Bunge Global SA (BG) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Bunge Limited First Quarter 2009 Conference Call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the conference over to Mr. Mark Haden. Please go ahead.

Thank you, Beth, and thank you, everyone, for joining us this morning. Welcome to Bunge Limited's first quarter 2009 earnings conference call. Before we get started I wanted to inform those of you, who may not have seen it in the Press Release this morning, that we have prepared a slide presentation to accompany our discussion of the first quarter results. It can be found in the investor information section of our website, www.bunge.com under Investor Presentations.

Reconciliations of non-GAAP measures disclosed orally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the Investor Information section.

I'd like to direct you to slide two and remind you that today's presentation includes forward-looking statements that reflect Bunge's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and encourages you to review these factors.

Participating on the call this morning to discuss our first quarter results are Alberto Weisser, Bunge's Chairman and CEO and Jackie Fouse, Bunge's Chief Financial Officer. And now I will turn the call over to Alberto.

Good morning, everyone. The start to 2009 was more challenging than expected. Bunge's first quarter results reflect this. Retail fertilizer margins in Brazil suffered from aggressive price reductions by competitors, which drove sales prices below international levels. Many local retailers have been facing liquidity issues due to tighter credit. Additionally, global demand for soybean meal was soft. Despite this difficult start, our confidence in the recovery in our markets and the solid performance in the second half of the year remain strong.

We are working through our higher cost fertilizer inventory and the supply of fertilizer products in the Brazilian retail channel has been reduced by approximately 30% since the end of 2008 and is approaching historical seasonal levels. Both of these facts should improve margins as the year progresses.

Higher commodity prices resulting from tighter global oil seed stocks are supporting farm economics and should help stimulate sales of fertilizer products in the second half of the year when South America enters its next major planting season. Since mid January the USDA has reduced its estimates for global soybean production by nearly 15 million metric tons, mainly due to weather related production issues in South America.

Global soybean meal consumption in the first quarter fell by roughly 6% compared to the same period in 2008. While this figure represents a relative improvement over the 9.5% year-over-year reduction in the fourth quarter of 2008, consumption was slightly lower than expected. We are, however, seeing signs of stabilization in the poultry and pork industries and we estimate soybean meal demand for the calendar year to be up about 1% versus 2008.

Periods of lower demand for our core products have historically been short lived and the products and services that we and our industry provide are necessary in all types of economical climates.

Looking ahead, the world will need good harvests in North America in 2009 and South America in 2010 to alleviate tight agriculture commodity stocks and meet recovering demand. We believe Bunge is well positioned to benefit from these opportunities. I will now turn the call over to Jackie, who will discuss our quarterly results.

Good morning, everyone. Thank you for being on the call this morning. Starting with highlights from the Bunge Limited income statement and the segment results, Agribusiness volumes benefited from growth in our sugar business and the addition of our two new plants in Russia and the Ukraine. This volume growth pushed the total Bunge Limited volume evolution into positive territory. Agribusiness EBIT was positively impacted by solid profits from our grain businesses around the world, which posted results higher than last year, but these were more than offset by a loss for the quarter in oil seed processing, as margins for soybeans were negatively affected by weak global demand and substitution by other products.

Fertilizer volumes for the quarter were sharply down versus an outstanding quarter last year in 2008. The quarter's fertilizer EBIT was significantly negatively impacted by our high cost inventory, as well as the effect of heavy discounting of local prices by retailers in Brazil.

These losses include a write down in inventory as of March 31 of $64 million and that write down is a result of using the same accounting methodology that we have consistently applied historically and was driven by the fact that local selling prices in Brazil diverged from international price parity during the quarter and as of the end of the quarter fell below our costs. The results also include approximately $150 million of FX recovery, so they are net of that, and that is out of a balance of about $250 million that we carried over from 2008.

Food products volumes grew due to our milling business. EBIT was positive, but below the first quarter of 2008 due to lower margins caused by high cost crude oil inventory and competitive pressures and the weak demand environment. The magnitude of the fertilizer losses pushed the total Bunge Limited result to a net loss.

