Bunge Global SA (BG) 2009 Q3 法說會逐字稿

Good day everyone and welcome to Bunge Limited's third quarter 2009 conference call. As a reminder, today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn things over to Mr. Mark Haden. Please go ahead.

Thank you, Miranda. And thank you everyone for joining us this morning. Welcome to Bunge Limited's third 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 third 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 third quarter results are Alberto Weisser, Bunge's Chairman and CEO, and Jackie Fouse, Bunge's Chief Financial Officer. Now I'll turn the call over to Alberto.

Good morning, everyone. Bunge produced mixed results in the third quarter. Agribusiness performed well during a volatile period, demonstrating the value of our global franchise and the ability of our team to manage risk effectively. Agri-oil also posted a solid quarter. That said, margins in our fertilizer business continued to be pressured by high cost inventory and the weak pricing environment.

After rising during the beginning of this third quarter, international phosphate prices pulled back on lackluster global demand. This factor, combined with lower demand in the Brazilian fertilizer market, due to reduced planting of fertilizer intensive corn and cotton as well as farmers' cautious approach to input purchases, contributed to a weaker than expected domestic pricing environment. While we expect these conditions to persist in the fourth quarter, our margin structure should reset to more traditional levels in 2010, as we replenish our inventories at market cost.

In other news this quarter, we laid the foundation of our new state-of-the-art export grain terminal in the US Pacific Northwest. Building our global grain business is one of our core strategies, and this terminal is a significant part of that effort. When completed, it will handle over 8 million-tons of grains and oilseeds a year, and we'll be well positioned to create a more direct and stable supply base so that we can better serve our operations and customers in Asia. It will also enable us to expand our origination volumes in the Western United States.

We're also expanding in Brazil. During the quarter, we inaugurated the most modern wheat mill in South America in the port of [Swapi] in northeast Brazil, Transferring our wheat-handling operations from the port of [Vesifi] in order to increase capacity and efficiency. We also recently opened a soybean processing unit in northern Mutum in Mato Gross. It has an annual processing capacity of 1.3 million tons of soybeans for the production of the oil and meal for both the domestic and overseas markets.

Finally, I would like to update you on how we are expanding in Europe. This month, we closed on our acquisition of Raisio's margarine business in Finland and Poland. This will expand our food and ingredients business and enhance our efficiency. The transaction includes two margarine production facilities and a solid and innovative portfolio of consumer margarine brands.

Now looking to the year ahead, we expect the overall environment in 2010 to be one in which Bunge can perform well. The USDA forecasts demand for soybean meal and vegetable oil to each increase by 4% relative to this year. Despite the anticipation of large crops in the northern and Southern Hemispheres, global grain and oilseeds stocks will remain tight when compared to historical levels. Futures prices reflect these expectations, and at current level should provide attractive margins for farmers and encourage input purchases.

I will now turn the call over to Jackie, who will discuss our third quarter results.

Good morning everyone. Thank you for being on the call this morning.

Starting with a few key highlights for the Bunge Limited income statement. All segments posted volume growth in the quarter, including fertilizer, as sales returned to a more typical seasonal pattern for that segment. We're very pleased with agribusiness EBIT performance which was strong. It was driven by US and Brazilian grain origination which were positively impacted by not only the tight soybean supply situation in Argentina, but also by continued strong demand from China. Our oilseeds processing was a mixture of good results in the US and South America, and somewhat weaker results in soft seeds in Europe and Canada.

Fertilizer EBIT continued to suffer from high cost inventory in a weak price environment. Volumes picked up in the quarter, but were nonetheless somewhat lower than we previously expected them to be. We now expect total sales volume for the year in the Brazilian retail market to be about 1 million tons lower than our previous forecast. In food and ingredients, edible oil showed a nice recovery in the quarter with our businesses in Europe and North America performing particularly well. Corn meal benefited from higher volumes but these results were offset by weaker volumes and margins in wheat milling where competition in the southern regions of Brazil was intense. Overall SG&A expenses are being well-controlled.

In the quarter, though we had some benefit from exchange as the real was on average weaker than in the same quarter last year, we also drove reductions in base SG&A costs as we pursue efficiency initiatives in this area across all business units. The reduction was even more pronounced considering that 2008 Q3 SG&As were reduced by transaction tax credit of $62 million in Brazil. For year-to-date SG&A expense, 2009 includes $32 million of such credits in 2008, $62 million. Net income for the quarter includes a tax benefit of $97 million, which I'll explain in more detail in the next slide.

