Bunge Global SA (BG) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to the Bunge Limited fourth-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 Mark Hayden.

Thank you, Cynthia. Thank you, everyone, for joining as this morning. Welcome to Bunge Limited's fourth-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 orally on this conference call to the most directly comparable GAAP financial measures 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 provisions of the Private Securities Litigation Reform Act of 1995 including statements about future financial and operating results. These statements are based on management's current expectations and beliefs that are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. The pertinent risk factors can be found in our SEC filed reports.

Now let me turn the call over to Alberto.

Good morning everyone. Bunge finished 2006 on a promising note. Our team did an excellent job of delivering results and produced strong second half performances in all of our operating segments. We expect to 2007 to be a year of improved earnings.

Over the past several months, we have seen clear signs of improvement in the Brazilian agribusiness and fertilizer markets. There are still some challenges such as the strong real but higher commodity prices, large new corn and soybean crops, and continued government support have improved farm economics in the country and should translate into more crop sales and larger fertilizer purchases in 2007.

Steps taken in late 2005 and early 2006 to restructure our Brazilian businesses, lower costs in our foreign currency risk management should position Bunge to benefit from improving Brazilian market conditions.

Emerging biofuels industry is creating higher demand for our core products and is materially influencing global supply and demand. Bunge is taking a focused approach to the biodiesel and corn ethanol industries. We are making minority investments in well-positioned assets and acting as a raw material and service supplier to biofuels producers.

Our overall strategic focus remains on the agribusiness and food industries where we see great opportunity driven by strong demand for our core products. To capitalize on this growth, we will continue to enhance the balanced integration and efficiency of our global network of assets.

In 2007, we will expand capacity at our Sunseed crushing plant in Martfu, Hungary to grow our presence in Eastern Europe, build a new wheat mill in North Eastern Brazil to improve production efficiency and continue increasing our fertilizer mining and production operations to meet future growth in Brazilian agriculture.

We will complete our two Canadian crushing and refining capacity expansion projects and increase our presence in the global sugar and sugar-based ethanol markets. Also our oilseed processing facilities in Ukraine, in Russia, and also Spain and our new grain and fertilizer terminals in the port of Santos, Brazil will come fully on line during 2007, supplying real benefits to our business.

Ours is a growth industry with compelling opportunities. We will invest to capitalize on them while building a balanced global business that enables us to weather challenging periods as they occur.

Bill will now provide an overview of our results and outlook.

Before I begin my regular remarks, I would like to inform you that this morning we posted additional information on our taxes, cash flow, and capital projects in the investor information section of our website. We encourage you to visit the site and read the material. We hope it is helpful.

Now let me turn to our results. In agribusiness, results in the quarter improved when compared to the same period last year. Higher results in South America were driven by higher oilseed processing margins, which more than offset lower volume. 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 at the U.S. dollar exchange rate strengthened 5% when compared to the fourth quarter of 2005.

Results continue to be strong in North America. Despite significant cost reductions in South America, SG&A increased primarily due to a stronger real. Fourth quarter 2005 results included $35 million of impairment charges related to the closure of two oilseed processing plants in Brazil and the impairment of one plant in India and $10 million of restructuring charges related to operations in Brazil and Europe.

Fertilizer results in the quarter improved when compared to last year's poor performance. Higher margins in Bunge's retail and nutrients businesses were the primary drivers. Rising agricultural commodity prices and favorable weather conditions throughout most of Brazil resulted in increased late-season fertilizer purchases by farmers. Improved risk management, which offset the impact of a stronger real on margins and costs, benefited results as well.

SG&A for the quarter decreased due to lower bad debt, savings from cost reduction measures, and a $6 million provision reversal due to a favorable court ruling relating to Brazilian social taxes. 2005 results included a $2 million restructuring charge.

Edible oil results improved primarily due to increased volumes and margins in Brazil. Fourth-quarter 2005 results included a $2 million restructuring charge related to operations in Brazil and Europe.

Millings strong results in the quarter were due to higher wheat milling margins resulting from a rising international wheat price. Bunge benefited from low raw material costs as it purchased much of its inventory prior to the rise in prices.

Interest income increased primarily due to higher average levels of interest-bearing accounts. Interest expense increased primarily due to higher borrowings, resulting from higher average operating working capital and increases in short-term interest rates.