With respect to the balance sheet, our balance sheet and financial position remain very healthy. Operating working capital as of the balance sheet date did not change appreciably versus year-end 2008 though inventories and receivables both came down. This was offset by lower payables in the fertilizer business, as we stopped importing into Brazil. Our continued focus on working capital efficiency led to a further reduction in our cash cycle days and gross debt levels remain close to those at the end of the year 2008.

The negative cash flow from operations for the quarter was caused by the net loss and by a modest increase in working capital usage driven by the change in fertilizer payables and in total was in line with the cash usage of the first quarter of 2008. Furthermore, we continue to prudently manage our capital expenditures.

We maintain our solid liquidity position with over $3 billion of committed availability as of March 31, 2009 and we expect to sustain a position of this order of magnitude throughout the year. During the quarter we took the opportunity of testing the commercial paper market for receptivity to Bunge paper and found that we were able to reactivate this funding source at relatively attractive rates.

Turning to the outlook for the full year, the first quarter of this year turned out to be more challenging that we had anticipated and we do not expect to be able to make up for the losses incurred in Q1, despite the fact that we are confident in a solid second half of the year. Therefore, reflecting this expectation we are lowering our full-year guidance to $4.90 to $5.40 per share.

We continue to see farm economics as well supported and believe this should encourage fertilizer purchases. We also think that soybean meal demands should improve throughout the year. At the same time, the challenges we saw late last year and during the first quarter of this year persist with respect to the macro environment for credit and the uncertain global economy and we, as well, are still working through high cost inventories in both fertilizer and to a lesser extent inedible oils.

With that, we will open the call up for Q and A. Thank you.

(Operator Instructions). And we will take our first question from Chris Bledsoe with Barclays.

Just a question on, you know I guess I had always thought of your Food Products Division as sort of a natural hedge within the business so that in an inflationary environment the lag effect might cause a profit squeeze in that Division and in a deflationary environment vice versa. But in -- I guess it looks like, I mean one of the biggest shortfalls versus my estimates was in that Division actually and it appears that it's a function of holding higher cost inventories. And, I guess I'm just wondering why choose to give away that natural hedge and essentially hold greater inventory levels in that business?

The level of inventory has been the same. We carry very little inventory in this area. The two main reasons for the variance, the negative variance was first of all we had a very good first quarter last year.

But secondly, there was a lot of pressure in two regions in the world, Eastern Europe and also in Brazil, by competitors selling on the market. So they sold the prices at the level that was much, much lower than they should have. So there's a competition going on in Brazil between two large players, meat players, that got into the margarine and some partially in the edible oil business and is also in Russia we have seen some competition of some of the competitors going against our new efficient plant. So it's a mixture of last year higher margins, this year competitive environment but the inventory situation is probably a minor issue here.

Got it, okay. And when you talk about kind of looking into the back half and seeing a recovery partly on stabilization in chicken and pork, what exactly are you talking about stabilizing in chicken and pork? Is that their profitability stabilizing or is that their production level stabilizing or -- in all the forward looking indicators that I see and that's more, much more US centric, still point to contraction well into the back half of 2009.

When we talk about the environment in the livestock industry, first of all we want to make sure that our main customers are profitable and what we see is that the poultry industry, in the poultry sector the margins have been improving recently. Probably it is not sufficient yet long term but short term it has been improving. That is on the one side. We see that on the hog side the margins are still not very attractive but at least they are all going up or are stable, number one.

Number two, is that the supply picture is also more in balance with the demand, so there is not pressure of having to reduce further the supply. Now that is for us very important that the environment is stable and when we say that we expect soybean meal demand to be up 1%, obviously this is not extremely high, especially when you think about the second -- the last quarter of 2008 the soybean meal demand was down 9.5%. So on a year-over-year basis versus 2007 it is probably lower, so we're not assuming a drastic improvement in the environment of the livestock sector.

