Bunge Global SA (BG) 2011 Q1 法說會逐字稿

Welcome to the Bunge earnings call. My name is Kim, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Mark Haden. Mr. Haden, you may begin.

Okay. Thank you, Kim, and thank you everyone for joining us this morning. Welcome to Bunge Limited first quarter 2011 earnings conference call. Before we get started, I want to inform you that we have prepared a slide presentation to accompany our discussion. It can be found in the Investor Information section or our website at www.bunge.com under Investor Presentations.

Reconciliations of non-GAAP measures disclosed verbally 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 are Alberto Weisser, Bunge's Chairman and Chief Executive Officer and Drew Burke, Bunge's Chief Financial Officer. I'll now turn the call over to Alberto, and he'll begin with slide three.

Good morning, everyone. Bunge had a good quarter, and we are off to a strong start in 2011. Agribusiness and Food and Ingredients performed very well and segment results for Sugar and Bioenergy and Fertilizer were generally in line with our expectations.

The Brazilian sugarcane harvest is getting under way, and all eight of our mills will be operating next week. Overall, the global agribusiness and food markets continue to be characterized by tight supply and volatility. Current conditions put a premium on efficient, flexible supply chains and excellent risk management. These are key strengths of Bunge and enable us to deliver reliable service to customers, facilitate beneficial global trade and generate value for shareholders.

While tight supply and volatility are likely to persist, they are also spurring farmers to plant big crops and increase fertilizer use. We are already seeing that South American harvests are near record levels. And weather permitting, US farmers are expected to plant the largest acreage of major crops in recent history. A large harvest this fall, coupled with a big harvest in South America, will be important steps in rebuilding global stocks and moderating prices.

Now, I will turn it over to Drew, who will discuss our financial results.

Thank you, Alberto, and good morning everyone. Let's turn to page four, our earning highlights for the quarter. We had net income of $232 million in the quarter, which was significantly higher than the prior year. Our diluted earnings per share were $1.49. Our total segment EBIT was $317 million, and that was more than double the prior year after adding back one-time impairment charges and acquisition charges that occurred in the first quarter of 2010.

If we take a look at our volumes, 29.3 million tons, they were down 2.6 million tons from the prior year. The biggest decline was 1.4 million tons in our Fertilizer business, and that is due to the sale of our nutrients business, Vale, that occurred during the last year.

In Agribusiness, our volumes declined by 900,000 tons due to the effects of the Black Sea region drought on our European grain origination and soft-seed processing business. Our sugar volumes were down 300,000 tons due to the carryover effect from the 2010 drought.

If we take a look at Agribusiness, Agribusiness had a strong first quarter with EBIT of $253 million. That result was driven by our grain origination and merchandising business. There were strong global demand for exports out of North and South America during the quarter. Our royalty margins were mixed in the quarter with weakness in North America and China.

If we look at our Sugar business, bioenergy business, the first quarter in the Sugar business is the inter-harvest period in Brazil. Our mills are not running, nor were the industry's and all our sales are made from our inventories and earnings are typically low during this period. Our business had a profit of $2 million. Our results were generally in line with our expectations as strong margins were offset by lower volume. The lower volumes were due to the 2010 drought and lower inventories being carried into the year.

Our Food and Ingredients business had a strong quarter with $67 million in EBIT. Both edible oils and milling performed well. Our edible oil results were particularly strong in Europe and North America despite price pressures in our European margarine business.

Both corn and wheat milling performed well and had strong margins. Our wheat milling business benefited from inventory gains on the sale of inventories we purchased ahead of the increase in global wheat prices. Our new rice business, which we acquired at the end of last year performed in line with our expectations.

If we take a look at Fertilizer, this is also a seasonally low period for our Fertilizer business as our business is primarily South American-based and the main planting season comes later in the year. We had a loss of $5 million in the quarter. The $40 million loss in 2010 includes the results of our nutrients business, which was sold later in 2010.

Our Brazilian distribution and blending business performed better in 2011 than 2010 and was in line with our projections. We continued to execute our transition plan from an integrated mining business to a distribution and blending business. Our transition plan has four main pillars, improve risk management, stable and adequate margins, reduce cost structure and rebuilding the infrastructure that we lost in the transaction with Vale to allow us to achieve our targeted volumes. We are on track to complete all four of those goals in the later part of this year, so we expect the transition to be complete as we move into 2012.