The EPS calculation for the quarter is based on a weighted average number of shares outstanding that includes conversion of all convertible securities, while the EPS calculation for the nine months year-to-date is based on a weighted average number of shares outstanding that includes conversion of only one of the convertible securities. I'll explain EPS calculation a bit more in a subsequent slide as well. So looking a little bit more into the details of the effective tax rate, with respect to that, the significantly weaker fertilizer results for the quarter had a large impact on both the quarter and the year-to-date figures, due to a shift in the mix of earnings and losses amongst high tax and low tax jurisdictions. The adjustment to our estimated full year effective tax rate based on this mix shift was taken in the quarter and that, plus $25 million of discrete tax credits, created the $97 million tax contribution in Q3. This benefit flows through the year-to-date figures to more than offset the tax expense accrued through the six months ending June 30th.

For the full year, given the expectation for fertilizer results, we expect this situation to persist and that we will end the year with a tax benefit in the range of 14 to 18% of income from operations before income tax. We expect to begin to use these tax credits next year, when our fertilizer business returns to profitability.

On slide five, we have some highlights of our balance sheet. Our balance sheet continues to be strong. Operating working capital as of the balance sheet date is down versus the same period last year, and up slightly versus 12/31/08 with this latter due to lower accounts payable and fertilizer. Our cash cycle is in line with both one year ago and 12/31/2008, despite the impact of less favorable accounts payable days, as we continue to manage receivables and inventories well.

Proceeds from our August equity offering were mostly used to pay down short-term debt, with some of those proceeds kept in cash as of the end of the quarter in anticipation of their use for projects like the closing of the Raisio acquisition, which we completed in October. With respect to cash flow, cash flow from operations was strongly positive for the quarter, as working capital declined by almost $1.2 billion, with the biggest driver for the quarter being reduction in inventories.

Moving on to the numerical part of the full year earnings guidance, we are revising our full year guidance downward, given continued weakness in fertilizer, which is now expected to persist in the fourth quarter. Because the EPS calculation can be a little bit complicated due to our convertible preferred shares, let me take a couple of minutes now to walk you through that. As a reminder, US GAAP requires application of the the if converted EPS calculation method, if two convertible securities for any given accounting period. Convertible security holders will only convert under circumstances where the conversion is economically in their favor. That is, not dilutive for them.

Based on our prior net income guidance, economics favored conversion and the EPS calculation at that time incorporated conversion of all convertible securities. And if you have access to the slides, you can see the details of that in slide seven. As you have seen with the quarter and year-to-date actuals, economics favored conversion of all convertible securities for the quarterly calculation, but for only one of the convertible securities for the year-to-date.

Based on our revised net income guidance for the full year, we assume no conversion of convertible securities and our revised EPS guidance reflects that calculation, that calculation is also shown in slide seven. From that table, you can see that the estimated weighted average share count included in the calculation is approximately 128 million, which also reflects the impact of our August common equity offering. I hope this helps you understand the calculations and if you have any further questions about it, please feel free to contact Mark Haden offline.

With respect to our outlook for the remainder of the year, both agribusiness and food and ingredients should finish the year strong and we expect a good start to 2010 for those segments as the core fundamentals for both of them are solid. We anticipate a good harvest in the US and plenty of product with which to run our operations. We also expect margins to be good for the rest of the year, and into 2010. We've done a lot of work in food and ingredients to improve our cost structure, and inventory costs in this segment have come down versus last year. Fertilizer weakness will continue for the remainder of this year, as it stems mainly from our high cost average inventory, versus the current pricing environment. We expect this to improve in 2010.

With that, now I will open up the call for questions and answers. Thank you very much.

Thank you. (Operator Instructions). And we'll pause for just one moment. We'll hear first from Ken Zaslow with BMO Capital Markets.

Good morning, everyone.

Good morning, Ken.

Over the the last couple years you guys have spent a lot of CapEx and I know 2009 pretty much stinks but when will -- how much money have you spent for growth initiatives and how do you see that playing out in terms of returns in 2010?

The complex initiatives that we have taken over the last couple of years, I think most of them reflect quite well the growth as you can more or less see the expansion of agribusiness and the food and ingredients business has grown around something like seven times since we went public. Now, there are a couple of projects that are still not full delivering, like, for example, the building of our sugar mills, the three sugar mills, and they are on the ramp-up phase. And some of the projects perhaps are not yet 100% returning what we want them to do, like the Russian plant and so on. But overall, we feel quite comfortable with our growth program.