Now what is more important for us one, obviously one is very important is that the industry operating at least at the level where they are earning money and operating decently. But what is very important for us is also the crush margin structure and that has improved. Reacting to the lower demand picture, we also have a lower supply.

The South American supply has been reduced by the difficult weather situation by something like 15 million tons. That's the USDA statistics. We are starting to see that it is probably even less than that. The more recent indications show that Argentina's shortfall in the soybean production is even less and that has made that the crush margins expanded and they are attractive and they are normal. So that was necessary for our industry having a smaller demand but the crush margins are fine.

Why would crush margins expand if the input is raw soybean? Why would crush margins expand if the available supply of soybeans is contracting?

You have less production from Argentina. There is the pipeline in the livestock sector is very small, so the meat industry is needing all this soybean meal, so we have a nice premium from the demand of the soybean meal. It is a mixture of less production, crush production, from Argentina because of less soybeans plus the livestock industry working hand to mouth. So it came all not from the oil side the increase in crush margin, it came from the meal, soybean meal side.

Okay, I appreciate it. I'm just going to jump back into the queue.

Christine McCracken with Cleveland Research.

Relative to that shortfall in the crop in Argentina, we've seen a fairly hefty pickup in buying activity from China. I think you mentioned it in the Release. Can you talk about what might be behind China's extraordinary, I guess, interest in building inventories right now and if you expect that to continue?

We really don't know this, Christine, but I think everybody is seeing that we are going to have very, very tight stocks at the end of the Southern Hemisphere harvests. So, by September 1st we probably are going to have the tightest stocks in five years, so it's probably much more a precautious measure by the government to make sure they have enough supply.

And I guess that sets up for a fairly good incentive for farmers in South America, particularly with the economics for soy relatively good now. Can you talk about the credit situation and where that stands today in terms of the banks' willingness to lend and if you've changed your position relative lending to farmers down there?

Yes you are right that is the tight stocks and are the main drivers why the commodity prices are so high and if soybean prices need to be higher, normally corn prices follow because otherwise US farmers will start planting too much soybeans. So that is one of the reasons we see these high prices and there is a risk that they even might go higher. So that is very positive for the South American farmers, for the North American farmer also, and therefore we see strong indications of demand for the fertilizer products.

Now credit, I think we will see the same situation we saw last year, which is the agribusiness sector. We, the food processors, the crop input sellers are all going to be very careful with credit, like we were last year. We are not changing significantly our policy this year and who has jumped in to help on the funding is banks and government, but also with now two years in a row, where the farmers have made good money they are much more capitalized, so we see very strong indications, very strong demand indications from the farmers. We don't expect to have to give a significant amount of credits.

Right, just one last question. It looks like the ANDA numbers are reporting a recent pickup I guess in fertilizer production. Can you talk about whether you're ramping up production at your mines and if you still expect to expand those phos fertile mines?

Yes this a time of the year where we have to start producing the raw materials. The issue we have, we had in the first quarter, was much more with the imported materials, so the retail part of the business, the commercial aspect, the reselling. Now this is all the mines have to produce significant amounts for the production that will be needed for the second half of the year.

This is becoming a normal year, not like the last two years, with 30%, 35% of the demand is in the first half and 65%, 70% in the second half and, just to keep the same amount of volume, fertilizer volume, that we had last year, we need all this production. And there's also, because of the tight credit situation, not every blender, not every retailer is being able to import materials, so there is going to be a strong demand for the domestic production.

Okay, I'll leave it there, thanks.

Ken Zaslow with BMO Capital Markets.

So if I look at the back half of the last three quarters, it is going to be you single best year ever in the back three quarters. How is that possible? Can you help us bridge that? It doesn't make any sense.

We feel that it -- you know, Ken, we have mentioned it in the past that we have to look at it always on a yearly basis and so when you look at the whole year obviously we will not be able to make up, as Jackie said, the first quarter. But when you look at agribusiness and food and you look at our whole-year estimate, that is something that should be possible. Obviously the demand is not as strong as we wanted but we expect the margins to be there.

