Bunge Global SA (BG) 2006 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 would like to turn the call over to Mr. Mark Hayden. Please, go ahead, sir.

Thank you, Philip and thank you everyone for joining us this morning. Welcome to BUNGE Limited's Third 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.

Reconciliations of non-GAAP measures disclosed orderly on this conference call to the most directly comparable GAAP financial measure are posted on our website: 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 expectation 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. The environment for business began to improve in the third quarter. BUNGE's operating results were substantially better when compared to a weak first half and were stronger than in the same quarter last year. Crushing margins in Argentina rose as the industry reduced soy-crushing volumes in the country. Our earlier closure of five oil seed processing facilities improved capacity utilization in Brazil and benefited results.

Lower inventories, cost reductions in local currency and enhanced foreign exchange hedging helped profitability in fertilizer, although that business is improving more slowly than expected. Government financial assistance, a more stable Real and increases in crop prices helped spur farmer selling in Brazil. Overall, we expect condition to improve as we move into 2007.

There are good signals in the market. Demand is strong. Shipments of soybean meal and oil increased in the third quarter, when compared to the same period last year and the USDA recently raised its estimate for global soybean meal demand. Demand for corn and vegetable oil for use in bio-fuel production is also rising.

Global prices for agricultural commodities have increased. This is a positive indicator for farmers in Brazil because higher crop prices benefit farm income and generally stimulate production. Over time, more production will increase agribusiness volumes and drive demand for crop input such as fertilizer.

We continue to invest in improving BUNGE's global footprint to capitalize on the positive trends that drive our industry. During the third quarter, we finalized the purchase of our second soy-crushing plant in China. This week, we announced a project to expand capacity at our crushing plant in Council Bluffs in Iowa. The expansion will make the plant the largest in the U.S. and enhance our strong position supplying customers in the Western U.S. and Mexico. This morning, we broke ground on our joint-venture ethanol plant in Vicksburg, Mississippi. This facility, which is co-located with an existing BUNGE grain elevator, reflects our approach to the bio-fuel industry. We will share in the facility's prophets through an investment supplied with corn, provide risk management service and market the resulting DDGs.

We are pursuing a similar approach in a variety of locations. In addition to our existing European bio-diesel joint venture, [unintelligible] industry international, we have announced a number of joint venture investments in bio-diesel and ethanol plants in the U.S. and in Europe. Today, our share of production from our bio-fuel ventures is 50 million gallons per year. This should rise to over 300 million gallons per year as capacity comes on stream over the next two years. The total bio-fuel production from these ventures should exceed one billion gallons per year for which BUNGE will supply most of the raw materials.

The growth story of our industry remains compelling and we will continue to position BUNGE to benefit from it. Bill will now provide an overview of our results and our outlook.

Good morning. Historically, the third quarter represents the tail end of the crushing season in South America and the start of harvest season in North America and Europe. It is also a period of higher sales in fertilizer. Now, let me turn to our results.

In agribusiness, results in the quarter improved significantly from a weak first half of the year and also improved, compared to the same period last year. Higher margins in Brazil and Argentina more than offset lower volumes. Benefits from prior restructuring actions reduced the effects of a stronger Brazilian Real on local currency operating costs when translated into U.S. dollars.

The average Real/U.S. dollar exchange rate strengthened 8% when compared to the third quarter of 2005. Results continued to be strong in North America and Europe. SG&A increased primarily due to higher bad debt and increased employee-related costs.

Fertilizer results improved due to increased margins and increased foreign currency hedging which offset the impact of a stronger Real on margins and costs. Sales volume was slightly lower. Prior cost reduction measures also benefited results.

Strong edible oils results were primarily due to increased volumes and margins in Europe. Margins benefited from lower seed costs, better distribution and brand positioning. Strong Brazil edible oil results driven principally by higher volume, more than offset lower results in North America. Increased oil shipments to bio-diesel processors in the U.S. positively affected margins.

Milling results in the quarter were slightly less than last year's strong performance. Weak milling benefited from higher volumes and margins but was offset by volume and margin decline in foreign milling. Interest expense increased primarily due to higher short-term interest rates and higher average debt balances.

Income tax expense for the third quarter of 2006 includes a charge of 21 million relating to a reversal of certain tax benefits on U.S. foreign sales recorded from 2001 to 2005. Excluding this item, the effective tax rate for the nine months ended September 30, 2006 was 4%.

BUNGE's income tax expense for the nine months ended September 30, 2005 reflected a 38 million reduction in a deferred tax valuation allowances. Excluding this item, the effective tax rate for the nine months ended September 30, 2005 was 24%. The decrease in the effective tax rate for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 was primarily due to the decline in income from operations before income tax and subsidiaries that are in tax jurisdictions with higher income tax rates. In addition, higher earnings in lower tax jurisdictions and the effects of a legal restructuring completed in 2005 also contributed to the lower effective tax rate.

Minority interest expense decreased when compared to 2005 due to lower earnings at [unintelligible]. Net financial debt and readily marketable inventories at September 30, 2006 increased 962 million and 587 million, respectively, from December 31, 2005, primarily due to normally seasonal higher levels of grain and fertilizer inventory. Net financial debt, less readily marketable inventories at September 30, 2006 was only marginally higher than at the same date last year.

Cash flow used by operations was 548 million for the nine months ended September 30, 2006, compared to 50 million used by operations in the nine months ended September 30, 2005. Lower net income and increases in working capital contributed to the decline in cash flow from operations. The increase in working capital is primarily attributable to higher prices for agricultural commodities, a higher level of soybean purchases in Brazil and a positive carrying structure in the market for agricultural commodities. Generally, during periods when commodity prices are high, operations require increased levels of working capital.

Now, let me discuss BUNGE's outlook and guidance for 2006. We expect a solid fourth quarter. The fourth quarter is typically the strongest for North American and European agribusiness due to the harvest, while South American agribusiness slows down. Fertilizer sales are typically strong. Although market conditions in South America remain challenging, we feel the situation has stabilized and that we have adjusted our Company to the current environment.

Milling and edible oils should continue to perform well. Capital investments are coming online and beginning to contribute to our results. Foreign currency hedging programs are working well. Net income effects of the stronger Brazilian Real should be mitigated by our initiatives to improve margins, lower costs, decrease our effective tax rate and reuse exposure to the Real throughout our business.

Our 2006 net income guidance is 425 million to 445 million, representing $3.50 to $3.67 per share. This fully diluted per-share guidance is based on an estimated [weighted] average of 121.3 million shares outstanding, and includes all items year to date in the schedule titled, "Additional Financial Information Contained in our Earnings Release," totaling -32 million or $-0.27 per share. It also includes +17 million or $+0.14 per share in the fourth quarter related to a gain-on sale of assets and share-based compensation expense. For further details on the assumptions of our guidance, please refer to the earnings press release.