How much growth CapEx have you spent in the last three years?

About 70% of the total spend is growth related, more or less.

And will then that start to contribute to 2010?

Oh, yes. We think so. When we look at 2010, we see obviously it as a -- we're optimistic about that. We have to look at 2009 in different ways. Agribusiness did very well and food ingredients has recovered very well, so we feel that food ingredients and agribusiness had a good year. Now, fertilizer obviously was extremely bad, so when we think about 2010, we see a significant recovery also in fertilizer.

If I think about it, in August you decided to do an equity offering, I'm sure those investors are probably less than thrilled at this point. You confirmed guidance then. You're kind of putting out 2010, talking about a pretty big rebound year, particularly in fertilizer but yet you obviously -- August now is not that far away but why do you have any confidence in 2010's outlook if it took you from August to now, you couldn't figure out your guidance for this year?

Obviously, the guidance in our business is always something which is not very easy and you have to remember that this is a very unusual year where we had transitioned a very high and very expensive inventory and it all is -- all relies on how well you estimate the prices will be. So when you think about where we were in July, July was a very strong month. Commodity prices were high and going up. Fertilizer prices were going up. Volume was very strong. So our level of confidence for the rest of the year was good.

And at the end of the month of August, commodity price came down. The real got stronger. The farmers got cold feet and volumes came down. Not only the international prices came down and fertilizer, but also the domestic one. So you have to remember that September and October are more or less one-third of the whole volume we sell in the year. So it is very difficult and to be honest, makes us think about should we give guidance or not. Because the guidance is supposed to be something, a service to the investors. So if that's not the way investors feel about it, perhaps we should not do the guidance.

But this doesn't change at all our view about 2010. This is a peculiar situation, very unpleasant situation, obviously we don't like it. But once these inventories, high cost inventories are flushed out or sold, this problem is gone and as we look into next year, there are a couple of things that makes us as optimistic as we were in 2008, in August. So one of them, for example, is Brazil will have to produce more -- will have to plant more corn and cotton because it reduced this time to benefit the soybeans. It doesn't mean that we will have less soybeans but we have to have at least the same amount of soybeans, plus cotton and corn.

Also, because of the low price in sugar cane, farmers have not used enough fertilizer in sugar cane and they will have to replenish that next year. So we are going to have headwinds with a stronger real but we will be adjusting that as you have seen with the reduction of SG&A. So when we look at 2010, we are as optimistic as we were in August at the last call.

My last question. Are you guys making cash margins on fertilizer right now?

Cash margin?

Right now, yes. Yes, Ken, right now, yes.

And when will it -- when will the high inventory be done and we can kind of move on with our lives?

Well, we obviously -- our estimate is that we will be selling 1.9 million tons until December and assuming that is the case, we should basically mostly be -- the average cost inventory in our books should be mostly in line now with replacement values. So there should be a small remnant. But we have to sell the 1.9 million tons. Let's be careful about that.

Okay. Thank you.

We'll hear next from Christina McGlone with Deutsche Bank.

Christina?

Do you think you could kind of go around the world, talking about agribusiness. Jackie, you talked about a plentiful crop in the US and even though it's a big crop, it's not out of the the ground. There's some potential crop quality issues and I'm wondering how does that affect you and does the US export program kind of now run into the Brazilian and Argentine harvest and net-net do you lose some business? Then you talked about additional capacity. Mato Grosso, Canada looks like it's in an overcapacity situation so could you just talk about agribusiness from a big picture?

Yes. The next six months should be very positive for US because global inventories are so low because of the poor crop in Argentina and so much of that was exported, that we should see good margins in the US as we are seeing at the moment and we have a stabilization at the low level of the meat demand. We do see that we should have good margins and good volumes in the US. Now, there are always issues and we always consider some losses of yield, some delay, but we are optimistic about the next six months in the US.

Soft seeds in Europe are not as good as last year, but the new crop is coming in with soft seeds and we feel that the margins are fine. Canada, the margins should be lower because we have more capacity, and South America now is in the very low operating mode because it's the Northern Hemisphere time of the year, operating. In China, the margins have improved. I consider it kind of a normal environment where some areas are good, some areas are less good, but overall it is as we like it.