Now in fertilizer at soybean prices off $10, in excess of $10, the farmers are very profitable, let me tell you. To break even in the furthest part of Brazil -- we are talking about Brazil here -- and in the Mato Grosso breakeven is something like $7.90 so they are very healthy. They will find the money to buy the products.

We should not mix -- the problem we have in the first half -- in the first quarter and in the last quarter of last year is really these high cost inventory that we bought in the first half of last year that now are not completely but mostly sold. So the new harvest should be normal, a very good harvest and a [not] very good production and the farmers are in very good shape and the government is ramping up with the credit lines and we are comfortable that this should be a good second half in fertilizer and in oil seed and in also in food products.

How much of the loss this quarter was because of the high cost inventory and what will that be for the remainder of the year?

The losses in the quarter, most of it is high inventory cost.

That's correct, Ken, and I think if you look at the split of the profits between the first quarter and the second nine months, I mean we originally believed that it would be heavily weighted to the second half of the year. We continue to see that and even more so, I would say, and if you back into the implied numbers for the second nine months, you'll see that we did lower the net income estimates for those in the range of probably something between $80 million and $100 million versus our original expectation for the nine months. But the biggest issue here has been that high cost inventory in getting it worked through with most of it coming in the first quarter.

I guess with what you said, does it sound like, do you think that the farmers are going to expand acreage next year?

We are not expecting that but because we are not planning for that so everybody is being very careful, but they used -- it was not expanded last year and you remember that fertilizer demand was down 9% so they did not use enough fertilizer and that is why some of the yield was lower as well. So, with the capitalization they have on over two years in a row with good margins, we have very, very strong indications that they will use probably the same amount of fertilizer that we sold last year, at least.

Now we have to remember that the tight stocks worldwide indicate that we are going -- there is a very, very significant risk that we will see even higher soybean prices between now and the end of September. It's the lowest level in five years so it is -- everybody is seeing it. The farmer is seeing it. They're lining themselves up to buy the fertilizer.

Okay and then my next question is what, will you be profitable this quarter?

We -- you know how difficult it is for us to plan quarters. We look at it on a yearly basis but I will dare to say, might be in trouble with Jackie, but we should be slightly profitable.

The biggest driver, Ken, is going to be the local fertilizer price, so --

Okay and then my last question, what's the historical relationship between soybean prices and soy crush margins? How does that usually work?

There is not too much relationship there. You know, they are -- when you look at there's not a very good correlation between margins and soybean prices.

So you could actually make margins in a higher soybean environment? Or you don't care if the price of soybeans is high?

It is not automatic. It's not automatic but when soybean prices are high there is a tendency -- there is enough money for the farmers, so there is a little bit the expansion in the margins. When soy prices are lower normally we make it up through more volume so margins tend to be a little bit higher in high soybean price environment.

Great. I appreciate it. Thank you.

David Driscoll with Citi Investment Research.

Alberto, with the soy meal demand, as you mentioned in your prepared script down 6%, I think -- I'm a little confused on some of your comments here regarding the 1% full-year number because that mathematically then has to work out to be a fairly sizable pick up in terms of growth in the future quarters.

If we -- and right now everything that I am seeing would say that second quarter would also be down quite significantly, similar to the first quarter. That puts a much larger onus on Q3 and Q4 to see soy meal demand actually reach 1%. What's your confidence in this number? It feels optimistic to me but you're the expert. What's -- what am I missing here? Why should I be more confident in this growth?

I would use the best way always to do it, the way we also do it, is let's use the USDA figures. The USDA figures show that on the harvest year-to-year basis, so October '08 to September '09 soybean meal demand will be down 2.5%. But the last quarter of this year doesn't need to increase significantly vis-a-vis the fourth quarter of '08 because the fourth quarter of '08 was down 9.5.