If we turn to page five and our balance sheet, you will note that we continue to have a strong balance sheet in a liquidity position. Our debt-to-equity ratio continues to improve as debt decreased during the period. Our operating working capital also declined, and you will note that the biggest portion of our operating working capital is our inventory balances.

Turning to page six in our cash flow statement, we generated $734 million of cash from our operating activities during the quarter and also had positive free cash flow. Our capital expenditures of $207 million were in line with our plan for the year.

If we turn to page seven and take a look at our liquidity position you can see that that is also strengthened during the quarter. Our committed and available liquidity was $3.3 billion at March versus $2.8 million at December 31st. This liquidity puts us in a position to take advantage of market and acquisition opportunities as they arise.

We also had significant financing in the quarter. If you look at the box on the bottom of the page we completed a three-year revolving credit facility totaling $1.75 billion. $1.25 billion was used to replace an existing line that matured during the year. The other $500 million that does expand our capacity. We also completed the sale and issuance of $500 million of senior notes. The funds from that transaction will be to repay term debt that comes due later in the year.

If we turn to --

Page eight?

-- the outlook on page eight, we continue to feel good about 2011. In Agribusiness the outlook remains positive, particularly for grains. In the grains environment we have profitable farmers, large crops, firm demand, tight supply trains [sic] and a need for significant global trade. All of these create a positive environment for our grain origination and merchandising business.

Our oilseed processing margins will remain under pressure in some reasons [sec], but we may see some improvement with the Northern Hemisphere harvest and a better balanced market in China.

If we turn to Sugar and Bioenergy, The Sugar and Bioenergy business will continue to be impacted by the effects of the 2010 drought. While it is too early to make a final call on the 2011 crop it appears that we may have slightly less than the previously anticipated 17 million tons of sugarcane available for milling. At the same time, our selling prices are expected to be higher than we had originally anticipated.

The second quarter is a seasonally low period in Brazil as the harvest just starts. Six of our mills are currently operating and the other two will begin operations next week. During the intercrop period we did successfully complete the upgrades at our Santa Juliana and Pedro Alfonso plants and expect them to be running normally going forward.

Another important activity in our Sugar business is that we have initiated an aggressive sugarcane planting program to ensure we will have sufficient quantities of cane available for processing in 2012. That program is going well and is on schedule.

If we look at our Food and Ingredients business, we expect our Food and Ingredients business to continue to perform well. The price competition on edible oils may continue for some time, but overall margins should be adequate. Our corn and wheat milling business should be able to maintain their good margins.

Turning to Fertilizer, the macro outlook for our Fertilizer business remains positive. Farm economics are strong and there is a need for large crops so volumes should be good. Margins continue to be in line with our expectations and our cost reduction efforts are on target.

We are near the completion of the footprint adjustments required after the sale of the nutrients Fertilizer business and we should be operating fully in that matter towards the later part of the year. The Fertilizer results are also weighted to the second half of the year as our main businesses are in South America and it follows the growing and planting season there.

To summarize, we expect strong performances from our Agribusiness and Food Ingredient businesses in 2011. And we expect our Sugar and Bioenergy and our Fertilizer business to meet our expectations.

As importantly, we expect Sugar, Bioenergy and Fertilizer to put themselves in a position to achieve their full earnings potential in 2012. For Sugar and Bioenergy that means a successful conclusion to the sugarcane planting program. Our target is to run our mills at their 21 million tons of capacity in 2012 with a per ton EBIT in the $8 to $10 range.

For Fertilizer it means completing the transition from an integrated mining and distribution business to a blending and distribution business. This conversion remains on track for completion in the second half of 2011. Given all of that, we expect a strong 2011 and an even stronger 2012.

With that, I will turn it back to the operator for questions.

Thank you. We will now begin the question and answer session. (Operator Instructions). At this time, we have a question from Vincent Andrews from Morgan Stanley.

Thanks. Good morning, everyone.

Good morning.

Good morning, Vincent.

Just wondering if you can kind of give us a sense of the US crush and the margins are pretty lousy which we can all see and it seems like that's going to continue for a bit of time. Can you sort of give us a little more detail on the different drivers of that? I mean, whether it's demand, whether it's DDGs, whether it's biodiesel or capacity and what potentially the industry can do in the short to medium term to improve the outlook?