And South America, do you think capacity, supply and demand, is balanced so that when starting in March when we get the new harvest, that margins will be good, or are we a little bit out of balance there?

I think it should be good. When you consider, you have seen that in the past we have over the last years, we have built eight new plants but we also have shut down 16. So when you think about our new plant in Mutum, it is much more an exercise of not expanding capacity, but keeping it in line and we might consider perhaps idling or shutting down one or the other plant in the less attractive area. So this is not really something to increase significantly capacity. It is to keep it in line with the general environment. So it's a little bit early to say, but the crop seems to be big, that for South America harvest and we expect margins to be normal.

Okay. And thank you for that. And Jackie, I know last quarter you said you had hedged the real in terms of SG&A. Are those hedges rolling off and are you kind of on the market in 2010?

Yes, I mean, what happens is these are rolling hedges that usually don't go out longer than 12 months in terms of their maturity dates and so they've been rolling off over the course of this year, and given where we see things at the moment, with the real at somewhere around I guess it's around 175 or something like that this morning, we are probably going to try to leave ourselves the upside potential on that for next year and not do as much hedging as we would have in the past when we saw more room for significant strengthening.

So -- but, by the way, we're planning -- we're putting our budget together and when we give guidance early next year, we might talk about that a little bit but we're putting it together to assume a relatively strong real and keep very focused on our efficiency initiatives not only for SG&A but also on the industrial side, and we'll be looking at our industrial asset footprint and trying to be as efficient as we can with that. So we're working on reducing core costs across all the categories, regardless of the exchange rate.

Okay. Thank you. And I guess last question, Alberto, I know guidance is hard, right and you don't usually give 2010 guidance but obviously 2009 is kind of something that is an anomaly because of these high sulfur costs. If you look at where the Street is in 2010 and we think about normalized fertilizer margins, we do have a hit from the real. Looks like agribusiness should be solid. Can you give any idea what you think 2010 will look like on a preliminary basis?

I'm doing a very good soul searching about guidance, to be very honest, and I want to make absolutely sure that it's in the best interest of investors. So our business is very difficult to predict. But when I look at next year, I feel good about it. I think we will be solving most of the issues in fertilizer, but we have as a headwind is the strong real and obviously also the strong Euro. Here, we internally at least, our target is and our goal is we have to adjust the Company's cost structure to the currency, so, again, it's hurting. We are thinking about more measures.

We are not expecting the real to weaken. We are not expecting the dollar to get stronger. So we will adjust. But it will be headwind so there is going to be some headwind. It also means reducing the balance sheet and it will mean also shutting down plants. So we are looking very, very carefully at fertilizer at the moment and we will have to look at perhaps one or the other plant we might have to shut down. We have to fit the size of the Company, the cost structure to the margin structures.

Okay. Thank you.

Thank you.

We'll hear next from Christine McCracken with Cleveland Research.

Good morning.

Good morning.

Good morning, Christine.

Our contacts in Brazil are suggesting that planning is maybe getting a little bit of a head start here, we're a couple weeks ahead of schedule. If you look fast forward a bit, does this impact kind of the mix of crops that you expect to be planted this year and maybe fertilizer utilization in any regard?

What we see, if I understood your question correctly, Christine, is what we are seeing is that the farmers are much more careful. There are very little expansion and they got spooked with the ever getting stronger real. There is memories of 2005, 2006 are still with them. So nobody knows how strong the real will get so the farmers were not as aggressive in buying. And they had had credit. They had low -- the fertilizer costs, the low input cost. They had a chance.

Not only that, but they also reduced the planting intention and planting of cotton and corn, so they went on the safer side which is soybean. So this what is we are seeing now, and we do know that they are talking about this is the end of the year and early next year the farmers are talking about that Brazil will need more corn, so the winter crop will have to be bigger, so there's talk about that. There will have to be more fertilizer for sugar cane, so both of them are intensive users of fertilizer. But that's all we are seeing at the moment.

All right. And then just relative to canola, StatCanada just raised their yield estimates. Does that impact the outlook there at all? I know it's a very competitive market at the moment and you have overcapacity but does it help at all that we might see a little bit more canola coming out?

I'm not so sure if that will be so relevant, Christine. We have -- next year, we have more capacity so we have to be careful about that. We think the margins will be very average in Canada.

All right. And then just finally, on your expansion projects, you obviously mentioned that you're looking at your fertilizer capacity. You have plans I guess to expand mining capacity. Can you just give us an update or is it just too soon to say kind of how you're going to move forward there?