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

Thank you, sir. [OPERATOR INSTRUCTIONS] We go first to David Driscoll with Citigroup.

Great, thanks a lot. Good morning, everyone.

Good morning, David.

Good morning, David.

Just really two areas that I'd like to ask some questions on. The first one is about 2007. I know you're not ready to give guidance--you didn't give guidance in your press release but Bill, Alberto, can you speak to the first half of 2006 and some of the difficulties? I believe the numbers were freight-impacted earnings by something like $0.40 a share and the strike in South America and Avian flu, I think, altogether, there was like another $0.58 a share in negative impacts there because of those items. Is it fair to say that you don't expect those things to happen in 2007 in the first half and that those two quarters ought to get back to much more normalized level of earnings?

There were four things that really happened in the first half of the year that we do not to expect to reoccur in the first half of next year. The first of those was, of course, the Avian flu outbreak in the Mediterranean. The second was the freight issue with freight losses that we experienced. The third was the disruption in Brazil caused by the farmer protests when they were trying to get additional government assistance, which was, of course, successful. And the last item was the additional capacity in Argentina which was having a drag effect in the first quarter.

All of those items, we think, are not going to be present in the first half of next year.

And they were substantial, Bill. I mean, if my number's right, I mean, they amount to about $1.00 per share in earnings?

I don't know how to quantify the exact number but we had an extraordinarily weak first half of this year, very atypical for BUNGE and I would not expect that to repeat.

Alberto, would you characterize today's results as really the turning point? Sequentially, it looks like the numbers are so much better than what they were in the second quarter and it seems to me your comments about the outlook for '07 are very positive because of bio-fuels but again, would you just basically say that we really reached a point where the last four quarters, in a row, I think they've all been very difficult for BUNGE and the outlook going forward is just night and day better?

I completely agree with you, Dave. The last four quarters have not been fun but we feel good about two things. One is the whole environment has improved significantly. Although we were, perhaps, a little bit lower than we hoped in fertilizer this year, but all the signs are very good that the environment will be good for next year because the farmers are profitable even at this current rate, at these exchange rates, so the outlook is good from a fertilizer point of view. The demand is strong on the meal side, the bio-fuel is adding demand. Even that not all plants are up and running, we see already a pull on the demand for the oil.

So the environment is positive. I think we expect that sometime by the end--during the year, next year, all of the additional capacity from Argentina has been digested. We have--all plans are coming up on stream like--or are up in stream in Manheim, Germany and Balboa in Spain. We will add Cartegena in the first half of next year. The Russian plant, Ukrainian plant--so you have a mixture of the environment being much more positive but also we have adjusted ourselves. We adjusted our Company in Brazil to a level where we can make money, as we have shown in this quarter. The results in both--and food and agribusiness and in fertilizer have improved and obviously, we would prefer to have a weaker Real but we are assuming that it will stay the way it is and we feel that we have adjusted ourselves to it.

So after four tough quarters, we are feeling better.

And Bill, just one final question on the cash flows from operations. Are you disappointed with the weakness that we see in cash flows, I mean, the year-on-year difference is rather startling and I'm going to have a few sub questions here on some of the components, but just your overall thoughts and how would this then look in 2007? Would you expect a fairly significant turnaround in cash flows?

Well, what we're seeing, Dave, is a rise in agricultural commodity prices generally and when we see rising prices, that means that it takes more cash for us to carry our inventory and carry our operating working capital. And it's a fairly immediate effect and so what you're seeing in this quarter is a reflection of that rise in agricultural commodity prices. We've seen this play out in the business before and we get all that money back when the prices come back to their normal levels.

Now, there is a positive side to this which is the rise in commodity prices is precisely what's helping the farmer in Brazil and so this is what's going to help our business down there and will result in higher operating cash flows but I think there will be a lag effect. So I would expect higher operating cash flows to show up next year and we will just see a bit more money going into working capital in the second half of this year.

What about account receivables specifically? That number, $240 million negative cash flow on account receivables with your account payables, trade account payables just +113, it looks like there's a lot of money going into the receivables. I understand the inventory issue. Is the receivable issue different and can you speak to how current those receivables are?

When you see a rising agricultural prices, you're also going to see a rise in receivables because the amount of the sale is going to be higher. The--we don't think that we have significant issues within receivables. The only area in which we have any concerns is in fertilizer in Brazil. We've been monitoring that very carefully. We actually see trends starting to look more positive in the credit area in Brazil. The industry, in general, and BUNGE, specifically, has been very cautious about the credit that we are extending to farmers in Brazil and so I think that the credit quality is improving.

We have also created a significant reserve on the receivables and fertilizer in Brazil. I think the reserve is close to the 20% level on those receivables, so we have been very cautious in how we have approached that and I'm confident that we're not going to see a major issue within receivables.

You also have to look, Dave, at the seasonality. When you look at the trade accounts receivable September this year, versus last year, it came down by nearly $8 million. That gives an idea that there is a seasonality in the [unintelligible].

I'm sorry. I--

Yes?

Sorry. I understand. I think there was a little bit of cut-off there but my apologies. Thanks for the answers and certainly appreciate seeing the numbers finally start to turn around and good job, you guys, thank you.

Thank you, Dave.

Thank you.

We go next to Christine McCracken with Cleveland Research.

Hi, this is Michael [Piken]. How are you? Just a couple of questions for you. Looking at Brazil a little bit more, in fertilizer, we've been hearing that, recently, that there's been some increased competition to sell to some of the better capitalized sugar and coffee farmers in order to receive upfront cash payments rather than lending on credit, are you seeing that in this environment and as soybean prices start to rise, would you start to kind of sell more to those farmers as well?

We are seeing no significant change in the pattern. There was, obviously--you are right. There were more sales to coffee and sugar is doing well but in terms of the style or the way it has been--the business has been [carried], it's similar to the way it has been done before. We have seen no major change.

Okay. And then just turning to the U.S. for a second, thinking about kind of your expansion you announced at Council Bluffs, given that there's a lot of expectations that the U.S. is going to shift acreage from soybeans to corn in the coming years to meet the growing ethanol demand, could you talk a little bit about your decision to expand that plant and do you think we'll have an ample supply of oil seeds going forward to support that?

yeah, we are very comfortable with that situation. We have to remember that U.S. exports nearly around 30 million tons of soybeans. So what you could see is perhaps a little bit of a reduction in exports but there will be always enough supply to serve the livestock industry. The livestock industry in the U.S. is growing at 1% per annum, so there is need for--to supply our customers. In addition, we have these newer areas in Mexico where we are exporting more too.