Foreign exchange gains in the fourth quarter of 2006 resulted from the effects of an appreciation of the Brazilian real and the European euro compared to the U.S. dollar on the net U.S. dollar-denominated monetary liability position of Bunge's Brazilian and European subsidiaries. Foreign exchange losses in the fourth quarter of 2005 resulted from the effects of the devaluation of the Brazilian real compared to the U.S. dollar on the net monetary liability position of Bunge's Brazilian subsidiaries.

Other income and expense net for 2006 primarily includes a gain on sale of land in Europe of $31 million. Bunge's income tax benefit for the year ended December 31, 2006 included a $67 million reduction in its deferred tax asset valuation allowances, a $14 million income tax charge relating to certain tax contingencies in Europe, and a charge of $21 million relating to the reversal of certain tax benefits on U.S. foreign sales recorded from 2001 to 2005.

Bunge's income tax benefit for the year ended December 31, 2005 reflected a $79 million reduction in its deferred tax valuation allowances and a $77 million tax benefit relating to a reduction in its deferred tax liability due to a favorable tax ruling with respect to the unremitted earnings of a foreign subsidiary holding company.

The decrease in the income tax expense excluding the items noted above was primarily due to a decline in income from operations before income tax in subsidiaries that are in tax jurisdictions with higher income taxes. The effects of a legal restructuring completed in 2005 also contributed to the lower income tax expense.

Minority interest expense increased in the fourth quarter of 2006 when compared to 2005 due to higher earnings at Fosfertil. Equity and earnings of affiliates for the fourth quarter of 2006 included a loss from the investment in Solae due to impairment and restructuring charges. Net financial debt and readily marketable inventories at December 31, 2006 increased $333 million and $802 million respectively from December 31, 2005, primarily due to higher prices and volumes of commodity inventories.

Net financial debt was reduced during the fourth quarter of 2006 by net proceeds of $677 million received from the November 2006 sale of convertible preference shares.

Cash flow used by operations was $289 million for the year ended December 31, 2006 compared to $382 million of cash flow provided by operations in the year ended December 31, 2005. Higher operating working capital primarily due to increased prices and volume of commodity inventories contributed to the decline in cash flow from operations. Normally when global supplies of agricultural commodities become more balanced with demand, commodity prices decrease, resulting in lower working capital and improved operating cash flow.

Now let me discuss Bunge's outlook and guidance for 2007. Following our strong second half in 2006, we are looking forward to a much better year in 2007. Though it is still early, crops in Brazil and Argentina are forecasted to be at or near record levels. High global commodity prices should strengthen farm economics, prompt farmer selling and encourage Brazilian farmers to purchase higher levels of crop inputs such as fertilizers. Industry expectations are for retail volumes and the Brazilian fertilizer markets to be up 4%. New oilseed processing assets coming on line will benefit results in Europe. North America should have a good year, but a tough comparison to strong results in 2006.

Our 2007 guidance is as follows. Depreciation, depletion, and amortization, $370 million to $390 million; capital expenditures net of asset dispositions, $570 million to $590 million, of which $290 million to $310 million are sustaining, maintenance, safety, and environmental capital expenditures; tax rate, 18% to 22%; joint venture earnings, $20 million to $30 million.

Our guidance assumes the following, stable currencies normal crops, stable international fertilizer prices, Brazilian retail fertilizer market volume growth of 4% when compared to 2006.

Based on these assumptions, our 2007 net income guidance is $590 million to $610 million, representing $4.56 to $4.71 per share and includes an estimated $30 million or $0.23 per share during the year related to a gain on sale of assets. This fully diluted per share guidance is based on an estimated weighted average of 129.5 million shares outstanding which includes assumed dilution related to our November 2006 issuance of convertible preference shares.

Before taking your questions this morning, I want to make a few comments. I assume most of you read our announcement this morning of Bill's decision to leave Bunge for a CFO position at Loblaw Companies Limited. Bill has been a valued member of our management team and has made significant contributions to Bunge during a critical period of our history. His leadership was instrumental to the success of our IPO, our acquisition of Solae, as well as the creation of the strong growth position our company enjoys today. He will be missed.

Personally I would like to thank Bill for his individual commitment and service. I wish him continued success in his new job.

