Bunge Global SA (BG) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the Bunge Limited's First 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 Haden. Please go ahead sir.

Thank you, (Cynthia) and thank you, everyone for joining as this morning. Welcome to Bunge Limited's first quarter 2007 earnings conference call. With me today to discuss our results are Alberto Weisser, Bunge's Chairman and CEO, and Drew Burke, Bunge's Interim Chief Financial Officer.

Reconciliations of non-GAAP measures disclosed orally 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 provisions of the Private Securities Litigation Reform Act of 1995 including statements about future financial and operating results. These statements are based on management's current expectations and beliefs and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. The pertinent risk factors can be found in our SEC filed reports.

And now let me turn the call over to Alberto.

Good morning; Agribusiness had a disappointing quarter due primarily by unrealized mark-to-market losses that caused Bunge's overall results to fall below expectations. However, our fertilizer business performed strongly, driven by high prices and robust sales for precision winter plantings. Edible oils and milling segments performed in line with expectations. We remain confident that the full year 2007 results will meet our original expectations.

The unrealized mark-to-market's losses this quarter, which totaled approximately $85 million resulted primarily from a widening of the spread between cash and futures prices. These price changed impacted the large amount of physical inventory we have at our facilities and our forward purchase of crops that will be delivered later in the year. Normally our stocks are consumed during the course of the year, the spread cash and futures prices converge. As this happens, we expect a portion of these losses to reverse. In fact, we have seen this occurring over the last several weeks.

Overall market fundamentals are solid. Crops are large and world demand for protein meals and vegetable oil is good. These conditions should benefit our operations worldwide.

The expected shift of US acreage to corn in response to ethanol demand should prompt greater plantings in South America. This combined with healthy global agriculture commodity prices should benefit our fertilizer business in 2007 and to a greater degree in 2008.

We continue to follow our strategy of building a larger, more efficient asset network that links the world's leading agriculture commodity production and consumption markets. The larger network enables us to originate, process, and transport more products for more customers throughout the year. Last week, we announced the purchase of a majority stake in a Chinese soybean processing plant. The plant, which we plan to expand, is our third in that country.

In addition, we recently agreed to acquire a sun seed processing and refining plant and two popular bottled oil brands in Romania. These facilities represent the latest addition to a global asset network that includes approximately oil seed processing facilities.

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

Good morning. In Agribusiness, unrealized mark-to-market losses on hedged commodity inventories and forward purchases in South America were the largest single driver of the quarter's disappointing results. Large crops, high agricultural commodity prices, and farmers eager to sell resulted in physical cash prices not nearing prices in the futures markets, which were driven higher by anticipated bio-fuel demand and an influx of investment from non-commercial market participants.

Oil seed processing was solid in North America and slightly down in Europe. Higher SG&A costs stem primarily from increased personnel costs to support growth in new product lines, such as sugar, and the impact of the stronger Real. Interest costs increased due to higher average working capital. First quarter 2006 results included $18 million of impairment charges related to the closure of three oil seed processing plants in Brazil and $2 million of cash restructuring charges.

Fertilizer's strong first quarter performance resulted primarily from higher volumes as farmer demand increased in connection with the winter corn crop and improved farm economics. Higher international prices for imported fertilizers and raw materials helped increase local margins as products were priced in poor parity.

SG&A for the quarter decreased due to prior cost reduction measures and lower bad debt expense. First quarter 2006 results included a $2 million cash restructuring charge related to workforce reductions.

Edible oils results for the quarter were primarily driven by higher volumes and margins in Brazil. Increased personnel costs related to the growth of our businesses in Asia and Eastern Europe and the impact of foreign currency translation increased SG&A costs for this segment. First quarter 2006 results included a $2 million impairment charge related to the closure of two refining and bottling operations in Brazil.

Millings' results for the quarter was slightly below last year's strong performance. The margins in wheat milling were offset by volume, and margin declines in corn milling.

Interest expense increased primarily due to higher average borrowings resulting from high commodity prices and increased farmer selling of crops.

Foreign exchange gains, which offset currency effects on margins in the first quarter of 2007, resulted from the 4% appreciation of the Brazilian Real when compared to the US dollar and March 31, 2007 versus December 31, 2006 on the net US dollar denominated monetary liability position of Bunge's Brazilian subsidiaries. The Brazilian Real appreciated 8% when compared to the US dollar at March 31, 2006 versus December 31, 2005 resulting in exchange gains in the first quarter of 2006.