That is why I mentioned on an earlier comment 1% up doesn't mean a lot so because probably vis-a-vis '07 it's less. But we are now working off a lower environment so we are not saying that we see very, very strong demand. We're saying it's sluggish demand but at least it is not going further down, so that is what we are saying, stabilization of the environment, which I think is positive.

And based on where we're coming from improvements throughout the course of the year on wheat [coms] from last year, as Alberto said.

Right, understood. Of course, again, mathematically that has to be true. Otherwise there's no way to get to one.

Yes.

The follow-up I would have for you, Alberto, is November '09 new crop bean prices have not moved very much. Your comments seem in direct contrast to this. Why do you think the new crop bean prices have not rallied?

Because I think the concern is that we -- it's more about the old crop situation that people are worried because we will end. Once you have the new crop it's a new environment. That's the beauty of our business. Everything resets itself and what people are worried about is the old crop and but even with the normal -- that's why we mentioned in the prepared remarks we need now a good harvest in the northern hemisphere and another one in the southern hemisphere in '010, so that we get back to normal inventories because the land available we need it, both for soybeans and for corn, and there's additional demand for corn because of the ethanol and we needed the additional demand for soybeans because of the tight stocks.

So you think that with the Planting Intentions Report from the USDA on bean acreage you think that's enough in that that there is not necessarily the need to see new crop bean prices actually rally?

That we don't know, Dave, but you know it is we are seeing even a poorer crop in Argentina than the last USDA report has said -- and it's not only Bunge. I think the whole industry is seeing that, so the drought was probably more severe than we all expected. It was not only on acreage but also on yield.

One final question, Jackie, can you give us the indication as to what's happened to MAP prices at the retail level in Brazil? You made comments here that this has moved, so I mean back on the January call you were optimistic on this. Then now today you're telling us that there was intense price competition. Can you give us some numbers so that I can understand it? What did it start in January? How did it end in March and what's the feeling right -- or what's the actual experience right now at the retail level on phosphate prices?

Well, as we started the quarter, what we saw is that local prices basically maintained their parity with international prices. There's always some degree of discount to your list retail price but it's based on some kind of historical average, so it can be anywhere from maybe 10% to 25% or something, but that's normal. But the parity relationship was maintained and then, as we moved through the quarter we started to see that break down as some of the smaller retailers needed cash and then started. Everybody tried to hold the line and then they started to discount more heavily because they needed the cash, so that took place over the course of the quarter and, as we got towards the end of the quarter, we were seeing discounts substantially higher than they typically would be.

Are we talking 10%, 20%? What's the number?

It's very difficult to see it because these prices are -- they are very different in the northern part of Brazil and the southern part of Brazil and the interior, so it's very difficult to pin down exactly but it was significantly discounting.

How much risk do you have on potash? We haven't seen those prices really crack. There is the chance if they do. If they do does that put your earnings at risk in the back half?

There's always a risk with price like we have with margins, with everything, so -- but I believe that even in North America the farmers have delayed significantly the timing in terms of when to buy. When you just -- when you see the crops that we need worldwide the demand should be back and should be strong for fertilizer so if there's not enough production we should see a convergence of prices. Also, I'd like to always remember that we need to see phosphate prices getting closer to $450 to $500 per ton because that's the kind of prices that are needed for a Greenfield plant to be profitable, so if the prices stay too low for too long you will not see additional production and then you will see further spikes in the future.

Thanks for all the comments. Certainly it's a -- I understand the difficulties. Thank you.

Vincent Andrews with Morgan Stanley.

I guess a few things, one is just I wanted to understand. I mean let's just start on oil seeds processing. Jackie, did you say you lost money in oil seeds processing in the quarter?

Yes.

But that I guess where I am confused isn't that a spread business?