It's a little bit all of what you said, Vincent. It's excess capacity. It's a little bit weaker demand. On the oil side, it's not so much. The oil demand is good, especially because also of the biodiesel component.

And we have to also remember that we have a very large South American crop so in some areas the export demand for the US is smaller. We believe that this should improve in the second half of the year when the harvest comes in. And we believe that clearly for next year the margins should improve.

The other side of this story is obviously margins in Europe and South America are good. So overall we imagine that the oilseed processing environment should improve by the end of the year.

But there's nothing -- you don't see any reduction of capacity or anybody taking that type of a step in the near term?

No. We don't see that.

Okay. And then maybe just as a follow-up or second question, I've been reading that sort of the water levels in the Midwest on the rivers are getting high and there's some risk of it becoming difficult to get product out of the United States. How much of an issue would that be, and would it be a good thing or a bad thing if it happened in terms of the sort of global opportunity set?

I don't think this is any major issue because many of also the stocks and inventories in our terminals down in the New Orleans area in there so there are other ways to move around. So I don't -- this happens from time to time. I don't see this as any issue.

Okay. Thanks. I'll pass it along.

Thank you.

Thank you. Our next question comes from Jeff Farmer from Jefferies. Please go ahead.

Great. Thank you and good morning.

Good morning.

Good morning.

You pointed out that I think 60% of your cane crush is going to ethanol this year. Can you just help us understand a little bit how your margins might be impacted when Brazil sees the big jump in ethanol prices that it's recently seen?

The split, if I understood your question correctly, I think the split will be more or less the same. And now the margins for ethanol and sugar are similar. So it is we are just running our program as expected. The way the sugar prices were before, there was a preference to process sugar. But ethanol prices are attractive. There's been upped demand in Brazil. And so today it's more or less the equivalent. Both are as profitable.

So I guess just to follow up on that, so when you see ethanol prices jump, does your spread necessarily move higher with it or does it sort of stay normalized based on higher input costs?

It goes up.

Okay. And then as it relates to crush margins specifically in Brazil, it sounds like you guys are seeing some pretty good crush margins right now. Can you just give us some color as to where the industry, not necessarily Bunge, but where the industry crush margins are in Brazil right now versus where they were a year ago?

Generally they are higher and the reason is that there's an ample supply and also the import demand from China is more or less at the same level as last year. And prices are high so the farmer is receiving good value. And so normally in these kind of environments you do have a positive crush environment. In addition, strong demand from the meat sector, so it's in a healthy environment.

Okay. And then just again following up on that, considering how wheat processing volumes were a year ago, obviously you have the improved margin structures you pointed out but is it better, materially better, just a little bit better? How should we think about that in terms of order of magnitude.

In Brazil it's materially better.

Okay. And final question from me, it does sound like your grain merchandising volumes were up year-over-year but did they hold on or decelerate versus what you saw in the first quarter on the volume front?

They continued to remain strong throughout the period. You've had a period where there is not as much supply coming out of Black Sea so that pull is coming from Brazil and in North America. And that pull has continued to occur. I would say the rate was about the same, maybe a little bit more.

Okay. Thank you.

Thank you. Our next question comes from Christina McGlone from Deutsche Bank. Please go ahead.

Good morning.

Good morning.

Good morning, Christina.

Drew, when you talked about a little bit less than 17 million metric tons in sugar and the higher prices, so where are we in the somewhat below $8 per ton in terms of profits?

We're probably still somewhat below, Christina. I don't think that's moved a whole lot. I mean, we've got a lot of things still to see, what the ATR yields are, what the prices hold up through as the year moves out. But right now, I would say it's flat to slightly down but not a big movement.

Okay. And then Alberto, so there's been new word coming out that Rousseff is talking about maybe decreasing ethanol blend or increasing sugar export taxes. I mean, what do you think about that and does that change your view in terms of your investment pace in that industry in Brazil?

We don't see any of these movements in a negative way. And obviously we are working very close with the government because of the very high demand of fuel at the moment in Brazil. And the government is asking all of us to start earlier the processing to have enough ethanol.