Bunge's effective tax rate for the first quarter of 2007 was 22% compared to 16% in the same period in 2006. The increase in the effective tax rate was primarily due to increases in earnings in higher tax jurisdictions. Equity and earnings of affiliates decreased primarily on lower reported earnings of Solae and Bunge's European bio-diesel joint ventures.

Cash flow used by operations was $182 million for the three months ended March 31, 2007 compared to $52 million of cash flow used by operations in the same period last year. Higher operating working capital primarily due to increased prices and volumes of commodity inventories contributed to the decline in cash flow from operations.

Now let me discuss Bunge's outlook and guidance for 2007. Overall business conditions in our markets are good, and we should achieve our year-end outlook. Agribusiness should recover during the year though results will likely be lower than planned. Based on current market conditions fertilizer earnings should exceed our original estimates. We have increased our year-over-year growth forecast for the Brazilian retail fertilizer market to 9%.

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 related to a gain on the 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 relating to our convertible preference shares. 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; Cynthia?

(OPERATOR INSTRUCTIONS). Robert (Somosko), Credit Suisse.

Good morning, I wanted to ask first of all about the volume increase here is so strong in Agribusiness, up 22%. Could you just give me some of the key drivers behind that? Is that a function of really strong demand, or is it a function as you say here of farmers wanting to commercialize their beans? And what do you expect volume to look like for the rest of the year? I can't imagine that that's sustainable.

It's a mixture of both; it was a good crop in South America. Farmers have been selling a little bit earlier. The demand is also good, but very spot, so we are not selling too much forward. So most of the sales are all spot. We believe that it's probably also related to some weaker sales beginning of last year when the farmers were slower selling. We think that the year's volumes are going to be normal, the traditional, or the trend line growth in soybean meal of around 4% or 5% or in the same neighborhood; we see solid demands but in trend line. These 20% growth is more a quarter-type of difference situation.

Okay, but does that mean you would expect a volume decline in second quarter?

I think it should be spreading over the rest of the year. It should be more in, normally no specific decline. We are seeing normal growth; the demand feels very normal.

Okay and on that subject, in North America we read about livestock production rates coming down perhaps in response to higher feed costs. What is your outlook for the demand for livestock feed here in the US this year?

We are not seeing any change; in fact, we are seeing that the margins for the livestock industry continues going up, very healthy. So we expect the demand to be normal. What is perhaps a little bit different, we are exporting also more to Mexico. So we are not seeing any indication of weaker demand from the US.

Okay and then finally, I just want to hone in on your comments about the fertilizer business benefiting in 2007 and to a greater degree in 2008. What are your assumptions about acreage expansion for soy for '07 versus '08? Do you still see conservatism on the part of Brazilian farmers regarding their intentions to expand acreage?

I think we, if you would let the farmers, they probably would expand even more. But I think the whole industry is very cautious. We have to remember that we had two very tough years, and the farmers still have debt, so it's more of a situation where we are being very careful in what kind of credit we are giving. We are very careful also in seeing how the farmers are going. So we see this increase of 9% this year versus last year, and it's probably more a question of us, the whole industry, but also the crop chemical industry, the seed industry combines being a little bit more careful to make sure that the farm economics continue to be strong.

So the reason we are a little bit more optimistic regarding '08 is because then the farmer is going to have a good harvest this year. We'll help to capitalize that more, and therefore it's on better foot next year.

I gotcha; so if let's say acreage does expand in '07, would that be a positive surprise to your expectations?

If the acreage expands in '07, the planting in '07 starting in June we will see all the benefit in '08. Assuming the commodity prices are as where they are today, the Real doesn't appreciate even more, and the fertilizer prices stay where they are, I would suppose that we would have good planting this year and a god harvest next year, which then probably also would mean a good planting next year again.

Okay, thank you very much.

Christina McGlone, Deutsche Bank.

Good morning; Alberto can we please delve into Agribuisness, excluding the mark-to-market issue, but the underlying fundamentals; do you, how do you see the kind of substantial increase in (inaudible) freight rates impacting demand? And does that play into your comment that you're seeing demand very (inaudible)? And is that a concern as the year progresses?

Yes it is on a spot it is a concern because who has to pay the higher freight are our customers. And that's one of the reasons we are not buying forward, especially because the freight rates are inverted so the future rates are lower than the nearby, so it worries us but at the same time, we have seen after the futures prices peaked and even have come down a little bit, we have seen the demand picking up in meal and oil, in soybeans, so the customers are realistic about they cannot wait forever. They have to buy the products and they are doing that, which also means that they are probably being able to pass it on to their customers again.