So we feel that there is room for it. You might see, as we're all expecting an increase in the acreage for corn but where you might see a reduction is in the exports and therefore, you also will see an expansion of--over the next year, an expansion of soybean production, especially in Brazil and a little bit in Argentina.

We think there will be enough supply.

Okay, good. And then in terms of how we should think about the ethanol overall in your business, obviously, you guys have corn dry milling business here in the U.S. and you also have a lot of logistics and origination capabilities. I mean, how should we kind of think about the net impact of the growth of the ethanol industry on you guys?

We believe that there is room for both corn for the feed and food industry and also for fuel, and once we are talking about--as long as we are talking about volumes like 8 billion gallons or 10 billion gallons. So I think there's space for it. When we look at the--there's space for all of them. Obviously, there are some shifts on assets. So that's one of the reasons also you see that we--our joint venture in Vicksburg as well our grain elevator is much more geared towards now originating [cord] for the fuel industry, and so some of the origination capability shifts away from food and feed to fuel. But I think overall, we should be well positioned and I think there is room for both the food, feed and also for the fuel industry.

We would also expect the bottom line impact on BUNGE to quite positive. A lot of that coming, of course, from our supply of raw materials going into the bio-fuels industry both the corn for the ethanol production coming through our grain origination system and the edible oils going into bio-diesel production, coming from our crushing facilities.

And we would also be providing services to these plants and helping to market some of the byproduct, the PVGs, so overall, we expect a very nice bottom line effect from that over the next few years.

Okay, thanks. And then last question, just in terms of the upcoming election in Brazil. It seems like Lula favored to win but I mean, would you expect any sort of major shift in policy with respect to the Brazilian government either way and also, I mean, the fear, obviously, the farmer protests generated increased aid package but what do you see, in terms of government support kind of going forward in Brazil?

We know relatively well both candidates and their program and we and the whole market, generally, the financial market, feel that there should not be any significant change in terms of policy. So we are very comfortable. What we could see is probably more upside potential than downside. So upside in the potential, I mean, there is clearly--Lula realized he had to do more for the farmers, number one and he has been doing it recently and has announced he will be doing more of it and also, the pressure on having the country growing more, having the GDP growing more is significant and which means that probably that eventually we will see a weaker Real.

So we are looking at the election and we are looking at either candidates relatively positive.

Okay, thank you very much. I'll leave it there.

Thank you.

Thank you.

We go to next to David Nelson with Credit Suisse.

Good morning.

Good morning, David.

Good morning.

I guess I'd like to pursue bio-fuels a little bit more. I guess by some math I've done, ethanol breakeven with oil at $60.00 is about $4.00 a bushel on corn for a dry meal, maybe even $5.00 for a wet meal. I guess my--I'll start out going to why wouldn't corn go to this level? Why wouldn't ethanol production continue to grow probably past, Alberto, the eight-to-ten billion gallons you suggested? And then what are the ramifications for your portfolio? I guess, why would people stop building ethanol plants as long as they're making money? That would be inconsistent with the history of people building soybean processing plants and hog slaughter plants.

I think you're right. I think, up to all our models and all--we are very comfortable up to 11 billion or 15 billion gallons, so 10% of the gasoline consumption. We think there should be room, without affecting significantly the food or feed industry and we--obviously, we see also developments on the technology on--there's yield improvements on corn. There's more areas available, so I think up to--we have thought very carefully up to 15 billion gallons and I think that we are comfortable but--let's say relatively comfortable. Whatever means future, you have to be careful.

I guess we can argue order of magnitude but 15 billion gallons that--and arguably, there is--not arguably, there is continued productivity gains but historical productivity gains have been 2% or slightly less than 2% a year. We could go from 79 million, 80 million acres to 85 million or maybe 90 million acres of corn but then the productivity per acre goes down at 15 billion gallons, we're probably taking half our corn crop, and I'm just trying to think through what that means for your domestic livestock producing customers. What it means across the board. Could there be a protein meal glut because of all this DDG is being produced? There's big ramifications here, it's 11 billion to 15 billion gallons. That isn't a question, I guess. I'm sorry.

Yeah, [unintelligible] look there--you could add the issue that probably China will start importing corn.

Right.

So I believe that, from eight billion to 15 billion, you can make a case above that. I think we will start really to get worried. We see some technology companies talking about step changes and yield drought-resistant corn and probably will see in a couple of years, also, some--initially, some [unintelligible] ethanol. So if you go significantly above the numbers you mentioned, I think we would be worried as well. We might see higher corn prices.

As you know, Dave, the market will reach its new equilibrium in order to equal everything out, so for supply to meet demand. And I think it's likely we would see higher corn prices. We'll probably see a shift to some acres into corn. We'd probably see a reduction of soy exports coming out of the U.S. That would drive plantings of soy in South America, probably in Brazil. We would see more DDG's but those DDG's, as you know, are very imperfect substitutes for soybean meal, and the market will reach its equilibrium.

As we model out all of these factors, we think that the development of the [unintelligible] industry is overwhelmingly positive for us.

Your enthusiasm for bio-fuels is recently recent. Is some of that related to your ability, I guess anybody's ability, to hedge forward on the price of the bio-fuels, using--for recruit oil futures?

I think it is much more related to a general feeling that the oil prices will stay above $30.00 per barrel and that something has to happen, number one. Number two is that this is also a very positive way to help the farmers. So there are enough indications that you have the same Europe. Here, it's with corn and Europe, it is with the rapeseed and other oil seeds. So the fundamentals or the basis for the industry are a little bit stronger. But at the same time, we are cautious as you see. We are--although most of our investments are based on minority investments and we believe that in the long-term, these bio-fuel businesses probably would be more like cost of capital type of products--projects and we want to focus more on the food and agribusiness production chain.

You can make money on the merchandizing rather than the capital investment?

Yes.

Well, we're only 100 million to 125 million in the projects which we have announced so far, so it's a relatively small amount of capital that we're putting at risk in the actual ethanol distilling or bio-diesel refining. Where we think that's a major benefit for us is, of course, in the supply of the raw materials and the services that we can provide.

Right.

To these projects. And also, in the marketing of the DDGs. And an potentially, even bigger benefit is of course, the fact that it helps the farmers, especially farmers in South America and that helps drive our fertilizer business. It helps drive volume through our system. All of that is very positive for us.

Great, thank you very much.

You're welcome.

You're welcome.

We go next to Christina McGlone with Deutsche Bank.

Good morning.

Good morning.

Good morning, Christine.