And I would say I expect reasonable movements that will not affect negatively the industry. I think it is a strategic industry for the country. It's something that it's a lot at stake. It's not only the fuel component. It's exports. It is the electricity. So all the movement we have seen are reasonable.

Okay, thank you. And then Alberto, can you talk about the real? I mean, it's been incredibly strong. The outlook is strong. How does -- did this, and I don't know Drew if you can quantify the impact in the quarter and has it changed over the year? I mean, are we going to see the $120 million in cost savings from the Brazil integration hit the bottom line or is now that just going to be used to cover the strengthening currency?

Yes. We got used to this strong real. Obviously it's highly frustrating. But this has been now going on for five, six years, and we got just used to it to nonstop continuous improvement. And I'm, honestly I'm proud of what the team has been able to do to continue finding new ways to do it differently and better. And so obviously at 156 it is frustrating but you see even the government is trying very hard to steer against it but with this interest differential it's attracting a huge amount of funds.

So eventually this will change but at that time obviously it will be very beneficial for us. But at the moment we don't count on anything like this. We have our hedge programs. We do our cost cutting and we expect it -- we assume that we will have no really fear. Perhaps, Drew, you want to update us on the $120 million?

Yes. Christina, the program to generate the $120 million is on track. It comes from a variety of sources, combining our four companies into one unit, combining it into one back office, leveraging up our purchasing power and also leveraging up our logistics power.

So all of those things are working, and we feel confident we're going to continue to progress towards the $120 million. I would like to say that some of that won't be given back in exchange but some of it probably will. But I don't think anything like all of it.

As Alberto said we had hedging and funding strategies in place that are helping us through this period. There was an impact in the first quarter that we saw show in a couple places, but I don't think it was overly material is why we didn't call it out in our statements earlier. But it is there and the real continues to strengthen the little bit of risk we have is that there's a lag between the cost reductions we can achieve and the movement of the real so it's not a positive if it keeps strengthening for the rest of the year, but I think we're doing the right things to be positioned properly.

Or let's say it in a different way. The stronger real does not change our view of how we will expect to perform in this year. So we have been able to compensate, offset it. So obviously you see it on our SG&A industrial costs. But we have been able, and we think we'll be able, to offset the stronger real.

Okay, thank you very much. And just last question. Fertilizer seemed to be, even though I know it's a non-seasonal, seasonally strong period you did have some good (inaudible) demand, volumes are up year-over-year. So I'm just curious, why wasn't profit better? Is it because of the transitioning cost structure or do you now have your facilities up yet, what's going on there?

Well it's a mixture of all of it. And I would say probably as long as we are breakeven in the first half of the year it should be fine. Unfortunately that's the way structure of our business is. That, too, probably we don't know exactly, but probably something between 55 to two-thirds of the business is going to -- 55. Two-thirds around of the business will be in the second half. And they are fixed costs.

So no, we still have some issues as Drew mentioned that not all the volume is up yet. Two facilities are going to be ready soon that we really need. And we are, because of our careful risk management, we also have not done some businesses to really protect the credit area. So we are really still in the fine tuning phase.

We are now very confident that in the second half we will be running it well. But we are, in the first half, we are still getting there.

Okay, thank you.

Thank you very much.

Thank you. Our next question comes from Tim Tiberio of Chardan Capital Markets, please go ahead.

Good morning, Alberto. Can you just elaborate on some of your comments about the competitive pressures in the margarine business? Is this coming from a specific region?

Edible oils?

The margarine business.

The margarine business. The margarine business we have a consumer margarine business in Europe, in Brazil and somewhat in India. And it is on the B2C area where we have the pressure. On the B2B we don't have the pressure. We sell margarine in the US and so on. There it's fine. It's mostly in Europe, Poland, Germany and Brazil. These are the area where there is pressure.

Okay, and just one last question. We've seen various reports of how much Brazilian farmers have been willing to sell forward soybean contracts. Looking at your business can you give us some color of how much you think you're been able to lock in soybean prices and what that price range might be?

These kind of details I don't think it is relevant because it obviously changes. But we feel very good about our origination program this year. we feel that we are very well-positioned. And you might now start hearing slow farmer selling and that's exactly what it is every year.

This is the time of the year where the farmer now, the rest of his tail of the crop goes back and forth and waits for the devaluation of the currency or a spike in the prices. But we feel very good where we are with our program.