But what we are not seeing at the moment is strong forward sales. So at the same time that it is a negative on Agribusiness, the high freight rates, we have to remember it is positive on fertilizer because it expands our local production margins in Brazil because the prices in Brazil are based on import parity.

So I think for Bunge, we probably see a little bit of an offset on the high rates.

Okay and then I guess turning to Europe, I understand that crushing margins would be weak because of bio-diesel. I thought that soy would be strong because of what happened with AI last year, and I know that (inaudible) is up and running because (inaudible) is coming up online in the next few months. How should we think about European crushing margins over the next few quarters?

The crushing margins are a little softer only. When you talk about bio-diesel, it's the bio-diesel margins who have come down this year, so the demand for the oil is there and the crushing margins in Europe are okay. They are a little bit softer than they were last year exactly because of the very high margins in bio-diesel, we were able to have better margins. But crushing margins are more or less okay; there is not a significant reduction. So we expect the crushing margins to stay both in North America and in Europe to be fine based not eh bio-diesel demand.

The bio-diesel margins are lower but are probably not very far from cost of capital, which means we are continuing to see the expansion in bio-diesel new plants, especially in US, and therefore, we are optimistic about it from the demand side.

And on Solae, perhaps Drew you would like to --.

I think the Solae business has gone through a tough period because of increased competition, particularly form the Chinese producers. Towards the end of last year, we took significant steps to reduce our cost space in Solae that we think is going to be very successful to bring our costs in line and help restore the profitability. And we still are a big believer in the underlying growth in the business, and a couple of new products that we're in the process of introducing. So we think the future outlook is very good.

Okay, but coming back to European crushing margins, if in the second quarter, is that when we lack the negative impact of AI on soybean crush margins in Europe, so we should look for year-over-year increase in the second quarter there?

Oh you mean last year, yes the Avian Flu.

Right.

It was affected last year we struggled. But probably we had more trouble when we think about the Avian Flu, it affected us more in South America because the Avian Flu effect was more in the Mediterranean in the Southern Europe, but also in Italy and in Spain crushing margins. So we don't expect that to happen this year.

Okay and I guess one kind of strategic question Alberto. If we do get increased acreage this year in Brazil, and good yield, then we can be in the same situation next year at this time where we have a large South American crop, but the futures are kind of fighting the US acreage battle; is there a way that Bunge can change its risk management process or procedures so that the mark-to-market issue doesn't happen again next year?

Look, when we look at the situation, we are very comfortable because we believe in convergence, and we are seeing the convergence, and this year was very unusual. We had the largest stock ever in soybeans, plus a huge crop. Normally when have a situation like this, you will see a drop in prices, but we had an increase in futures prices much more linked, the funds buying much more linked to expectations of what's going to happen in future years in terms of the commodity prices. So we know that there will be some convergence.

Now one way to protect yourself is taking a speculative view, is taking a flat position, and we normally, when we take views, it's related to our physical business and we are much more nibblers, and we look at the situation where we are on our let's say Monday morning quarterback, we still are very comfortable with the positions we took. It was a conservative view and we still think we will make the year, and you know when you start to become too fancy it can all backfire, also backfire. So obviously next year will be different. We hope there will be a good crop and we hope there will be good plantings. At the same time, we see that the supply/demand balance sheet is well in balance, the demand is strong. So we think that the additional production and the additional supply that is coming there will be the demand out there.

Okay and then last question quickly. I saw that the Brazilian courts approved the merger of (Fertilizantes in Southford Hill), do you, will that proceed now or will Mosaic appeal the ruling?

They did appeal and so the, we are still, the process is still in the courts, and we think it's a very good transaction for everyone but as part of the situation, we believe, we strongly believe that it's the right thing to do, but in terms of timing, we don't know. So it's still in the courts.

Okay thank you.

Christine McCracken, Cleveland Research Company.

Good morning; we've seen a rather sizeable increase in fertilizer prices over the last 3 months really since the beginning of the year, and yet your price per ton didn't change maybe as much as I would have expected, and I'm wondering is there more of a lag? Do you expect to see the same type of movement that we've seen obviously on the market as we move through the year? Can you talk about that a little?

The first quarter, or in fact the first half, most of the season sales in fertilizer, nitrogen-based are imported materials; nitrogen for the winter corn crop and also for the sugar cane and the strongest fight we saw was when that was in potash, which we might see more in the second half of the year. But we are passing on every international price, the pricing in Brazil is exactly the same as the international one, especially because inventories were very low. So the, if you look at our average prices are exactly the same obviously taking into account the difference in freight, but it's exactly the same as international prices. There is no significant lag.