Alberto, I guess I wanted to touch more on the Council Bluffs addition. I wanted to just hear from you, your case for the demand situation. Why are you adding that capacity and then if the meal imports that are going to Mexico--is that sustainable? Where, in Asia, are you going to send it?

The Council Bluffs probably is one of the best located plants in the U.S. So the right balance of supply/demand. In fact, there's a little bit more supply in exactly in the micro region. So we are very comfortable that the--by adding this capacity, we will not affect any disruption on the--there will not be any disruption on the supply/demand on the origination. On the demand side, the increases in Mexico are--the whole system has become much more efficient with--we are sending complete trains, shuttle trains, then it's the rail cars and the livestock industry, in Mexico, in the [unintelligible], especially, north of Mexico City, they are very interested in these efficient supply. So we are competing against the local industry, crushing industry and we are being competitive, from a cost point of view, but also in the West.

So the market is there on both, on the supply and demand side and when you look at it, the increase is not so dramatic. Is it a marginal increase but I think it is a very important one and we want to address both customers and suppliers at the same time.

I remember, a few months back, Mexico had threatened import tariffs on U.S. soybean meal, I guess to prop up the local crushing industry. Is that still hanging around or is that no longer a concern?

The pressure is always there but we have--obviously, we are very present there, not only with the soybean meal but also with corn and other feed grains. And all the signs we get from the government is that for them, it is more important to support the livestock industry which employs much more people than the local crushing industry and they do not see--what they were talking about is an anti-dumping case and this, obviously, not an anti-dumping because these are complete, transparent, open markets.

So all the initiatives that were there have failed and at the moment, there's no initiative going on in Mexico.

Okay and you said the USDA raised their soybean milk consumption estimate. What did they raise it to?

I don't have the percentage. We could come back, Christine.

Okay.

We could come back with a number.

And then how much bio-diesel capacity is expected to be built in Brazil by the end of next year? And then what, I guess, what do you think it could do to your crush margins there?

This is a very difficult number to assess because the quotas or auctions or--I don't know how to call it--for production or for the demand in the country have been discussed and traded but how much really is going to be built is going to be--we will have to see. So we are analyzing, very carefully. We are analyzing projects as well. We are analyzing exactly what PetroBrass is going to do with their H-bio. It is not that transparent like in other countries. So at the moment, it is not exactly clear how much is it going to be? Is it going to be 500,000 tons, one million or two million? We will have to wait until we see clearer. At the moment, it is not very, very clear.

But we do know that PetroBrass has announced they will be including 300,000 tons of soybean oil in their H-bio process. So that's already a major increment and I think that's a volume that is highly likely to occur, in addition to what's going to happen with the bio-diesel construction.

Overall, it is likely to have a positive impact on our margins in Brazil.

Something [unintelligible] to 500,000 tons all the way up to two million tons. We need to--we probably will see, over the next month, we'll have more clarity there.

Okay. And then just last question, because of wheat prices going up--I know that winter wheat plantings have increased in the U.S. and a lot of those farmers will probably double plant--double crop with soybeans. So does that change your perspective on the acreage shift at all from soybeans to corn?

No, we are not seeing any significant change.

Okay, thank you.

You're welcome.

You're welcome.

We go next to Ken Zaslow with BMO Capital Market.

Hey, good morning, everyone.

Good morning, Ken.

Good morning, Ken.

Let me just explore the tax question a little bit. What is your--what do you expect your tax rate to be in the forth quarter and in '07?

Yeah, in the--for the year, we expect the tax rate to be in the 6% to 10% region but that includes the one-time affect that we had in the third quarter of $21 million. If you exclude that, we would expect the tax rate to be approximately 4% for the year. The reason that the tax rate is a little bit lower than we had expected earlier is that our hedging programs that we've had operating in Brazil have actually worked a little bit better than we had expected and are producing even better results than we had anticipated and so that has been decreasing our effective tax rate.

As we look forward, we're expecting a recovery in the operating business. As you know, when we have a recovery in the operating business, which is in a--let's say, a normal tax environment, we would expect to be paying more taxes. So we would expect to see a higher effective tax rate next year. We have not yet completed the business plan, so I don't yet have a--have guidance on exactly what that number is likely to be.

However, the--we would only see a higher effective tax rate if, in fact, we do see a recovery in operating earnings, and so by implication, we would expect higher bottom line net income in that circumstance.

In terms of this year's guidance, just so I understand, with you reducing the tax rate, even to about 4%, and keeping your net income the same, your underlying operating performance is obviously weaker. What is it, within the operating performance, that is weaker than you expected going into this quarter?

It's the fertilizer business. The recovery in the fertilizer business was not as rapid as we thought it would be this year and so that is a little bit weaker operating earnings. The natural consequence of that is that we pay less tax in Brazil and the effective tax rate goes down.

And within the fertilizer business, is it the increase in bad debt that has been weaker? Is it the volume or is it the margin?

No, what--the main situation is that we are more careful in giving credit. The farmer, the whole industry is more careful. The farmers would love to have more access to fertilizer and crop chemicals. And I think we mentioned it in the last call, we have been analyzing, really by county or very small regions, the profitability of the farmer. At this current exchange rate, they are profitable.

What really affected the farmers was the last two years, when they bought the import, the exchange rate was much weaker and therefore, when they sold the crop, it was stronger, so they had an effect on last year and this year, as well. I think when they were buying the imports last year, it was--[unintelligible] last year, was around 235, the exchange rate and when they sold it this year, it was around 215.

So but the farmers are much more confident when they look at next year and they would like to have more access to the products. So we have been restricting them more on the credit side. We have been more careful on it and the whole industry. So volume is a little bit down and the--you could argue that perhaps if the government had come in earlier, with their auctions, when the commodity prices were lower, we would have seen a better year. I would say it's a combination of--it's more a combination of timing.

We are quite comfortable. When we look into the future, we have to, obviously, be careful about next year. We have to see how the crop comes in at the beginning of the year but we will--probably will see a normalization of the fertilizer business, not exactly next year but the year after, significant improvement next year.

But you know, also when you talk about how is the operating results going to be when you think about the numbers we are talking, a whole quarter is three months. It's a lot of business that can be done. It's very difficult to pinpoint it, so exactly and we have mentioned, many times, it's very difficult for us to see it on a quarterly basis.

And throughout the year, how much bad debt charge did you take with the first three quarters?

I don't recall the exact number but our provision today is about $140 million. I think that increased from the beginning of the year. I think we were at around 100 then--around $100 million. So I believe we're up probably about 40 million but we'll confirm that number.

Throughout the year, you've gone through freight losses, the Avian flu, a couple other things and what negative things have happened. Were there any positive things that happened that will not reoccur in 2007?