Well, and you also have mark-to- market that gets done at the end of every accounting period that if crush margins have improved in the future, well that number can be negative and you can recover some of that later but --

But, Vincent, the situation was that we had a dramatic reduction in demand and so you had substitutions, so there was not enough demand for soybean meal so the crush margins were low. So when you look at it between the end of '09 -- '08 and beginning of '09, crush margins were low. They recuperated at the end of the quarters and they are fine. You can see it on the Bloomberg on the [bought] crush but it was basically a situation of margins.

Yes I think if -- I think we even spoke about it maybe in February where we saw the US margin sort of bottom out in November/December. They got quite low.

Plus the farmers were very, very slow in selling so they are capitalized so you had a reluctant farmer selling and a slow demand that really reduced the margins like we haven't seen in a while.

I guess I just -- if you, have you -- is this the first time you've lost money in this way or has this happened before in the past?

It was a small amount so we have seen that before. Normally this, it evens out during the year. You have moments in the quarter where you have these kind of situations but having a 9.5% drop in soybean meal demand and then a 6.5%, that we haven't seen in many, many years.

So the issue is really from a utilization perspective.

Yes.

That wasn't an issue of you owned soybeans at price X and the crush went to well below X?

No it's a slower demand and also the reluctant farmer selling, so we had to pay a heftier price for the farmers to get the beans and so there was a squeeze on the margins.

Okay then in terms of fertilizer I guess, like everybody else, I am trying to think about how your second half of the year is going to get you to the guidances you put there and you -- I'm just confused because you've lost money in fertilizer but you got a foreign exchange reversal in the quarter of about $100 million and something and you have a little bit of that left. How do --?

Let me -- you know, I know it's frustrating. It's also frustrating for us because we have to separate the excess inventory that we have carried over from last year. There is not a lot of freedom what we can do with the provisioning and the write downs so the rules are very, very clear. So there is only so much we could have done in December and so only it's very clear what we can do and what we cannot do so we have to follow the rules.

But when you think about these losses that we have in the first half really it is much more related to the retail buying and selling of imported products that we bought last year and we were unable to sell it all last year. Remember that during the year we have been saying that fertilizer demand in the country would be up 5%, 6% but the industry was talking about 10%. It ended up being 9% down, so this is something like four million tons of additional imported materials that were not sold and they were bought at higher prices. Plus obviously some input raw materials, like sulfur and others, so this, as it was not sold by the end of the year, it had to be sold in the beginning of this year, so this is not completely flushed out but it is, most of it is -- it's nearly, we are at a level that is nearly seasonal.

So this you have to mentally think of it as cleaning up of the dramatic changes last year. So when we look at this year, when you look at the business of this year's, it is a very -- it's a pretty environment, high commodity prices. Sugar is good; soybeans price are good; corn prices are fine, so the main products from there are in good shape.

The farmers are more capitalized. There is more money from the government. There is more money from the banks, so the outlook for the planting season in the second half, you remember one-third first half, two-thirds second half, is positive. It is they are very -- I see very, very little risk for reduction in prices in soybeans. Five year, the lowest ending stock in five years is it's quite amazing.

Okay I guess -- I mean I guess maybe the part I am struggling with is that you're basically raising your expectations for the back half or for the 2Q through 4Q relative to what you said in January but there's nothing --

No. No, no, Vincent, it is the same. When you really look at it, our expectation is a little more or less the same. We are a little bit more confident now. We are not raising our expectations, so the only thing is we are a little bit more confident now.

Vincent, I think if you back into the numbers and then we can walk you through that off line and you calculate what the implied net income is for the last nine months of the year what you'll see is we have lowered that a little bit but not a lot. It's basically taking the hit from the first quarter flowing it through and then about an $80 million to $100 million reduction in the expectation for the other nine months, which is pretty close to being in line with where we thought before but with a higher degree of confidence associated with delivering that.

Okay we'll have to go through that with Mark off line and maybe the last question I have, the fertilizer issue was across all three nutrients, is that correct?

Less on potash.

Less on potash.

Yes.

And, Alberto, what's your view or, Jackie, what's your view of the $750 a ton potash price that seems to be the new spot price in Brazil? Is that -- do you think that's sustainable?