Okay, because prices really only move -- well I guess that may be more to do with mix than --.

It's mix, yes.

Yes, I think it's a product mix issue, the large growth in Brazil for the corn crop which is a different mix than you had in the prior year.

Last year we basically had no corn crop in Brazil, the winter corn crop.

Right, and just looking at the (inaudible) numbers I guess year-to-date, you're looking at almost 100% increase in imported fertilizer, and I'm wondering does this, what does this say about kind of demand? Does this reflect kind of what you're seeing in the market? Can you talk about that?

Yes we still see it; you have to remember that one-third of the business is done in the first half of the year, and two-thirds in the second. Inventories were extremely low, and so fertilizer companies are starting to import the materials for the second half of the year. We are still seeing, everybody is very cautious as I was saying before because of the credit situation; farm economics, more than (inaudible) the farm economics are still tight. So it is, people are very careful.

What we are seeing in terms of import is normal to related to a growth rate of something like 9%. We are not seeing anything outside the normal.

Okay, and then just if I could on the US crop obviously with expectations for a much smaller crop, it calls into question the amount of capacity we have on the crushing side here domestically. I'm wondering as you look at your assets here in the US, do you see any need to shut down further capacity or move capacity for the upcoming season expecting a smaller crop?

No, we don't see this. We looked at all the time as you have seen in the past as we shut down plants and build new ones, we are, this is part of our business to be very disciplined. We don't see that. What we might see is a reduction in export of beans from the US, and an increase in the export of beans from South America. The business structure in the US is very much geared towards the domestic business, so the, and as the domestic business is growing in the US at around 1% and also we see some pickup of demand of export into Mexico, we are still very comfortable. We might see a reduction in beans exports.

At the same time, also since the announcement of the planting intentions form the USDA, we believe that we might not see exactly such a big drop in the production of soybeans because since then the soybean prices also have gone up. We suspect that the framers will plant a little bit more soybeans than it was indicated at that time, and but there is plenty of beans available for domestic crush. What we might see is a little bit of reduction on the export side of beans.

And then just finally on sugar, you mentioned obviously some increased costs there. There's been quite a lot of activity in the sugar segment in Brazil over the quarter. You guys obviously have looked at a number of opportunities and I think have decided to kind of go another direction. I'm wondering if you could just bring us up to date on what you're doing currently in sugar and what your expectations are maybe for the year.

Yes; our strategy on sugar is that we will get into the business so what we did is we set up an origination team and first in South America, we also have a sales team in Geneva and in other parts of the world, and we are trading on sugar, and last year 600,000 tons; this year it will be over a million tons. So what we are doing is reaching out and building a network of origination and destination and risk management skills, and logistics very important is the logistics. So this is what our focus is on one side.

On the other side, in regarding to the mills, we have looked at many, many targets, and but we have passed on most of them or we have made bids, but they were sold for a higher price. And we don't think that some of the prices that are happening or going in the market at the moment justify it. At the end, we have a very stringent target of returns, and we could not justify this.

So I think the right opportunity will happen; at the same time, we are looking also green field opportunities and the decision -- we have to look at it, I would like to remind, the way we did it also in case of China. At the beginning there was a lot of questions if we are serious about China. It took us some time also to find the right objects to get the right return investment return relationship. I think we are there in China now; I think we will get there in sugar. And what you might see is a mixture of some acquisition at the same time, also some green field.

We are comfortable where we are; we believe in the economics of the business; nothing has changed. But we have to be disciplined.

Wouldn't it take several years, if you were going to green field operations to set up kind of a supply, a sugar supply integrated system, wouldn't it take several years to even impact your P&L?

Yes I think so. It could take time if we don't make an acquisition, a small or a major one; we obviously are looking also at some brown field opportunities. It will be a mixture, but it took us also something like 7 years until we build up all our oil seed processing network. It probably also took some 7 years until we had all of our acquisitions and everything done on fertilizer. On sugar, it will take also time, you're right, it will take time. We would love to have some acquisitions to move faster, but we are not going to do it if it's too expensive.

That helps a lot, thanks.

John McMillin, Prudential Equity Group.

Hello everybody; the change in segment guidance for Agribusiness, I don't know if you've been (inaudible), but basically this is from your call when you reported the fourth quarter, not from a couple weeks ago. Is that correct?

Yes.

And specifically what has changed in that segment that caused you to lower guidance, if you kind of quantify specifically what is that lower guidance, by how much?