Thank you for the kind words, Alberto. Let me say that the past seven years with Bunge have been the most exciting and fulfilling of my career. We have done some great things together and it is a time I will never forget.

One of the reasons I feel comfortable leaving Bunge is that the company is in great shape with solid business prospects and an excellent team in place. I will truly miss the people here a great deal, but I'm looking forward to applying my seventeen years of experience in the food industry to a new and interesting professional challenge. I am also very excited by the opportunity to return where I grew up in Canada.

I wish to express my thanks to the many people both inside and outside Bunge who have made these last seven years so rewarding and whose hard work and dedication have helped build this great company. Especially I would like to thank Alberto, from whom I have learned so much and who has become a good friend. With Alberto at the helm, Bunge's future is bright.

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

(OPERATOR INSTRUCTIONS) Kenneth Zaslow, BMO Capital Markets.

A couple of quick questions. How would your forecast change for 2007 if fertilizer volumes were to be up about 10% or so? Would that make a big difference?

Obviously it would have a significant impact on the company. I think we would see significantly better operating results. We have not done that sensitivity analysis, so I cannot give you any exact numbers, but I do think we would certainly see a more positive result coming out of fertilizer.

The 4% that you are citing seems below what other companies have come out with, Potash being one saying 10% is probably the low end of where fertilizer volumes might go. So I am just trying to figure out why you come out with 4% and is there a sense of conservatism that you are using?

4% is the ANDA numbers, which is the Brazilian Fertilizer Association. So those are the numbers that we always look at. There is certainly a sense of optimism in Brazil about the scenario for fertilizer in 2007. With this level of prices for grains and for soybeans, farmers are extremely eager to plant. If we see continued high prices, there may be some upside in that volume number, but we would prefer to plan based on the ANDA numbers.

So there is some conservatism? Okay.

Well you have to also remember that commodity prices can move and the currency, the real, is very strong. Also some farmers still have to reduce their debt level, so we have to be a little bit careful so there are two tough years for the farmers. Not everybody is financially strong to come in, so we believe the 4% is realistic.

Getting to that point of bad debt expense, how much bad debt expense did you incur during the year? And is there a thought on what percentage you might recover in '07 and '08 even?

In 2006 I think the number was around $40 million in bad debt expense in the fertilizer business. The total reserve that we currently have against our fertilizer receivables is about $140 million. We saw the level of bad debt expense decrease in the fourth quarter, so the amount that we were charging off against bad debt went down in the fourth quarter. We have not made any estimates about recoveries in 2007. We think it is premature.

So if there were any recoveries that would also be incremental?

Yes, it would.

Also, the timing of the fertilizer mining expansion, can you touch on the period in which you're going to -- how much you are going to actually increase your mining, over what time period? If you could remind us of that?

Then secondarily on that can you touch on the point that will that enhance your margins? Is that just a volume issue? How do we think about that in terms of '08 and beyond?

The mine expansion that we have is the [Araxa] expansion mine and it should be at the end of the first quarter, the expansion is around 10%. It should have positive impact because we will be selling -- it is included in our guidance, but it is instead of importing expensive raw materials, we are using our own ones. So by the end of the first quarter we should see an increase -- should be ready our mine expansion.

Is that the only mining expansion that you're doing in Brazil?

Yes, we have announced in the past that we would do more of it. We have another expansion in the same mine, Araxa, that should be ready by the end of next year, which would be something like a 30% increase, but the significant mine expansion that we talked about, Fosfertil, we have delayed the beginning of that expansion because of the difficult environment over the last two years. But we are analyzing that one very carefully at the moment. No decision should be taken over the next two quarters. So if a decision is taken it is more to the end of the year.

Okay, then my last question is you put in your comments -- increase our present in global sugar and sugar based ethanol markets. Right now you are not in that market, so I am assuming you're making a bid for an acquisition. Can you touch on that a little bit on where you think you'll be in a year or how does that all play out?

We have started to operate in sugar. Over a year ago we have built a team, a marketing team in Europe. We have hired a team in South America. We also have built logistics capabilities, so we have merchandised sugar already last year. So this year we will continue doing that, but we will be looking also at assets in different parts of the world to expand, but obviously would not like to comment on this.

Great, thank you very much.

David Nelson, Credit Suisse.