I have no view there. Jackie?

I don't think I would dare take (inaudible).

Okay I'll pass it along. Thank you very much.

Robert Moskow with Credit Suisse.

I guess what I am trying to reconcile also is that you are, like Ken said, you're forecasting the next three quarters really being a better performance for your business than it has been last year, than it was last year than it was the year before, and you think that the table is set for better performance. But it's very unclear to me whether you're saying that it's demand driven.

When I go through the comments it seems more like it's supply driven this time around, you're basing it on because bean prices supplies are low. Maybe the fertilizer inventories are starting to work through but I'm not really getting the sense that there's any kind of tipping point here on demand. Maybe you can just take one more shot at it to give us some confidence that demand will -- is not just stabilizing here but also has a rebound.

Yes look in agribusiness last year was obviously was a very good year and we believe that '09 will be more in line with '07, below '08 but in line with '07, so this is in the way we normally we do it it's above cost of capital type of earnings. And the reason we are confident is that the way the market is structured is that it is fine in the sense that we are not going to -- we don't believe that we are going to see further deterioration in demand, that we will see a stabilization, which we are seeing already now, that we are seeing a better environment for the poultry industry, which are profitable, and we believe that we should see improvement in the hog industry, so these are our biggest driver for our demand and we have seen the vegetable oil has grown 3% in this quarter. Obviously soybean oil was a little bit lower and overall we have seen also recuperation of the margin, so it is nothing -- it is not too much to be expected from a demand increase but much more from a stabilization of -- much more on a stabilization of the margins.

Plus, always when we have situations like where we have a dislocation in the market, where we have a smaller crop from Argentina this improves the profitability in other parts of the world and it has a positive effect in the US. It has a positive effect in Brazil and that's the beauty of having this global network, so even if you are a little bit lower in one part of the world, you more or less can compensate it with the other parts of the world. So we are comfortable that we will with a stable, not increase in demand, but with normal margins we will be able to perform well, not as good as '08 but in line as '07.

And in food demand, in the food side in food and ingredients I think we have now some of the problems we had in the past with the volatility of the prices and the issues in Eastern Europe I think we have them behind us. We should see a positive performance on food products.

And on fertilizer at the moment it's all about the issue that we do need the additional soybeans and corn. It's physical. The world needs it. The inventories are so low and the proof is despite this economical price, the soybean prices are above $10 and corn are above or close to $4, so the market, the world needs these crops and so that means the farmers will have to plant it in the northern hemisphere and in the southern hemisphere, so that is why we are confident. We are very confident that even in an environment where perhaps the demand will be the same as last year, the margins will be good.

And then a follow-up there, you did mention the word substitution in the feeding of animals I suppose with the soybean meal being phased out I suppose for wheat. What if that substitution effect continues? Would that hurt your demand outlook and why wouldn't it continue? You know, if they're substituting now why wouldn't they just continue to substitute?

No it happened already, so it happened so that's it. So we are at the level -- in Europe it was a situation that we had two years in a row with very poor wheat crops, so that is why you might remember that the second half of '07 was very, very powerful in terms of margins because of that dislocation and the first half of '08 also benefited from that. But this now adjusted itself, so these substitutional type of feeds, wheat in Europe and DDGs in the US, it's in so it's in the numbers but that is why when you see the soybean meal being up 1% it considers that. We don't expect that they will be -- that soybean meal will substitute these type of alternative inputs.

And where are you getting your quarterly estimates for soybean oil demand up 3%, soybean meal demand down 6%? Where do you come up with those?

Whoops I probably gave you some internal, our internal estimates, so it's probably not public. I am in trouble here so.

All right. Well, thank you anyway.

Christina McGlone with Deutsche Bank.

Alberto, I guess I know you talked a lot about fertilizer but I wanted to just understand more specifically, when do you expect to be finished working through your high cost fertilizer inventory? And I think you have some sulfur contracts coming in now at lower prices, so are we seeing a lower average cost of fertilizer? Should we see that, as we progress through the year as these sulfur contracts come in?