You mean in Agribusiness?

Yes.

Overall we have not gone in such a detail, but obviously when you start the year, we do think we will be able to recuperate some of our mark-to-market losses, especially as we have seen in the last couple of weeks futures price and cash price converging, but we don't' think we will be able to recuperate all of it. So you start already with a little bit lower base, and it's a little bit more difficult to say how much it is, but John it could be something between $20 million and perhaps $40 million. I'm giving you a little bit of a guess, which would be offset by the fertilizer.

Now if you give us this $85 million number, which I appreciate, but I still kind of want to balance, so when you get these gains realized in mark-to-market we'd like to know about the gains going forward, and even in the past; I just feel like we only get the se numbers when they work against you and you want us to kind of add back to look at operations. We really need some kind of balanced reporting from you just to kind of get a gauge of underlying fundamentals.

I understand; I think we gave you, always give you the reasons why where we are at the moment, so if we have a major diversion up or down, we want to explain it to you.

Now if we are in line with our expectations we don't think that is a relevant information for a decision for investors. Now I think we do, I remember I do remember that in the past for example in the fourth quarter of '04 we said very clearly that we had higher than expected profits in fertilizer because we had bought earlier inventory and the prices went up. You could say this was smart but at the end it is also we took a view and that is speculational trading. And I think we mentioned it and the reason we mentioned it we felt that the market needs to know that this is not repeatable. It was a one-time situation.

And I think also perhaps on Agribusiness if I'm not mistaken I think we mentioned also in the fourth quarter of '03 after we had some trouble there was also divergence in the futures between futures and cash in the, at the end of September '03. We also mentioned in the fourth quarter of '04 that some of that was recuperation of the mark-to-market losses. We might not have said it; in fact, we went back and we didn't say it was mark-to-market losses, we said it was hedging in '03, in September '03.

So I think your comment is fair John. We will always try to give investors in the market the relevant information to make the right decisions, so --.

I appreciate these answers. Just the departure of Bill Wells kind of I think opens the chance to change some things. I think a lot of the questions I get have kind of dealt with the tax rate and whether or not this whole tax rate trend, which did reverse in this quarter, your operating tax rate last year was 5%. I do see you paid a lot more than that in cash taxes. Can you give us some kind of assurances that these lower tax rates won't come back to hurt you in audits and also just on Bill, he was able to sell some stock, or I guess he had to sell some stock just dealing with options. But he had to know there was kind of a bad hedge going in place. How was he able to sell stock knowing there was going to be the mark-to-market losses?

Look when let's first talk about the last one; we announced, Bill announced that he was leaving around February 8 if I'm not mistaken. And at that time, if you leave it is very clear that, especially on the options with our plan, once you leave you have to sell them or they are forfeited. And so at that time he took the decision to sell most of it, and if there were sales in February, it was on the 10b5 Plan, so I think we feel that this was all proper. And it's in his right, he took the decision I think everything -- Bill was always very, very, has been and is being very careful with all these kinds of things. Integrity is very important.

Now in terms of the tax rate, I think it is what is happening in the first quarter it was, Bill explained it. If we are going to have strong results in, we specifically mentioned in South America, as we had with fertilizer, the tax rate would be higher. And we had obviously in '05 and '06 unusual situation in '05, we had the settlement in France and we had some reversal allowances. I think we have to think a way of these one-time very specific situations. Now the underlying tax rate in these 2 years were lower especially because the South American and Brazilian where you have the higher tax situation, the tax rate was lower. So I thin we are more or less in line where we expected to be; 22% tax rate in the first quarter is inside our guidance for the year.

Well thank you for those answers; and just my last one, just deals with the Brazil currency. The Real has stayed stubbornly strong; does your full-year forecast kind of build in or kind of have a hope that you do get some moderation in the currency?

No I to be honest, I give up. You know my opinion; I think it is criminal what is happening with the currency. The industry, not our industry, but the local industry is being killed and long term this will be a problem for the country, not for us because we are obviously Agribusiness will sail through it, but at the same time, what we are doing is we are not expecting any change in the currency. In fact, you remember we had massive restructuring last year to adjust us to a currency of 220 so this year it's now at 202, guess what? Here we are again restructuring and cutting costs. We are not saying how much because I think this is going to be part of our life from now on.

And but we are adjusting the size of our footprint, our costs to 202 and if it even goes stronger, we have, I think we have a good foreign exchange hedging program now that is protecting us and but at the same time, we will be adjusting our Company to that size.

