Okay, thank you very much.

Thank you.

Thank you.

Thank you. We’ll go next to David Driscoll of Citigroup Investments.

Thanks a lot. Good morning, everyone.

Good morning, David.

Good morning, Dave.

Yes, I wanted to go back to some of the questions, kind of high level here. What’s your projection for soy meal demand in ’06? I missed it, you said it earlier.

We use the same number as USDA, 5% growth and oil, as well, 5%.

Okay, so then, you know, you just made comments to David Nelson about Italy and the Mediterranean about the fact that demand was down there because of Avian flu. And I think one of the other callers was trying to ask about this, but the high level takeaway, in certain specific markets you’re clearly calling out a problem because of Avian flu, which I think is on a lot of people’s minds.

But then when you give us your projection for soy meal demand on a global basis a 5% number is in line with historic trends, and that would suggest to me in the absence of knowing anything about animal diseases, that everything was doing just fine. Can you reconcile the two forces, Alberto? And can you talk about what you think is the most important element for us to focus on in really understanding the long-term trend?

I would try to say it in a simple way, you have a smaller increase in Europe than it was expected, so it’s below 5%. I don’t know exactly the number that will be this year, perhaps 1% or something like that, the increase in demand. Because you have Romania, Poland, Russia, you have a lot of areas where the meal production continues growing.

So, there will be a smaller growth rate in Europe and a smaller growth rate in U.S., and you have a stronger growth rate in Brazil, you have a stronger growth rate in southeast Asia and China, so it is, it’s a more – it moves around, so that’s the way we see it.

So, this is really the point that I’m trying to pull out of this. I think too many people have been focused on one market or two markets, only, and not on the global basis.

Exactly.

Can you talk to us then what are your expectations for Agribusiness volumes in ‘s06?

From Bunge, we should see – I don’t have a number, do we?

I think we’ll be in line with our average targets that we’ve given over a five-year period, which is between 6 and 8%.

And so, again, the point being that Avian influenza impact in any one particular market does not affect the global markets, and you’re moving the product where it’s needed, and we’re still seeing solid growth, is that correct?

Yes, and also we believe that it’s a question of maximum month until the demand is back in the area where there was a concern about Avian flu, because people realize that when you cook it right there is no risk. And so we start to see, again, some of the demand coming back in Turkey and in Greece and in Italy, so we see a normalization there.

You mentioned, your comments on fertilizer suggest that things are back and getting better. I would actually call out a couple of items here. First off, that gross profit per ton a YOY basis looks to me like it was still down. We’ve got export GAAP prices very close to their all time high, and yet you’re not close to your all time high in profitability in your fertilizer business.

If you truly worked off that high cost inventory in the fourth quarter of 2005 and we have all time high prices for phosphates, why are we not seeing much, much stronger results? And I recognize that volumes may be flat a little bit but yet the margin side theoretically should absolutely dominate the profit equation. Where is the disconnect?

I think, first of all, when you talk about margins you have to remember that in this first quarter they are appreciated, so the offset is the increase in foreign exchange gain. So, when the currency increases you have lower margins from an accounting point of view, but the margins are good. So, you have to add the foreign exchange gain, because that’s exactly what the function of the hedging is to hedge that position.

So, the margins are good. We, last year you, so that’s number one. Now, when you think, when you look at the significant reduction in earnings we had last year despite good margins, despite the international prices, it’s much more related to our local costs are much higher now because they are in local currency, so we had to adjust the Company to that.

Number two is also there is much more consumption in [inaudible] on phosphates for soybeans, so the soybean production, the growth, some of the growth we are seeing in Brazil is much more in the area of sugar cane, coffee, and others where you have more nitrogen type of products. So, there’s a little bit of a product mix shift there. And, also, we have not been able yet to do all the cost-cutting we want in [inaudible], possibility is lower vis-à-vis last year.

Yes, I think the main point, though, is the foreign exchange point, David, is that we’ve got large benefits due to the foreign exchange hedging program during the quarter, which helped to offset some of the exchange affects within gross profit, and so you really need to look at those two in combination.

I appreciate that, and I’ll go back and make those calculations. I’d like to just, if I may, ask two more questions.