Two of the projects are -- one is finished, the other one -- in total we have four projects. One is finished, the second one will be finished by the end of next year which is the Adishar mine. And then we have two projects which is to open up new mines, the Yara, together with the Yara and Anitopolis and the other one with Salitri.

So we are in the phase of analyzing the -- it's the basic engineering, so the fact that we are doing basic engineering is a very high indication that we will decide to start soon. These two years of very slow demand are very unusual, but let's not kid ourselves. Our challenge is to double food production until 2050 by using the same amount of land or if perhaps not less. There is going to be very strong demand for all four -- for all three fertilizer areas, for all three fertilizer NPNK. So the project will go ahead. It's a question about the right timing and how the basic engineering is coming about.

Thank you.

Thank you.

We'll hear next from Robert Moskow with Credit Suisse.

Hi, thank you Alberto. I guess I'll just question that last comment about the need to continue and stay on pace on opening up new mining capacity. Just seems inconsistent to me, given all we're hearing about excess fertilizer in inventory and lower international prices. Why not slow down the opening of those facilities, given the challenge of getting the market to pay for phosphate prices for where they are?

It's a fair question we ask ourselves all the time but opening a mine means that you will only have the products in two, three years from now. So it's one of these things that you have to take a very long-term look and we are all the time revisiting our long-term views of meat consumption, dairy, and all of that, despite this crisis, nothing has changed. And it really worries us and we are talking about here also working with the food and agriculture organization in Rome and you would be surprised to see that how many people are more worried about are we going to have the food or not. So there's probably more pressure from those involved with food. We have to do more. But in terms of a decision, when to start, okay, that's fair. You might adjust it.

Rob, generally speaking, more mining capacity should be better for our margins long term as well. But we're taking a hard look at our footprint for processing and blending facilities to make sure that we have as efficient a network of that as possible.

Alberto, when you talk about more pressure from those who say we need more food, are you talking about like local governments and if so, local governments have one set of objectives and corporations have another set. Is that the kind of pressure you're talking about?

You're right, mostly from think tanks but from like the from governments, Chinese, Russian, Moroccan, all kind of governments, and we always -- we defend the concept that we will have to work on three different areas. One of them, there has to be more trade. The trade has to flow more fairly, and there is where obviously we have -- as a Company, we also have a big contribution because at the moment, you could have more production in some areas and that means that you would have -- you will have to reduce in some other areas. You have regions in the world where too much is being extracted from the aquifers, and that is not sustainable long-term. So you will have to have new areas, new expansions.

Ukraine, Russia, Brazil, Argentina and even Africa will have to expand and others will have to reduce. So I think here we are aligned with the governments. We have an important role transported from the areas where it should be grown to the ones that need it. And so to protect more the environment. But there has to be more technology. There has to be also a change in the way farming techniques are done. So we -- in one way or the other we work on all three areas.

Maybe that's all fine and good and maybe that's the way to plan for what the world looks like ten years, 15 years from now, but if we have an environment still where demand is not so great and livestock producers are still very cautious about rebuilding and food producers and processors are cautious about demand, and you have local governments that are kind of pushing for more near term agriculture productivity and you have farmers -- we have a record corn crop here in corn this year and also a very strong soy crop, could you see over the next 10 years where like you have three years of kind of weak profits for corporations and then you're kind of waiting for a return, longer -- and a longer window?

Look, I have 15 years of experience with Bunge. I don't think we would have a scenario like that, because at the end, we have a role to play and we need to have our margins, our returns. So if there are no returns, the companies would not do it and the margins would expand and I don't see that. We have to be very careful. We are very influenced because of the drop in meat demand in the US and in Europe, which is probably down 3%, but worldwide even this year the meat demand is up. So when you travel through China, when you're in Southeast Asia, Brazil, South America, the mood is very positive and demand is growing. So we have to think about that. And it's very difficult for Southeast Asia, Asia, China, India and Southeast Asia to expand food production. This will have to come from some place. It will have to come from America, from Ukraine, Russia and most of the expansion will have to come from Brazil.

One last question, if I could. Corn has moved up quite a bit in the last month. Oil prices are up quite a bit. Higher corn would seem to be positive if you want to grow corn in Brazil and you still sell 3 million metric tons or so of fertilizer in the fourth quarter. So given -- you mentioned the Suprenia. Why wouldn't a farmer start to buy more aggressively in fourth quarter in anticipation of that and also, will crude oil prices being higher, how do you think that influences world fertilizer prices?