Good morning, Alberto, and best wishes, Bill. A question on the big picture. With corn acreage going up a lot in the U.S. this year, corn prices have stalled out, but soy is hitting new highs. How fast can Brazil expand planted acreage? If we add eight million acres or more in the U.S. this next year, a lot of that is going to come from soy. Can Brazil expand -- how fast can Brazil expand its soy planted acreage?

It can do it relatively fast, but at the same time you have to remember by the end of last year in September we had highest stocks ever of soybeans, so we still had very good stocks around the world. But the expansion can be very fast, one or two years.

In Europe with the higher biodiesel taxes, how is that affecting your margins or biodiesel demand yet?

The demand is strong. Let me say it is different in each country, so slowly but most of the countries are merging with the exception of France to a system of mandate and the taxes are being -- the detaxation is being slowly eliminated. The demand is strong for the oil. Now the margins have reduced, have been reduced from the very high levels to lower levels of profitability, but with the exception of perhaps one or the other countries, the profitability is reasonable.

Okay, great. Thank you very much.

Diane Geissler, Merrill Lynch.

Best wishes to you, Bill. We're going to miss you. I just wanted just a little bit more detail on the ending stocks issue and just stocks in general of soybeans. Obviously it has had a big run up here with corn but if I do my math and assume sort of a loss of 10 million acres in soybean, which would I think some would think would be aggressive and assume an average yield in '07, I'm still coming out at a level of stocks for the '07/'08 marketing year pretty high. So I guess how much of your estimate for your operations and in particular fertilizer is based on soybeans staying kind of where they are at, where they have traded up in line with corn, even in spite of the fact that we have plenty of soybeans?

I do not have the details numbers here. I could give you that later from obviously we are using all the same data from the USDA. But you have to remember that we have not seen an expansion in soybeans last year and we will see probably very little this year, but the global demand is strong, so last year in fact soybean meal demand was 6.6% growth, so it was a little bit above trendline. So we're expecting 4% to 5% growth this year.

So what you are seeing is a drawdown on the stocks and so we -- the reason why the prices are going up on soybeans is exactly because of this demand. You see also Europe used to be an exporter of soybean oil and has become an importer of soybean oil, so the picture is strong demand from the mill side, a strong demand for the oil side. So the stocks are coming down. I do not have the exact numbers here in front of me, but the best explanation is the market is getting nervous because obviously you see also other parts of the world like Argentina probably also are going to expand corn and wheat because these other -- the feed grains are the ones that are missing and therefore the market is getting nervous.

Even Brazil has expanded its corn production. It's (indiscernible). We expect that it as being harvested soon is also ramping up and you see Brazil expanding, has expanded its sugar cane business, so that is one explanation why we see the strong price pressure on soybeans.

Now to your question about the fertilizer demand, it is not only coming from the soybean expansion, it is a little bit early to say because we are just starting the harvest, so the second half of the year we will know as we approach more June we will now better what the demand will be from the soybean side, but the demand from the farmers for corn, for wheat, for sugar cane is very strong.

Okay, so I guess I should read from your comments that the rise in the price of soybeans is not so much linked to corn. It is more has been driven by just simple demand for soybeans and soybean linked products?

The market is getting nervous is there going to be enough soybeans, because the market is giving signs -- don't forget soybeans, produce soybeans as well. We all need the soybean meal.

What would you consider to be an adequate carryout supply on soybeans just kind of over the long-term fir U.S. stocks or global stocks?

The last time I looked at this, the one we will see by the end -- in September this year, so we think that the stocks will be at the normal level by the end of the U.S. crop, so that is what is making the market a little bit nervous.

Okay and then just maybe a housekeeping question here. Within the items that you point out here when you talk about joint venture earnings, is that the net of equity income and the minority interest? Is that a net number that you use in there, 20 to 30?

That does not include minority interest.

Okay, so that is just simply the equity earnings line.

That's simply the equity earnings.

Perfect. Thank you for clarifying that.

Christine McCracken, Cleveland Research.

Good luck, Bill. We will certainly miss your guidance.

Thank you.

In any event, I wanted to touch on guidance. You are looking for what looks to be flat international fertilizer prices and it seems a bit curious given some of the recent movements in international markets. I'm wondering are you expecting not a lot of improvement I guess in terms of pricing or what gives you the confidence that that is going to stay stable?