I don't--you know, I don't think so. I like always to say we have, in our business, we have 15 variables and if 11 go well, we are fine. So this year, probably we had more things going wrong but the rest of the business, Ken, has been very, I think, normal. There has nothing been exceptionally positive. In fact, we have been taking quite some beating the last 12 months.

Yeah, Ken, the numbers on the fertilizer, our bad debt provision is we started the year at 115 million and we're currently at 140 million.

So that would--so the differential of the $25 million, would that come back in 2007, if they pay it? Or how do I think about it--I guess, is the better way is, how do I think about it?

Well, assuming that we don't see any deterioration of credit in 2007, then we would not expect to see an increase in the bad debt provision. And in fact, if our collection efforts are successful, we might see a decrease in that provision. We are working hard to collect and we are seeing some success.

So I guess what I'm trying to get at overall is you have these couple of cases--the freight, the bird flu, now you also have bad debt which is kind of working against you. How much of that will be offset by your higher tax rate? Are we close to a one-to-one here? I mean, if you go from 4% tax rate to 16% tax rate, most of the benefit, you know, the $0.40 freight and all that, is that offset completely? How do I think about that?

Yeah, it's not a dollar-for-dollar offset, Ken. If we see an improvement in operating earnings, a good portion of that is going to drop to the bottom line. So you're not going to lose all of that in taxes.

Okay and then the last question, you--if I look at advances to suppliers, from 2Q '05 to 3Q '05 and then 2Q '06 to 3Q '06, in 2Q '06 to 3Q '06, it was up $150 million. Relative to last year, it was actually down $70 million. Is this something that might come back to bite you? I'm just trying to figure out if that means anything, the advance to suppliers, in the cash flow statement.

Yeah, well, we are being more cautious in extending credit to farmers. That could have a little bit of a volume implication going into next year but I don't think it's going to be material to the--to our overall numbers. The other thing is that pre-paid commodity purchase contracts, which is another form of us providing financing to farmers--in effect, it's a pre-purchase of the inventory--I believe are up this year, versus last year.

Fifty million more, yes.

Yeah, so it tends to balance out.

Great, I appreciate it.

Thank you.

You're welcome.

We go next to Victor Galliano with HSBC.

Morning, yeah, on the agribusiness side, and looking, in particular, South America, I mean, what were the most significant drivers here, in terms of the improvement of the performance there? Were you looking more at the reduction than the excess capacity for crushing or are we looking more here at the recovery in agribusiness pricing leading through to better margins in the agribusiness trading? I mean, what was the more significant driver?

The first one, most important one was the ending of the protests in Brazil and with the help, the government assistance to farmer, started selling. So we had access to enough raw materials at decent margins. So the margins in Brazil came back. So that was the most important one. The second most important one was that we reduced, dramatically, our costs with the shutdown of five plants which we did in the beginning of the year and our capacity utilization went up on the other ones. We were able to improve and obviously, as you imagine, just remember that between fertilizer and agribusiness and food in the oil companies, we reduced our headcount by 3,000 employees. So it is very relevant. So we reduced our costs.

The third one is the--that the--with the reduction in the crush volumes in Argentina, it turned from a loss situation in the first half to a positive environment in Argentina. So I would say these are the three most important ones.

Okay, so your restructuring benefits came through much, much more on agribusiness than on fertilizer [as you were saying] and fertilizer's still lagging. Would you expect there to be a kind of a long tail, if you like, demand for fertilizers into Q4 or--

It's very, very difficult to say. You know, it clearly helped that the commodity prices went up in October.

Yeah.

And you know, we are comfortable the way we are looking, in to the quarter, but the peak--the peak month is October. In November and December--it's--November is the weaker one and December is quite weak. So we are at the tail end, so the fourth quarter is the second most important in fertilizer [unintelligible] important one is the third.

You could see shifts like we see often from one quarter to the other but it's too early to say. That's why we are keeping our guidance.

Right, I mean because the fourth quarter of last year was quite--

Appalling.

--[was quite] strong. What was it?

It was appalling.

It was terrible.

Yeah. So it was negative for fertilizer. So clearly, we are not seeing that. We are seeing it--

Yeah. Yeah.

--and to your comment about the restructuring, look, we see the benefit of restructuring also in fertilizer--

Yeah.

--and we are seeing it but we are being more careful from a credit point of view. So we could have sold more but we clearly decided not to do it. On retail, in fact, we lost a little bit market share but we did not lose it on wholesale. So which clearly means we reduced a little bit our risk, in regard to the farmers.

Okay, so other competition here on the fertilizer side, are they being more aggressive on the pricing as well?

No, we're not--the whole industry is being much more cautious in Brazil.

Okay.

Actually, the margins are reasonably good in the fertilizer business in Brazil because everyone appears to be quite disciplined, in terms of extending credit.

Well, they've recovered a bit but from a--I mean, on a year-on-year basis, your EBITDA margin is only up in fertilizer from--what? Nine percent to about 10.8% year on year in the quarter.

Yeah, but headed in the direction.

Yeah, I mean, I suppose what's more important here is your EBITDA turn is recovering as well.

Yes.

So that's--and I suppose--can we say that $6.00 per ton--which is what you got in the fourth quarter of last year--is very much an outlier on the low side?

In fertilizer?

Yeah.

Yeah, fourth quarter of last year was an abysmal quarter for fertilizer, the worst we can ever recall.

We never had a loss in a quarter, in a fourth quarter. That was the first time last year.

Yeah, and just focusing on the EBITDA return for agribusiness, I mean, you've got--you did that--it was over $6.00 a ton in Q3 of this year, which we haven't seen numbers like that till you go back to early--well, first quarter of '05. So is this--can this be seen as an exceptional quarter? I suppose it can.

Well, we think it is. In agribusiness, we think it is a normal quarter. I think we are--

Okay.

--the last four ones were abnormal and now we are more--in a more normal situation.

And an EBITDA margin of about 3% in that quarter, as well, which is what you've registered this quarter. So that--I mean, is that a sustainable number as well?

This is--you know, for us, it's very difficult because commodity prices have such a big influence on--

Yeah.

--[unintelligible] bales. We look at it much more like per bushel or per ton.

Right.

But we are comfortable where we are in the third quarter.

Okay, thank you very much.

You're welcome.

We go next to Diane Geissler with Merrill Lynch.

Good morning.

Good morning, Diane.

Good morning, Diane.

I have a question, Bill, on one of your comments about the tax rate next year, where you said that you only see the tax rate going up if the base business recovers. Wouldn't a devaluation of the Real also have a similar impact? Maybe what's behind that question is what's the impact to your PNL if we do see a devaluation?