I will not give you my opinion about prices on fertilizer. I've been wrong too often. So we will just live with what we have. But I think there are more indications coming back to that point, the market is giving signs, we will need more food. That's why soybean prices are high, sugar prices are high, corn prices are high. So the market is giving signs to the farmers, they need the products. And we have seen it, the harvest in the US has been a little bit delayed. We tend to forget that there might be weather issues.

You have seen what happened in Argentina the beginning of this year. Global inventories, stocks are still low. Now, the farm profitability is good, when you think about -- I think in Mato Grosso, the breakeven for the farmers is at $8.50 and in the southern part of Brazil is around 6 and soybean price are at 10 and corn is moving up so the signs for the farmers are positive. But, this was a year where we will not talk about prices at the moment.

Okay. Thank you.

Thank you.

We'll hear next from Vincent Andrews with Morgan Stanley.

Hi. Thank you. Hello everyone.

Hi, Vincent.

Can I just get a sense of where you think fertilizer demand for this year is going to be? Do you think it's going to be down about 5, 6% in Brazil.

Yes, you're right.

Okay. And then I just also want to clarify, you know, on the sulfur costs it would seem to me, based on your guidance, that you're probably not going to burn through all of the high cost sulfur inventory until maybe at some ninth the fourth quarter, but perhaps as late as 1Q so I'm just trying to get a sense of when you think you'll post an entirely profitable quarter in fertilizer. Is its going to be 4Q or is it going to be 1Q?

If we are able to -- try to be as candid and transparent as possible, if we are able to sell the 1.9 million tons that we are estimating until the end of the year, we probably have something like $20 million left for the first quarter of next year, above replacement value costs. I hope Jackie doesn't kill me now.

I don't think she will. I think she'll find that was a very helpful disclosure. I guess my next question would be, I think it's very easy for people to understand that you just have to get through this sulfur cost issue and we can look at where rock and DAP and SSP prices are and so forth and see how you're going to have a pretty good recovery in the fertilizer side next year. The thing I struggle the most with is looking at the agribusiness side, Alberto, you just classified your expectation for margins in 2010 to be normal. My guess is that we're not experiencing normal margins now, I think something like extraordinary would be the level where I would classify them at at present and given -- I think you also made the point that until Brazil or South America harvest perhaps in that April, May time frame, those margins, current margins are perhaps sustainable. But when we get into the second half at least of next year and margins normalize, I'm just trying to get a sense of why margins will just stay at normal levels because it seems like demand is improving but it sounds like supply is going to improve a lot more than demand between now and then.

Vincent, I would only add that this year it has not been perfect because we have had issues in Canada, we have had issues in Europe on the soft seed margins, China has operated a good part of the year with negative crush margins. So we have had -- Argentina had very, very low volume, so it was very disruptive. So the global picture has been normal so there have been some moments where margins here and there have been higher and we are seeing good margins in US at the moment. But overall, there has been also pockets of issues, so when we look at next year, having good crops has one advantage that you have compensate perhaps lower margins with more volume. So in that sense is what we expect to be more normal and when you have prices that are perhaps slightly lower and once the volumes, the global inventories refill, you have less substitution and the feed mills and the meat producers use less alternative products like less wheat, like other products, and use more the soybean meal. So that gives us the confidence. There might be areas of lower margins here and there.

And just a couple of other quick ones and I'm going to jump around a little bit. Jackie, it sounds like there's going to be some potential planned shutdowns next year. Are we going to have a P&L next year that's going to have a lot of restructuring charges in it potentially?

I don't think the amounts will be that big, Vincent. So as we have more visibility to that, obviously we'll call it out, but I don't think they're going to be --

These are not high valued assets and severance, we even during this year we had a couple of shutdowns that we don't even mention because that's part of business. This is part of business. And on the fertilizer side, some of these mixing plans obviously it hurts, it affects local communities but it should not be so material for the Company.

Okay. And then two last quick ones. The first is how the rising oil price I guess in terms of diesel, how that's going to affect on a go-forward basis the farmers' breakeven cost. So I'm just looking at that, if it's $6 in the south and $8.50 in Mato Grosso relative to $10 price I'm just trying to kind of bridge why fertilizer demand remains weak and I'm also wondering if maybe some of it from a phosphate perspective is linked to demand for potash is down substantially and usually those two nutrients are applied at the same time. So is the potash price part of it or is there something to -- is it logistics costs increasing between Mato Grosso and the port, also part of the issue as well?