We are expecting to see increased demand coming out of Brazil, so that we think is going to put a [bid] under fertilizer prices. Our best guess when we're looking forward is that we should probably see not a large amount of movement particularly in phosphate prices.

Okay, so looking at least the publicly available information, it seems like phosphate prices have already moved about 10% this year. I am curious -- it seems like a lot of that is being driven by the demand that we talked about for North America and even India. Are you expecting new capacity to come on to offset that and lead to some decline in pricing? Or maybe -- I guess I am a little bit curious why you'd expect flat pricing when they are already up so much?

I think a little bit is like what we always look at is the price is very difficult to talk about future, like the exchange real going up or down. So when we do our guidance, we assume if we do not see any major disruption in the markets, we assume it will be where it is. So we're not trying to guess if it is going to go up or down as long as we see a normal kind of supply/demand picture.

Okay, it is my understanding that I guess a couple of phosphate mines came down in North America. And that is part of the reason behind the increase in prices? Is it your expectation then -- I guess you're just not anticipating any change in [supplier]?

No.

Just in terms of the recent outbreak of bird flu in Europe, that had an impact I think on your meal demand historically. It is obviously early days and it seems to be fairly well contained, but at this point has there been any reaction from your customer base at all?

No, no reaction at all.

It is something we are keeping a close eye on. As you know, we had trouble in the first half of last year in the Mediterranean basin when we had the outbreaks in Turkey. The current outbreak is in the UK and while we do do business in the UK, it is certainly nowhere near as large of a proportion of our business as the Mediterranean business is and so even if there is some impact, it is likely to be much smaller.

It is my understanding they have it in Hungary too, though, which is in relatively close proximity to some of those Mediterranean markets.

In closer proximity, although well sheltered by the fact that it is a different market. It is a sunflower market in Hungary and our operations in Hungary are really focused on vegetable oils, not focused so much on the protein meals.

Great. Then just Alberto, you were looking I think in your comments for 4% to 5% increases in meal demand for next year. Is there any -- have you tried to look at the potential for declines I guess in the livestock sector tied to higher feed costs or have you considered what the impact of distillers might be on meal demand specifically?

Yes, we follow that very carefully and also we are also in this market and selling it and it is all considered, so we look at all of these different factors. So we still believe that this is the kind of growth rates we agree with the USDA that we are seeing the same kind of growth rate.

Okay, and then just in terms of the mining expansion, that Ken asked about earlier, it sounds like you are not moving maybe as quickly to expand capacity despite some of what looks to be fairly strong demand. I'm just wondering is this a function of the cost of expansion at this point? I know that some of the raw material costs have gone up quite a bit. Or is it just a strategic kind of decision following a few years of difficult economic conditions?

Perhaps we changed it a little bit. Originally we said 10% increase in Bunge Fertilizantes and the larger increase in Fosfertil. What we are doing is we were able to especially at our Araxa mine, we were able to optimize that expansion. It is always easier to expand an existing mine. So all of our focus is at the moment is with a 10% increase is the Phase I of Araxa, but something we did not plan before.

We a second phase of the Araxa mine expansion which will be next year. This is obviously much more the hurdle rate for these investments are lower than opening a new mine. When we look at Fosfertil, we're talking about opening a d new mine, it is a much larger investment and the hurdle rate for the investment is bigger.

We know we will do it, but it is a question the market has to be a little bit better, so that is why we just delayed it probably for one year, the start of that expansion. But when you look at it from Bunge as a whole I think the current situation is much better because we are being more aggressive on the Araxa mine expansion and delaying the opening of a new mine.

All right, I'll leave it there. Thanks.

Christina McGlone, Deutsche Bank.

Congratulations, Bill. I will miss you. I guess first question maybe following up on one of Ken's, I'm seeing a lot of articles out of Brazil today that actually Bunge is in a competing bid for Vale do Rosario. But from your answer to Ken, it sounded like there wasn't anything in the pipeline.

I will not comment on that.

Okay, then moving onto I guess to Brazil, last year we saw the government aid package extending farmer debt and I am curious when do those payments start to come up?

The government aid package began making payments last year. They were extended to farmers in midyear. It was one of the reasons that the Brazilian farm economics started to turn around. The government aid packages are continuing this year. They have canceled the auction system which was providing some subsidies to farmers on the soy prices because prices obviously do not require it at this point. But they are continuing several of the other existing aid programs, and so the government is still there, still helping out the Brazilian farmers.