Christina, just with respect to sulfur, I mean we start to see some benefit from the new sulfur purchases in April but we've still got high cost inventory to work through, so over the course of the year the average sulfur cost is going to come down but it will take some time for it to come down appreciably and it should be down rather nicely and approaching spot prices, today's spot prices by the end of the third quarter, something like that. So sulfur, the trend will be down but it's going to take a little bit of time based on the averaging for the new purchases to come in and the old inventory to be worked down and for that to come down.

And so do you for all of your fertilizer portfolio do you think you'll be at market prices by the end of third quarter when we're really in the heat of the fertilizer buying season?

Yes. When you mean spot prices yes. Most of it is already out by now but sulfur is probably one of the ones that will take a little bit longer but also it's very difficult to say exactly when you might have some other stuff but I would say most of it is out already now and sulfur is the last one remaining until the second and third quarter.

Okay and then, Alberto, you talked about -- well, the USDA I guess this week talked about Brazilian corn and cotton acreage being shifted to beans and if intensity doesn't change so you get the same application rate that you got last year, would you expect fertilizer volumes to be up this year, like phosphate oriented fertilizer volumes in Brazil?

You know, we have shown in the last three years we are -- although we've tried to be very careful, even with being careful it's we get into trouble, so we -- with high inventory, you remember how careful we went into the season last year but we still got into trouble. So we are going to be very, very careful. There is I think there probably more chances for an upside on demand for soybeans in Brazil because of the very, very tight stocks but it's early.

We -- you know, the farmers normally start buying in June because they start planting in September, so we still have some time to go but all the indications are very, very strong that we will have a very good planting season for soybeans and that is positive for Bunge because of the most of our products we sell them are SSP, which is phosphate products.

Okay and then just last question, on the crush margin side you can see US crush margins coming up sequentially since March with Argentina's presence diminished in the global market. My question is will you be able to earn those margins? Will you be able to have enough beans in the US to actually process since supply is so low?

Yes because we had similar situation in the past, perhaps not as tight as this year but you remember that US is still the second largest exporter of soybeans. What you would see is then starting the US to reduce their exports of soybeans, so that there are enough beans for the domestic market. That is normally the way it works and you will start seeing more beans coming from other parts for the export market but for the domestic market we believe there will be enough beans for the livestock industry.

And if worst comes to worst, you still can import meal from Brazil, so there should be meal from Brazil. So I don't think there is a worry for the livestock industry in the US.

And we'll take a follow-up question from Ken Zaslow with BMO Capital Markets.

Sorry to prolong this call but I guess what I am trying to figure out is on the oil seed side do you expect a rebound in the merchandising side or the crush margin side and then I guess that's my first part.

It's more on the crush margin side.

And then if I look at it regionally, if I look at US, Argentina, Europe, Brazil, how do you see that playing out? Where do you see the greatest recovery and where do you see more mild recovery? Can you give us some magnitudes because it's still scratching my head here?

We feel that the US will be a normal type of environment, Brazil a little bit better than normal and we should see Europe a normal type of environment and Argentina, obviously less because of less supply.

So a normal environment plus a little recovery in merchandising gets you to your back half numbers?

Yes. Remember we look at it on a yearly basis now.

Okay I'm good with that. And then the other question is how much foreign currency benefit do you have baked into your SG&A for the fertilizer side? I'm assuming there's going to be something in there to get to these numbers again. Is that fair also?

Not this year, not too much this year because remember we had some hedges for the year, both for elementals for the food business and for the fertilizer but some of them are now getting off so, Jackie?

There will be a little bit but that's not going to be a material number.

That benefit should be more for next year.

Yes.

And that does conclude our question and answer session for today. Mr. Haden, I'll turn it back over to you.

Great. Thank you and thank you, everyone, for tuning in with us this morning.

And that does conclude our conference for today. Thank you for your participation.