Just to give you an idea, we recently, we made a calculation on our food products division in Brazil, Agribuisness and food products, Bunge (Alimentus). We believe that just on the headcount side over the last 10 years, the headcount has been reduced from 20,000 to 5,000. So that gives a little bit of an idea of the kind of effort we had to go through, and but this is a new exchange rate, we will live with that. Now if it devalues it should be positive for us.

Thanks for all of that, I appreciate it.

Diane Geissler, Merrill Lynch.

Good morning; most of my questions have been answered, but I just for clarification, Drew's comments in the press release regarding Agribusiness results will likely be lower than originally planned, is that solely a function of the hedge and not recouping at all, or is that the freight issue, or is there something else going on?

No we feel good about our structural business and see it in line with what we always thought. The major reason for the adjust is the impact on the mark-to-market.

Okay I appreciate that.

But we will not be able to recuperate all of it.

Right, and I guess just o follow on John's questions about currency, do you have, is there any way to quantify the impact in the first quarter from the strengthening? In other words, if currency had stayed where it was on December 31, and you moved to the quarter, is there a way for us to get an idea of what that would have done to the quarter?

Look, the way we look at it internally is that there is on negative impact; that we have a hedge in place to protect ourselves. But so if it had stayed the same as December, I would say probably the earnings would have been the same. Now is we would have a devaluation we would benefit. We don't calculate exactly because there are offsetting situations, but we are protected for a good period of time, we are protected against appreciation. But we cannot take, we cannot blame the exchange rate on -- you see higher SG&A across the board, but you see offsetting foreign exchange gain, you see offsetting impact on the tax, so from a management point of view we feel we could not blame the strong Real.

Okay I just wanted a clarification because obviously called it out as an SG&A item.

Yes but we have offsetting positions in foreign exchange and in tax and in other areas.

On non-operating, okay; and then I guess the final question I have about fertilizer and your expectations, you mentioned some of the sort of inventory gains that you had back in 2004 because you bought early and that was your decision to make a little bit speculative that the market would accelerate and you'd have a good position on the cost spaces. Are you expecting a similar phenomenon in 2007 on your fertilizer inventories?

Normally we don't like to do this too much because as I said, we are more like a nibbler. But in, we benefited in '05 but we were hurt in '06 so normally, that is why normally we don't take a real strong view on fertilizer. We do a little bit of it.

Now at the end of '06 we had very low inventories. The whole industry was very, very low because remember the fertilizer market really started to change only in October of last year, and we are still concerned about the credit-worthiness of the farmer so we have to be very careful. And most of this increase we see was not related to, and our profitability was not related too much from an increase in spread from what we bought and what we sold. The margins are probably more normal for everybody. These kind s of margins are the same for everybody. We did not see kind of a one-time strong margin expansion here. Most of it came from volume. And also as you saw, SG&A was down so it was from the efforts of restructuring the business last year.

And you wouldn't envision a large inventory gain in the back half of this year at all?

No we would not.

You would not, okay.

We try normally to be very hedged; we try to buy and sell or produce and sell as close as we can.

Okay thank you.

David Driscoll, Citigroup.

Thank you good morning everybody; couple of questions. First off, Alberto you talked about the loss this year as an unrealized loss. Can you give us some sense of timing as to when the losses are realized and I would understand that this is associated with the nature of the futures contracts that you have used to offset those physical bean purchases in Brazil.

Yes the timing of realizing this, most of it will be realized in the second and third quarter. Wait a minute, let me say realized, what we will do is we start now, we continuously are shipping it to the customers and delivering the physical goods, and once we do that, we have to unwind the hedge, and then is when you realize it. So it will happen over the last 6 months, or it will happen over the next 6 months.

The other part I've struggled with on this is that we really haven't heard or seen this same issue at Cargill or ADM. Can you talk to people, I get this question a lot what's the difference between the way you approach the business versus the way that those companies approach the business. And why wouldn't they have experienced the same situation if it was simply a hedging maneuver?

Look, we think that most of the commercials are in the same situation we are. And but I don't see the books, we don't know about, we don't talk to them and but the market when we are buying with the farmers, and when we stop buying our competitors, we see what they are doing. I think we're all in the same spot. The selling forward is very weak, so they are not selling and we are not selling. So we see the competition is, you can see anecdotal what is going on. So probably look I read Cargill's press release very carefully and I saw that their origination business, processing business, and agricultural services business was down vis--vis last year.