But they had deferred -- some of the debt payments that were due, they deferred I thought for a year and I just was curious if those payments are now going to come up, if farmers have to repay their debts this year or if they extended it to '08?

Yes, they were actually deferred over several years. There were different programs and they were focused differently in different regions, but in general those programs were for payment over a number of years. So most of the programs were for payments over a three or five year period.

Okay, Bill, you mentioned a restructuring charge because of the two Brazilian plant closures, are those new or those are the ones that you've done previously?

No, the ones we did previously.

That was '05. This was not '06.

Okay. Maybe Alberto if you could touch on the capacity utilization in Brazil and Argentina? And also I don't know how the impact of these new export taxes in Argentina will affect the farmer there and if that will skew soy plantings or maybe if you'd touch on that as well?

Yes, the capacity utilization is good in Brazil. It is less in Argentina because of the additional capacity, but there is fortunately enough rationality and discipline so the players are giving preference to the profitability than to the volumes. So the capacity utilization is mixed in South America, but it is positive in the case of Brazil.

Now, the market and the government is relatively fast in Argentina. They will react fast if there is too much of the crop going to grains, which is the risk at the moment with the structure. There is already some noise in the market about equalizing it for corn and for soybeans and for wheat. So we do not expect any significant disruption there. We expect normal conditions, planting conditions in Argentina.

Okay, and then when you had mentioned the safrina I think in a previous answer. Is that harvesting now or is it being planted now?

It is being planted and I don't know exactly the dates when they start harvesting, but it is sometime in April/May.

Yes, it is in midyear.

So the fertilizer sales for the safrina would hit your first quarter?

It hits obviously you saw it was for us was a positive surprise. The fourth quarter, it has also affected a little bit the first quarter.

We started to see some effect in December of sales for the safrina but then the majority of sales for the safrina will usually happen in the first quarter.

Obviously there was a second good news with that is some of the farmers in order to get the additional fertilizer they had to pay back their overdue debts and they did it, so they found the fund so I think this is positive news there as well.

Could you say and what did fertilizer -- what was fertilizer volume in '06? How much did they fall in total?

In fact in the market it ended up not falling. It was slightly up. We do not have the exact statistics, but I think from ANDA it is something like 2% up, which was when you remember the beginning of the year we were talking about something 10% to 20% drop, so there was a dramatic change in the second half.

Okay, so the 4% comp or the 4% growth rate that ANDA is talking about is versus the 2% comp.

Yes.

Just the last question. You talked about North America being good and having difficult comps. I guess maybe, Alberto, if you could comment on biodiesel in the U.S., it seems that it is not expanding as quickly as we had hoped. I don't know if that would put a sort of a ceiling on soybean oil prices and just limit crush margins in North America as the year progresses.

It is a little bit early to see it. We do not have the exact details of which ones are being built and not, so we do not know exactly the stage of it, but the profitability of biodiesel is not as good as it used to be. But we have to remember also that the biodiesel in U.S. is not a program as large as it is in Europe, so at this stage we believe that there will be enough draw, enough demand on biodiesel to support the crushing industry as we expect.

Okay, thank you.

David Driscoll, Citigroup Investment Research.

First off, Alberto and Bill, congratulations on the quarter and the year. It is nice to see the year end on such a strong note. Bill, congratulations on the new position. As with the other callers, we're certainly going to miss your input. I wish you all the best and for you guys, I certainly hope that this does not mean that the stock has peaked.

Thank you very much, David.

Alberto, you have often talked to us in the past about the 15 factors that are out there and 11 of them need to go in our direction. I think that the early read on kind of what is going on, a 4% improvement in fertilizer volumes year-on-year sounds like a reasonably conservative prospect given that we've got crop prices going to at least in corn's case 10-year highs and soybean following it. Maybe I just want to maybe temper the obvious enthusiasm on fertilizers with potentially where you see some of the risks, Alberto?

And maybe if I could just call one out and see if you agree with this, what would the effects on North American soybean processing margins be in the environment that we're likely to see in 2007? How much of a variance -- I know you have a base case embedded in your earnings estimates, but how much variance would you expect to see around those expectations?