And one of them is just going back to John’s question, you know, he’s got a point here about the tax rate guidance over the long-term of 23 to 27%. I don’t know I understood your answer, though, to his question which was if the tax rate goes back to those levels how then do you in essence achieve your earnings growth goals? Because it would seem that in one year coming up whenever that year may be, when the tax rate suddenly jumps up that that particular year would be a very, very difficult year to see any type of earnings growth. Is there, and I think there is, but I’d really like you to explain this, an offset on the operating side?

Well, what we’re assuming is that we will get the Company realigned in terms of our costs. We will see that fertilizer business come back to trend in Brazil. We will, that the margin picture will be resolved in Argentina and in Brazil. We will see this weakness dissipate with the farmer in Brazil. And so we’ll come back to trend in both Agribusiness and fertilizers in South America, so you’ll see an improvement in our operating profit and that will compensate for a higher effective tax rate.

Not only that, but let’s not forget our investments we have been doing in Russia and Ukraine, the expansion in Canada, the Chinese plans, so the reduction in costs from our investments and logistics, so there are a significant amount of investments that we did that will have an impact.

Let me also say, though, that the guidance that we’ve given you for the long-term effective tax rate is based on a static scenario. That’s based on if we don’t do anything to manage our effective tax rate and to manage our tax exposures. Obviously, we will be trying to manage our tax exposures, and so we may be able to improve that in future years.

But we don’t want to project that and give that to you in terms of long-term guidance because it depends on conditions in the particular year. This year we know that we are able to protect ourselves because of what we set-up at the beginning of the year, and so we’re comfortable projecting a lower effective tax rate. I would not be comfortable doing that in future years because I don’t yet know what the conditions will be in those years.

Okay, fair point. Final question for you, Alberto, for a long time I’ve really understood your philosophy and strategy for Bunge to be a very focused one. It has always been my impression that you were not interested in businesses that were tightly linked with Government supported industries, you know, such as ethanol or even perhaps biodiesel in the past.

Are we fundamentally hearing from you a shift in your strategy where you are really going to be pursuing these biofuels in a big way which, in my opinion, are very much linked to the Governments, and it’s something that I don’t think Bunge has been advertising as really its core strategy for quite some time.

No, we have not changed at all our philosophy. We continue being focused. And, remember, we own 100% of the biodiesel plants in Europe, and we decided to join with the French operator, and we are quite happy with that decision.

Now, what we do have to often make investments in order to have that biodiesel plant in Mannheim on our side and having a guaranteed demand outflow for our crushing plant, you do often have to become a minority investor. This sometimes is a 5% investment, in that case in Mannheim it’s 40%. We have other things we are studying where they ask us to be a 20% investor.

So, the fact that we would be investing small amounts in certain areas that is often the condition to have the plant on our side. And that would be the condition. But we believe that the negatives of investing in something in the area outside our area is more than offset by the benefits of having it on our side.

Also, when you look at ethanol from sugar, for example, in South America, that is not a business which is dependent on Government, that is a business which is cost competitive at reasonably low levels of oil prices, it should be cost competitive for oil prices between $25 and $30 a barrel, and is certainly an interesting business for the long term.

You may also not appreciate quite how much bioenergy already contributes to Bunge’s earnings. When you look at our joint venture earnings we give you guidance of between $40 million to $45 million a year. About half of that is coming from bioenergy, and obviously that will grow in the future as we have these additional investments in ethanol and biodiesel.

No, I did not realize that about the joint ventures. Sorry for this, but just two quick detail questions, Bill. Net interest expense guidance for the year in minority interest expense guidance for the year? And then I’ll pass it on. Thank you.

Okay, net interest expense I do not have at my fingertips, unfortunately, so let’s see if we can get that from Mark.

And minorities should be at around I think between a $70 million and an $80 million number for the year.

Thank you very much, everyone.

Thank you.

Thank you. We’ll go next to Alexander Walsh of [Harting Lovner Management].

Just going back to the freight management question, actually, I think you’ve already answered it, Bill, in terms of the spot versus forward contracting. But, if you could, you said that you expect for the full year for freight to operate at a loss, is that correct?

Yes, we do expect to operate at a loss for the full year, but we think most of the impact is going to be concentrated in the first half of the year.

And any comment on the split of that between Q1 and Q2?

No, I don’t have any comment on that.

Okay, thank you.

Thank you. And with no further questions, I’d like to turn the conference back over to Mr. Mark Haden for any additional or closing remarks.

Thank you for joining us this morning, and I guess we’ll see you all next quarter.

Thank you for your participation. That does conclude today’s conference. You may disconnect at this time.

Thank you.

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