Actually, if we have our hedging done correctly--which I'm confident we will--a devaluation of the Real would probably help our tax rate and reduce it.

Okay.

So with a devaluation, we could see similar or lower tax rate than our guidance.

Yeah, but wouldn't you see an increase on the operating line?

Yes.

We would also see an increase on the operating line, so you get a double benefit.

Okay and can I also ask, on the--just to follow on the comments from the previous caller about fertilizer in the fourth quarter, I have reduced my volume expectations pretty aggressively on the fertilizer side and you cited it as weak but you actually did better than I thought. So do you have a--can you clarify for me, maybe, kind of what the full-year expectation, just on volume, is?

Well, what we feel that the market is going to be is the expectations are that volume in the market will be down around 5%.

Right.

And we expect not to be all the way down 5%. So we expect to be perhaps a little bit down, like we were also in the quarter, but it is very, very difficult, Diane, to say October is still an important month. We believe that overall, we will be a little bit better than the market.

But the one thing to remember, Diane, is that the numbers Alberto is talking about are retail sales of fertilizer in Brazil.

Right.

And our volume number is composed not only of our retail sales but also of our wholesale sales. So if you decompose that number, if you split it apart, we would expect to be slightly negative in our retail sales but our wholesale volumes have actually been reasonably good and that's helping us on the credit side but it's one reason why you see our volume numbers reacting a little bit better than the market.

Okay, so if I was previously looking for the full year at kind of a 3%, 3.5% volume decline for the full year, I mean, that suggests an 8% decline for the fourth quarter. That just sounds too aggressive a reduction, based on what you've seen on the wholesale side.

I don't remember exactly last year's volume but clearly, the volume last year did not have a lot of quality. If you remember, we had too much inventory and so the margins suffered. So I would be a little bit careful with BUNGE's volume, taking just last year's fourth quarter. Overall, I think we should look at it in relation to the industry. So if the industry is down 5%, we will not be down 5%.

Right. Right.

The other thing which I think is interesting to point out is that the estimates for the year, when we began the year, is some of the estimates that the industry was making was that we would be down double-digit numbers in volumes and as we've progressed through the year, that's steadily improved. So now, the industry is saying that we'll be down 5%. Nobody likes being down but it is certainly much better than where the expectation was at the beginning--

Well, I just think given the market climate that you've seen in your major fertilizer area, I mean down 5% seems to be actually a pretty good result.

In fact, the mood is really getting better in the farm sector. When you go around to farms, the mood is much better.

Well, if we just look into '07 and I--I understand you're not there yet, in terms of providing us estimates, etc. but if the crop--and it's also pretty dangerous to think about third quarter next year this time of year because it's 12 months away. But if we just think about crop prices staying higher year over year, where they'll actually fall out is anybody's guess. Kind of where I see this going is volumes should be up pretty good next year. Is that reasonable?

We expect volumes to be up next year. The soybean inventories were at their peak and they're coming down and the demand is higher than the production. So that's why you also saw--you'll start seeing some soybean commodity prices inching a little bit up. So people are looking at next year, saying there will have to be more production somewhere and the indications are very, very strong. The stronger wheat price, stronger corn price, that U.S. will ship more acreage to grains, to feed grains and also for ethanol. So you would move a little bit away from soybeans. That would say that the soybean farmers could expand next year.

So we are much more optimistic about next year. There are--still everybody's going to be careful because of the credit side, so that is why we are, at the moment, saying, let's be cautious about next year. Probably you will not see it back complete at trend line. The trend lines probably will be only in 2008 when the complete supply/demand picture on soybeans is back to balance. And if we would let, the farmers would buy much more already this year and they would--probably, the expectation is much more next year.

But the outlook for next year is much more comfortable.

And higher crop prices mean immediately a better-capitalized farmer and mean immediately more demand for fertilizer.

Right and how much is--how many soybeans are kind of floating around out there in the channel? I mean, we've heard about, for the last two years, basically, because of this situation with the Real, etc., they've just been sitting on beans. Obviously, I realize that that's a little bit of an overstatement but how much is actually out there, kind of in the pipeline that hasn't been commercialized? I guess maybe if you think about it in terms of percentage above normal, whatever normal is.

If there's a little bit above, it's in U.S. In South America, the capacity to keep it, to store it, is not as good. So the pipeline is normal in South America.

Okay, can we just--kind of changing gears here, just briefly talk about China? You closed on your second plant there and just, you know, that's--I think a story there has really been, an industry that's been in need of some consolidation. Can you just talk maybe a little bit more holistically about kind of where that market is and on its root to, kind of better fundamental?

Yes. The margins are positive in our plants and I think you will see more of a consolidation and you have to be, obviously, very careful. It's all about location. When you do not have the perfect infrastructure, logistics infrastructure, it's location, location, location, so we probably have seen more or less all of the plants who are available for sale and we are looking at, very carefully. I think this is probably the second round of consolidation which means that some of those people who invested who are not so familiar with the industry, have started to sell some of it.

You need the--the global network, you need infrastructure to be very efficient and I think that's why you have seen that some of the global players have expanded. But I think there's going to be a third phase of consolidation, that some of the acquisitions that have been made now, either there will be some further shutdowns. Because there's [excess capacity] in China and so one of the reasons we are so careful, it's all about location and efficiency and we are very happy because both plants we have are profitable, despite the excess capacity.

We will be continue looking at opportunities but very careful. This is a similar to what happened in U.S. and then it happened in South America. This is a marathon. It's not a sprint. And you want to be in the right place at the right cost structure. So we are positioning ourselves for the long-term. So we are comfortable the way things are moving there.

Well, it's fascinating--look, I take your point completely on having it in the right location. If the acquisitions you're looking at are not suitably located for you, is it something where you would, in the future, perhaps think about building?

At the moment, we are not thinking about that because--but I would not rule it out.

Okay, all right, well, thanks--thanks so much.

Thank you.

Thank you.

We go next to John McMillan with Prudential Equity Group.

Good morning, everybody.

Good morning, John.

Good morning.

Just a follow-on from some of the questions Ken asked. So basically, this third quarter, on a pre-tax basis, was in line with your expectations, or slightly below because of Brazilian fertilizer?

From our point of view, it was slightly below. We were hoping that fertilizer would have been a little bit stronger.

Okay and just to understand what you're saying for '07, Bill, you're saying that, if I heard you correctly, that the only way the tax rate goes up is if net income goes up?

In order for the tax rate to increase substantially, we would have to see much better operating earnings in those taxable environments. And so by definition, that would cause net income to rise.

So if you--you'll have net income this year--I don't know. Whatever it is, about $400 million. If you keep doing net income of $400 million, you will keep paying a 4% operating tax rate?