So we don't know; let me say we are comfortable where we are; obviously we are disappointed. We understand what happened. The best way to have reduced this would have been to have taken a speculative view, like I said before. And here is where you can do a little bit of that, but we tend to be more the nibblers, we tend to be more related to the physical business, but we should not kid ourselves, our business is very important, the risk management, it is very important as a core competency. So you probably can only compare to the others when you really go into the details.

Okay, did you guys reverse any of the doubtful accounts, either in fertilizer or in advancer to farmer in the quarter from those experiences from last year?

No not yet, in fact we increased our bad-debt reserve by $5 million or $6 million. We still increase it, so no reversal. The reversal takes a little bit more time because you really have to collect it before you can reverse it. And we are, our views i9s very positive; we never have too many, we never had and don't have too much concern on advance to farmers from the elemental side. On the fertilizer there is always a little bit more risk but we are very pleased some of the farmers which we thought they were in trouble, they found the cash and they in order to buy raw material for this year's crop, they found the cash, they paid down their old debt and we were able to give them credit and so we are cautious about the year. That's why we are saying 9%. I think a 9% increase is very strong, but if you would let, there probably would be more increase but it's more on the credit side where we are very careful.

Okay; could you give us some information on where you see industry utilization rates in oil seed processing in South America, and then that same figure in Europe?

We'll give you a general view; in Argentina you remember that there is still some overcapacity, but the industry is relatively disciplined so nobody is running, I think nobody is running at full capacity. But as months pass, the capacity utilization is going up because this is basically the only area in the world, with the exception of China, which is a special situation, that has increased capacity. So as demand for soybean meal goes up around 5% you see more and more the capacity utilization going up in Argentina.

In Brazil the capacity utilization overall is higher than last year because we shut down plants and some others shut down plants and in Europe I think it is probably the same as last year, and in the US you probably saw the (NORPA) numbers, it's the same as last year.

So that is why also Drew was saying we feel the market is solid form the capacity side and from the demand side we see solid outlook.

One follow-up on the European comment; so as vegetable oil prices have changed that's changed the dynamics in profitability in bio-diesel. When you add the 2 things up, sometimes I think that it's probably the only time I'm going to try to get less disclosure, but when you add the 2 pieces together, the bio-diesel operations and profitability and your crushing operations, and then you compare this quarter versus where we were last year, is it correct to assume that these are on balance down a little bit that the taxation on bio-diesel has hurt and it's not been fully made up on the crushing side?

That's correct, that's correct, in fact we mentioned it also our crushing was very slightly down vis--vis last year. It's positive but it's a little bit down.

Okay, just one final question, and this is a follow-up to a question earlier. When you were talking about Agribusiness volumes up like 22%, you have a number of projects that you've really started to bring on stream; I would ask the question differently in that what's the difference between industry growth and what Bunge h as done specifically in the form of a number of new projects that have come on stream, so if we could kind of tease out between the 2 of them, do you have any sense here? I think it's something like 5 million tons or thereabouts the difference year-on-year in Agribusiness volumes. Was half of it related to all these new plants you put on and half related to industry growth? Did you take share?

Many of these volumes were also the movement of grain where we buy the soybeans or corn and use our part and export not processing it. So some of these increases came from basically more the lower margins just grain business, not just grains business, but I'm talking about from a margin point of view has a smaller margin. And I think we are seeing benefits on having the ports like (inaudible) in Argentina and (TGG) and (Santos) that inaugurated that will give us some more flexibility and better customer service. So that is allowing us to move more volume, but at the same time, we have a little bit more expenses from that. So until they run at full capacity, it will take perhaps 1 or 2 more years.

Okay thank you very much.

Kenneth Zaslow, BMO Capital Markets.

Good morning everyone; Alberto form your comments it sounds like you think that $20 million to $40 million of the $85 million you're not going to be able to recoup; is that what I understood?

Yes more or less; I'm telling more than I should.

But no, so if you're not going to recoup that and you're keeping your guidance stable, what generally, I mean that's $0.12 to $0.24, that means that something's better. I know everybody seems to have a negative view; have underlying fundamentals been stronger or weaker; can you go into that a little bit?

Obviously, it is very early in the year and we have a long way to go and we think Agribuisness things are fine. But where we have a more positive view than we had at the beginning of the year is on fertilizer, so we think we will be offsetting the shortfall in Agribusiness by fertilizer.

So is there, so this mark-to-market, is it an underlying fundamental change that would affect 2008, 2009 in your future outlook?