Diesel will change the breakeven, so it will increase, at the same time many of the fertilizer prices have come down. Now, you have to remember that the diesel price in Brazil is much more stable. It doesn't follow exactly the international prices. So Petrobras keeps it more stable so we have not seen any movement there. So I also don't expect to see an immediate movement there in terms of diesel prices.

At the same time, with the railroads expansion, the ports build up, our expansion ports, logistics costs have come down significantly over the last five, ten years, so there might be some offset. Now, the main reason why I do believe the farmers have not produced more is just they were much more cautious and this appreciating real really worried them because they -- remember in '05, '06, when they buy all the products and then sell it in the first half of next year, they were really hurt. So they were very careful, very, very little acreage expansion. I don't know if that is exactly your question, Vincent.

It's very -- it's certainly close enough to it. I guess maybe the last thing I'll mention is we would very much appreciate if you would begin participating by providing your fertilizer data to ANDA again.

Yes. That has been -- the whole industry is working on a better structure there. That system was so weird that the whole industry's working on that to get it right. I think we will have soon September numbers, as far as I understand.

Okay. Terrific. Thanks very much, everyone.

Thank you.

We'll hear next from Diane Geissler with CLSA.

Can you hear me?

Yes, hi, Diane.

Thank you, Jackie for the slide seven.

You're welcome.

Can you just elaborate a little bit on the range that you have for the remainder of the year? You have one quarter left. It seems like a fairly wide range. Is it really -- is that a function of how quickly you think you can flush the high value inventory, or are there other elements that we should be monitoring?

Thanks for the question. It's a function of a couple of things, volumes for one, that's going to be a big impact for for the fertilizer business and overall pricing as well. While we're optimistic about where things look for North America, and that should have a strong finish for the year, we've just seen enough volatility this year that we have to leave ourselves a little bit of room for maneuvering, so --

Is it correct to say, though, that most of the explanation for the range would lie within the fertilizer division? There isn't anything in agribusiness or food products business that would cause you to -- ?

Yes, that's correct.

Okay. And then I guess Alberto, just on the real, I don't think, with US monetary policy the way it is, I don't think anybody thinks the US dollar is going to strengthen any time soon. So when I look into 2010 and I think about where the real is versus what happens to soft commodity prices when the dollar weakens, is there a way to think about how the farmer -- I mean, I realize it's a year away but I have to set the estimates now, is there a way to think about how the farmer behaves when the real strengthens and commodity prices strengthen and he thinks about expansion, I mean, what are the key drivers there?

When I look at next year and I understand you're talking about farmers decision planting in the second half of next year, and what we have seen is, Diane, is that the -- especially soybean prices have been going up if the real has been strengthening, because everybody knows that most of the expansion will have to come from Brazil on the soybean side. So if the real continues strengthening, soybean prices will have to continue going up so that the farmer plans. There is very little other chances for expansions around the world, which also means that it's for us, there is an expansion of our margin. So we have talked in the past about it.

If the real gets stronger, the margins have to go up for us to cover our costs. So we cannot rely completely on that, so it also means cutting costs and becoming more efficient, just to give you an idea. The construction of the Mutum plant was more expensive in dollars than building it in Spain or in the US. So that gives you an idea about how the real is overvalued. But we are able to do it in a way to make it profitable so it has to be very efficient. It's valid for us. It's better for the farmer. If the real is strong, the commodity price will have to be higher.

I was always under the impression that you and the farmer preferred a weaker real.

We would prefer but we have no choice. So we are assuming -- there was a time four years ago where we would have an opinion on the real but we just are assuming it will be where it is. So we have to adjust the Company to the real and not hope for the other way around.

So the dynamic for you is if the real is weak --

It's better for us.

So if it's strong, then commodity prices have to match and if not, then there's slippage in your P&L?

No, I would say if the real gets much stronger and commodity prices come down, you will not have the Brazilian farmer planting.

All right. That's fair enough. Thank you.

Thank you, Diane .

And that is all the questions that we have in the queue. At this time, I'll turn the conference back over to Mr. Haden for any additional remarks.

Great, Miranda, thank you and thank everyone for joining us for today's call.

That does conclude today's conference call. We would like to thank you all for your participation.