As long as the reason for the lower net income is that we have weak operating earnings in that taxable environment, yes.

But at some point, if you keep having 400 million in net operating earnings--400 million in net income, and not paying much tax on it, doesn't somebody get mad, sooner or later? I know you and I have discussed that. It just seems--

Well, the tax rules are what the tax rules are. We obey the tax laws and we file our returns but I think the question is more, would we tolerate operations which are low-profit operations and low-return operations for any significant period of time? And I think the answer there is no. We're going to do things to try and make sure that these operations are producing profits. Look at what we did in this last year, in terms of restructuring the business in Brazil. We are seeing the effects. We're seeing the operations--operating earnings coming back and we'll start paying more taxes as a result.

But key one is we are not seeing that [Q1] is our view, we are talking about a higher rate, so this year was a little bit unusual.

But 5% fertilizer industry decline was pretty much the number you were using a few months ago, wasn't it?

It could very well be. I don't remember but it could very well be, although if we had used it in the last call--or we were a little bit on the aggressive side. But--and the industry at that time, was perhaps, a little bit more pessimistic but once the government assistance occurred, we were confident that a number like that would be normal. Because it's very, very difficult for farmers who own the farm and we know they are profitable. They are, with a few exceptions, which is [unintelligible] growth or where they were not covering all of their capital, but all their variable costs are being covered. Farmers just want to use their land, soothe pressure we knew would be there that they would be high up. So--but only because of the health of the government, otherwise, this would have been very difficult for the farmers.

Is this the first time you've ever had negative cash flow in the third quarter, Bill?

[No, in 2003], I think we had as well. It's when the prices go up. I think, in 2003, the prices started going up.

Yeah, I think we had a much bigger effect in 2003, if I recall when we saw a significant increase in soy prices. And that's just novel. When you see prices rise, you're getting to see more operating working capital in the business.

It's all in inventory.

And basically, if I'm showing some near-term displeasure off negative cash flows, or lower tax rates, I should basically lighten up in the sense that, longer term, this is a company that does like higher grain and soybean prices for the ramifications it has, in terms of Brazil planting?

Yes.

Okay, thanks a lot.

You're welcome.

Thank you.

We go next to Alec Patterson with RCM.

Yes, good morning.

Good morning.

Good morning.

I guess I just want to pick up on what seems to be a general theme here that you're really sensing feeling a better sentiment and tone out of, in general, farming community in South America/Brazil and to that degree, how much more so in the U.S. as well, given this up-tick in soybean prices and what have you?

Yes, that's correct.

Okay. I mean, it sounded like you were saying that but it was coming across a bunch of different ways. So the potential for any sort of shift or an increase in fertilizer applications, fertilizer demand, relative to where we were, say, four weeks ago, from the farmers' perspective, is it a meaningful shift or is it not readily visible because of some other economics at work?

I would not say that you would see a meaningful shift. You know, the last three years were unusual, I would say, but probably we will slowly, from the farmer point of view, get to a more normal situation. We have strong indications that--I imagine that you are talking more about Brazil at the moment. Is that right?

Yeah.

Last year, there was very little planting for the corn crop in the spring, in the North American spring and the South American--the [unintelligible]. So there are clear indications that farmers will go back and planting more corn so for their harvest in the April/May/June area. The sugar cane is very strong so that means you are going to see more nitrogen type of products. There are indications that there will be--it will be a little bit more normal also on the phosphate side. So if that's the case, we are going back to a more normal situation. So we had two unusual years the last two years and next year, it probably looks more normal. But I am a little bit daring to say it like that but that's the way it feels--I say it like that.

Okay. And then you noted how your wholesale grains were better--I just wanted to make sure I've got my terminology right. Does wholesale refer to more of your internally-sourced and theoretically higher margin phosphate business or am I mixing things up?

That's correct. It's the--from the phosphate but also some of the nitrogen. Internally, we have our mines in Brazil and we have also some two nitrogen plants and the sales from these products like SSB, these sales to other mixing companies or retail companies, they are fine. But we have higher costs this year than last year.

On the internally sourced?

Yes because of the oil prices going up or not all of them we were able to pass on to the mixing companies and to the retail.

Okay, but in general, as that internally sourcing mix continues, we should not necessarily price per volume improve but more of a gross profit per volume improvement?

In general, yes.

Okay, on the JVs and your notion of about a billion gallons of bio-fuels that you'll be feed-stocking, I guess, is a way to put, that you have a JV relationship with, first of all, is that correct, one billion with a JV relationship?

That's correct. That's a bit more than--a bit more than one billion.

Okay and the 300 million over the next few years, is that representing your JV interest, i.e., 30% of the volumes is your interest?

On average. Some are more, some are less.

Of course. Is there a rough breakdown between bio-diesel and ethanol on that?

Don't have that at my fingertips but the current 50 million gallons of production is all bio-diesel because what we are currently producing today, 50 million gallons is all bio-diesel.

And are there going to be bio-diesel facilities associated with this increased expansion in Iowa?

Yes, there--not necessarily in Iowa but there will be bio-diesel facilities as part of this increased expansion.

And then just a technical matter, I thought you may have noted the fact that the edible oils business benefited from increased shipments to bio-diesel facilities and I guess I had the impression that that would be in agribusiness sales function. Is that not correct?

No, the edible business--all the increases in profitability on the edible--oil base is not related to bio-diesel. This is basically improvement in Europe and in South America and this is a slight offset. If you have more refined oil going to bio-diesel, it does affect negatively our edible oil business. So in U.S., our edible oil business, in terms of profitability, was a little bit lower.

So--but the net impact of additional demand from bio-fuel is much bigger than the effect on the edible oil side.

Okay, I'm just trying to understand this comment, "Increased oil shipments to bio-diesel processors in the U.S. positively-affected margins." That was in your release.

Yes, that's increased oil shipments of refined oil coming out of our edible oil facilities positively affected margins.

Okay, so I'm trying to understand is the edible oil segment the principal sales point for your--for bio-diesel sales?

Not necessarily. The--in some cases where they're taking refined edible oil, which is produced in the food product segment, of the edible oil segment, it will benefit that segment. In other cases, if they're taking crude oil, coming out of the agribusiness area, then it would focus more on agribusiness.

Okay, is it predominantly crude oil you foresee as the feed stock that you'll be shipping?

That's going to vary. And I'm not sure of the breakdown in mix at this point.

Okay, all right. So to be determined. And then just on the cash flow question, to somewhat get this clear, as we run into an up-cycle on grain prices and what have you, and the associated increase and working capital costs, if we X out the inventory factor, do you perceive the remaining working capital parts to flow with the sales trend, at least on maybe on a forward-looking basis?