No, you know what? It is gone already because all the new purchases we do, all the new sales are done on the new basis, so this is the beauty of it is it resets itself. So all the new businesses we are doing is already on the new basis.

And then looking at your fertilizer demand you had 43% volume growth,,, a lot of it I think is the Safrina crop.

Yes.

And if I do a weighted average even though you've put it up to 9% which goes form 4 to 9 everybody thinks that looks good, it looks like the back-end weighted is only 3%. How does that jive with how things are actually occurring in South America? It seems like things in South America are picking up a little bit stronger than 3% volume growth.

I knew you would ask that, but we have to look, it is very difficult to see for the rest of the year, we don't where the hell we'll be, we don't know how strong the farmers, we don't know exactly where the commodity prices are; we have to be careful, and it also influences the way people buy inventory and we also don't know exactly, we have a little bit of an inclination which is that some of the sales we did probably will reduce, is anticipation in the pipeline for the third quarter, not so much on the second quarter but probably some of them we think that some of the farmers took advantage of the good soybean prices, they sold the soybeans and bought fertilizer at the same time, buying earlier than usual. So we will know by the next call in July we will have a better feeling about how much of that we think is going to be anticipation. But we think a little bit of that is also that.

And last year you're right, it was the softening of the winter corn crop; last year we didn't have one so the 43 looks very, is very high.

And talk a little bit about Soothe American crush margins; it seems like there was a press release from Andrew I think it was or (inaudible) that showed that indicated that South American crush margins particularly in Brazil were lower year-over -year. Is that true?

I think what that was it was a not very, it was not a very happy press release. What the local crush industry is trying to show the government is that the Brazilian tax system is structured in a way that it does not benefit the local crushing and it's one of the reasons we mentioned in the past that also where we shifted production, and to China, to Spain, to Argentina away from Brazil. So that was the main message.

The crush margins this year are good compared to last year; they['re in line with last year. IN fact, they are better than last year; I'm sorry, last year we had these I don't remember it was especially in the second quarter it was quite weak because of all the protests and so on. So the crush margin is okay; we have lower costs; we have more shut down, others and us some shut down capacity, so the capacity utilization rate is a little bit better, but we think the business is solid, but at the same time, all that exercises much more the local crushing associate is trying to show the government that all the growth in crushing is going to be in Argentina and China and Spain and other parts, and Brazil will be an exporter of grains, which look for Bunge it's fine because we will as we are doing, we're building and buying the plants in China and serving our customers around the world. If we crush it in Brazil or we crush it in China, at the end it doesn't matter so much. But there is more and more pressure on the local government to get a level playing field. Brazil has a negative tax and Argentina has a positive tax, so they are trying to get a better balance there so that the long-term growth that at the mid-term we s=will see more increase in crush capacity in Brazil.

The other question I get a lot is if you go back in history and you look at the basis, it does tend to expand in the first and second quarter; again, we look at public data, you guys get a lot better data than we do; why were you not better prepared for this basis risk expansion?

Because this was a very unusual situation., Normally you have to buy the beans when they are available. In one region you have 6 weeks. If you don't buy it you come back next year and we have all our fixed assets, the silos, the terminals, the crush plants and everything there so we have no auction. When the farmer is selling we have to be there and buy it.

Now what this year was different is that the forward fields were not there, so when we sell forwards we get rid of our basis risk, so this year we had more basis risk than we had in the previous year and why where the customers not thee? We had the very high ocean freight rate and the future one was lower, the futures prices were going up and the customers were saying wait a minute, we have the largest stock ever in the world plus a much bigger crop than we all thought; why should I buy now? So this is one of these kinds of situations where you have to just go through it and when we look back, you are right, the basis moves, but most of the time, we anticipate these kinds of movements because we know why this is happening. So this time was a little bit different.

Okay and by buying the soybeans in these regions, does that create higher utilization rates and better crush margins because you have the soybeans, or does that get offset by the basis spread?

I think we will offset some of it; that is why we see because what is happening is that we are saying okay if the customers waited and they had to buy it all they have to think about convergence and this is what they market does, they have to pay more for the physical, so what we have been seeing is why has the basis improved over the last couple weeks is because the physical or the cash prices have gone up but the futures prices have come down; that is the convergence. So that means that we do have, we are going, that is why we are comfortable that the crush margins are solid.

Great, thank you very much.

But it's not perfect, that's why we say we will not be able to get it all back now.

Thank you.

This will conclude today's question-and-answer session. Mr. Haden I will turn the conference back over to you.

Great thank you Cynthia and thank you everyone for joining us today. We'll see you next quarter?

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