I think if I understood your question correctly, Dave, I think you are right. Obviously when we look at '07 we think it will be much better than '06, the first half was horrible, but we see there are a couple of signs that are not all that easy when you think about the real. The real is very strong. I think one of the reasons I forgot to tell also when Diane asked the question, I think one of the reasons we see the strong price in the soybeans is because the real is strong.

So we do need the soybeans coming from Brazil, so if the real was very strong, there has to be a compensation for the farmer and it is coming in the case of soybeans; it is coming with higher commodity prices so there is always a risk with a strong real that we would -- that's a concern. It is a headwind.

We also should not forget the debt the farmer is still carrying, so we have to be a little bit careful with when we look at fertilizer in '07. That is why we think it is realistic the 4% growth. There will be some other limitations.

In terms of North America, we had two or three very strong years on crushing and we believe it will be good this year, but it is more flat. We will not see an improvement. That is the way we are seeing it. I don't know if I answered exactly your question.

You did, and maybe if I could just follow on to one of the point there on the Brazilian real, we have actually continued to see it strengthen a little bit. On your agribusiness line on the SG&A, I believe SG&A expenses were up about 11%, but more importantly the per ton cost was up. So kind of correlated with my first question would be the question do you think Bunge is doing enough here to control the cost side of the equation, given the level of the real? And what do you make of the cost per ton going up? Shouldn't it be going down as your volume increases and we get more fixed asset leverage?

Look, obviously we all are watching it and frustrated with that, but you remember that at the beginning of the year we talked about a program of something like $80 million cost savings. In fact we exceeded that with the shutdowns of the different plants in total it was between the oilseed processing plants and idling of the fertilizer, there was some 10, 11 plants we idled. We let go between direct employees and contracted over 3000 employees, so it was a massive program and it worked. It worked very well. But you do not see it. It is masked because of the appreciation of the real.

So it is -- obviously we will never stop. We will continue looking what else we can do to continue improving it. We see this as one of our strategies is operational excellence; it is all about constantly looking at it. You saw that we are very happy with the Anitapolis refinery. We shut down three refineries and we have the Anitapolis one. Our cost per ton came down on refined oil.

You look at the wheat mill, this is a very important movement. This wheat mill we are building is all about efficiency, so we do not stop. We are constantly working on it but the strong real at $2.08 or $2.09 where it is -- it is not easy especially when you think about purchasing power parities probably someplace at $2.50 or $2.70. But that is the cards we have and that is what we are going to work with.

With the foreign exchange hedging with cost reductions and we are not stopping. We will continue working on improving our efficiencies. We are assuming that this is the rate that will stay there and we will have to adjust for it.

You should also remember that we revamped our foreign exchange hedging, how we were doing that. It worked extremely well during 2006. So you are seeing some of those benefits come in the foreign exchange line. It does not show up directly in the costs, but we are getting some benefit.

Okay, but if I heard you correctly, Alberto, you're saying that you do not expect the SG&A per ton in the agribusiness to show year-on-year improvement based on your current guidance?

We expect it to improve as long as the exchange rates don't change. So we do have programs in places to reduce our industrial cost per ton or SG&A per ton. They always are reducing when you look into the future, but the frustrating part this year that has been masked by -- completely masked by the appreciation of the real.

Very good. One final question on the tax rate, Bill. As I recall here, the long-term model is really for sort of an average tax rate of something like 25%. I think you're giving guidance here today at between 18 and 22. Can you just describe for me the differential here between the numbers?

We now know how we have put in place our hedges for 2007. As you know, we do have a hedging program in order to try and control our tax exposures and we know what that program is and believe we are going to be getting some benefits from that. So that would be included in the guidance for this year.

Let me also just go back to the issue of costs and the exchange rate and say that all of these changes that we have made in Brazil mean that our operation is inherently more efficient there so if we do see some devaluation of the real, we are going to see a much better performance out of our Brazilian operations.

Can you reaffirm for us that the long-term tax guidance of about 25% is still appropriate?

That is still appropriate.

Great, thanks a lot, everybody. Take care.

This will conclude today's question-and-answer session. Mr. Hayden, I will turn the call back to you for closing comments.

Great. Thank you, Cynthia, and thank you, everyone, for joining us this morning. We will see you next quarter.

Ladies and gentlemen, this will conclude today's presentation. We thank you for your participation and you may disconnect at this time.