I think the biggest impact is going to be on inventories. In fact, if you look at our debt adjusted for readily-marketable inventories, you'll see that we have not seen a substantial variation in debt adjusted for readily-marketable inventories. So much as the increase in debt and the increase in operating working capital has been going into readily-marketable inventory.

Over time, as those inventories are commercialized, we will see an increase in the amount of receivables just because the value of the sale is higher.

Okay but in terms of day sales outstanding or any sort of other metric by which you'd measure working capital, productivity, those numbers--there may be some short-term blips but in general, we should see receivables and payables mark time with sales and other features?

They should because the sales will go up in line with the increase in agricultural commodity prices.

Okay and lastly, on the constantly-asked-about tax rate question for '07, if I'm just hearing what you're saying correctly, basically, this is a mix question sourcing pre-tax profits from various areas of your business or regions affects the tax rate, as opposed to the notion that there is a tax program or hedge program or other program that is one-time in nature, affecting tax rate that goes away in the next year or two and changes the tax rate around?

Well, there's--actually, both are occurring. The primary effect is a mix effect that in the last year or so, we have been earning less of our operating earnings in normal tax environment and so consequently, we have been paying less tax in those environments. But in addition to that, in certain specific jurisdictions, we also hedge some of our exposures that can have the effect of reducing our effective tax rate. That program, however, is not one which goes away. We implement that hedging strategy each year and so I would expect that if we continue to do a reasonable job, we'll continue to get benefits from it.

It's a very common system of having the right capital structure and internally, to create a lower tax income in certain regions.

But on a cash tax basis, is there going to be a meaningful difference because of those programs created between what the cash taxes are and the reported tax rate?

Over time, the cash taxes and the reported tax rate should equalize. We'll just see timing differences. If you look back at our cash tax rate over the last five years or so, I believe it has averaged around 18%. And so we actually have seen significant cash tax benefits.

Okay and when you say, should normalize, within a year or two or are you talking over ten years?

Don't know the exact period. It's not going to be one year and it's probably also not going to be ten years, so somewhere in between.

Okay. Okay, thank you very much.

Thank you.

You're welcome.

We go next to Alexander Walsh with Harding Loevner Management.

Good morning.

Good morning.

Three questions, Alberto and Bill. One, could you detail, with a little more specificity, the new plants that you've got coming online? You mentioned Manheim and Balboa this year, and then another plant in Spain next year and a couple in Russia and the Ukraine but if we look at these, plus the JVs and the bio-fuels business, I guess what I'm getting at is CapEx, where it's going to peak and kind of what trend you see over the next two or three years?

Our CapEx basically is--we try to--it is adjusted to how much cash flow we generate so as long as we continue growing the way we expect growing, 10%, 12% EPS, we expect it to be in the neighborhood of $500 million and going up, as we--our profitability increases. We want to keep our capital structure safe and intact. So that is one of the reasons we have enough projects available is one of the reasons why we also decided to go into joint ventures on the bio-fuels because we just do not have enough capital available.

So our philosophy, in terms of CapEx, is that we will take advantage of these projects up to a limit that our capital structure is safe.

Okay and in terms of when these facilities are going to be coming online over the next 18 months and start becoming productive?

Yeah, the first one is [unintelligible] is in Brazil is online already. The [Balboa] in Spain is already online since August. Catarina, in Spain, will be online sometime in the first quarter. Voronezh in Russia, will be state of the art crushing refining and bottling sunflower facility will be online sometime in the first half, Ilyichevsk in Ukraine should also be in the first half [unintelligible] was the beginning of the year. The [unintelligible] refinery is probably more in 2008. So a couple of the plants are coming on stream between now and the next 12 months. We are quite excited about these plants that obviously is a drag on--we have to invest and they are not contributing but they are starting contributing over the next 12 months.

Okay, switching a little bit here, Bill, in a conference earlier this month, you talked about ethanol in the U.S. being essentially a cost or capital business and despite those comments or maybe in line with those comments, you guys are going to increase your bio-fuels production significantly. Now, you didn't give us a break on the difference between bio-diesel and ethanol, in terms of the bio-fuels production you're going to have but can you reconcile that comment with why this is going to continue to be a good investment for you? Is it because of the increased capacity utilization of your existing plants or is there another part to that as well?

We are only going to be investing $100 million to $125 million in the projects that we have announced so far, so relatively small amounts of money. Now, the benefit that we can get from supplying raw materials to over a billion gallons of bio-fuels production is significant. And so even if we only get a cost and capital return on our $100 million to $125 million, benefit we get from supplying those raw materials from providing services like risk management to these projects and from handling the byproducts, the DDGs, is going to mean that our return on our 100 million to 125 million is going to be a very attractive return.

So it's all of the ancillary services and the raw materials that we provide which is going to provide the maximum benefit.

So X those, you don't think that this is that attractive an investment proposition.

X those, we believe that ethanol distilling and bio-diesel refining are cost and capital businesses over time.

So it is interesting but we have, obviously, other projects which are very high. So we have the problem of competing projects.

That's a good problem to have. And finally--this was touched on earlier, I think by a couple of the questioners, but I was seeing if we could put a more fine point on it. The issue of switching acreage out of corn and into soybeans is what I want to get to and I guess it's not a zero-sum game because there may be some land that's fallow at this point that could come into tillage. Do you think that that is going to be a significant factor and we could end up having soy acreage in this country be flat and an increase in corn or do you think that it is more of a zero-sum game where it's going to go from corn to soy, exclusively?

Well, it's very difficult to exactly say it because there are also changes in climate, there are changes in technology but the consensus or let me say the view of the USDA and also of the industry is that the best utilization for the soil here in the U.S., the idea of utilization is a little bit more corn and for South America, is--from a logistics point of view, it is more the beans. So you would have a natural--what are the natural capabilities of the soil and the regions? There is--if you have to choose, if you look at the globe, and you choose who's going to do what, you would naturally say you would do a little bit more corn in U.S., a little bit more corn and beans in South America--beans in South America. But this is never--it's not one for one.

I think we do need the beans also here. You need the rotation. So this is enormous change that you will--either no growth--probably what you will see is no growth in soybean acreage in U.S. because--but it's very high production. It's the largest production in the world and you'll see most of the growth in South America, and in corn, you will see most of the growth in North America.

Okay, thanks very much.

Thank you.

You're welcome

That concludes our question-and-answer session for today. At this time, I'd like to turn the call back over to senior management for any additional closing comments.

I thank you all for joining us today. We'll see you next quarter.

Thank you.

That concludes today's conference call. Thank you for your participation. You may now disconnect.