Okay. And of course you've mentioned that South American margins are much better than North America. There's been some reports that China has built up soybean inventory levels, especially with the record North American export levels. Are you concerned about that, at least in the near term, impacting export volumes down in South America? Or do you think that's a little bit overstated in the press?

I think clearly overstated. China bought over 11 million tons. Last year it was 11.7 million, so it is a huge amount. Demand is strong in China, we might have a situation where there is a little bit more inventory and they are digesting the inventory. But the fundamentals of the demand in China continues to be very robust.

Okay. Thank you for your.

Our next question comes from Robert Moskow from Credit Suisse.

Hi. Good morning, thank you.

Good morning, Robert.

Good morning.

Just a question about Russia and the Black Sea region. If I go back six months we were all looking at the drought there as kind of a big opportunity for a company like yourself to merchandise grain around the world. And I noticed in your press release today you kind of talked about as a reason why volumes were down, which makes sense.

And I'm trying to think through the next six or nine months. There's going to be a pretty big supply reaction, I would imagine, for their wheat crop. Maybe you're alluding to it in your press release, but how do you think about positioning yourself ahead of that? Do you think that your merchandising opportunities will decrease, but then there's maybe some offsets somewhere in the value model? Thanks.

Look, Rob, when you look over the last couple of years our grain business, the grain merchandising business has been a good, steady business. I think you hit it right by saying sometimes volumes are down. But you often offset that with higher margins because there is a dislocation. But this a -- long term this is a relatively steady business. We have to move a lot of grain through our systems.

So when I look at the next six month, and we all expect, we all hope, that we are going to have very good plantings. The indications are positive for Eastern Europe. It was very cold but there was a very nice snow cover. So there was very little winter kill so we expect that the wheat production should be okay. Perhaps not so high as in the past because the planting was not so easy, but all indications are positive that we should see good wheat production coming out of Eastern Europe.

The biggest stress today clearly is on corn. So this is our daily business to position ourselves. We feel very good about where we are.

Okay. And let me just ask a quick follow-up on sugar. You know when I look at how your guidance in Sugar has been tracking your volume expectations keep coming down because I guess the crop seems to be a little disappointing and there's more drought than expected. And then also the start up issues.

And I'm just -- but your making some pretty bold statements about how quickly things will recover in 2012. What has to go to right in order for all of that to happen? Do you just have to have a normal weather pattern? And then secondarily, in your mills what kind of star up issues just have to go away? Can you be more specific there?

We feel that from the mill side we feel comfortable. The startup we had, these issues at Pedro Alfonso and Santa Juliana, as Drew said, Santa Juliana is operating. The boiler is fine. And all the tests on Pedro Alfonso are also fine. So I don't think that's an issue.

Here, the question is really much more about we have to ramp up the planting of sugarcane. And that's what all our focus is at the moment. And you might have seen one or the other mill, public mill even with a drought had operated well.

So you can plan into your business plan droughts. So what we have to do is have some excess capacity of cane and that's exactly what we are doing. All the focus at the moment is a massive planting and replanting. And that gives us the confidence that we will have all the sugarcane we need next year.

So you see we are not increasing any capacity of our mills until we have the right pattern of planting. You have to remember there also -- some of the mills we bought we knew they were under investing before that we saw during the due diligence. So we have to adjust this.

Got it. All right, thank you very much.

Thank you.

Thank you. Our next question comes from Bryan Spillane from Bank of America.

Hi, good morning.

Good morning, Bryan.

Good morning.

Just two questions. First, in grain merchandising I'm sorry in agribusiness in the last couple of quarters in the press release you talked about benefit from risk management. In this quarter you didn't. So could you just sort of tease out for us how much of the profit growth in that segment came from risk management? And how much of it was really just a core business origination processing?

Well, you know for us everything is risk management because this is a business that everything is around how to manage the risk. Because we buy forward, we sell forward and the buying and selling is never linked. So one of the key components of all management is managing these risks. Now what perhaps you are implying is how much of that is structural or how much is non-structural? And on the grain business a lot of our profitability this quarter was very structural and very related to expanded margins.

And it's just moving regularly the grain, elevation, moving it marines, logistics. So but I have to say that our team did a spectacular job in managing this risk, anticipating. And we were very early in buying the grain that we needed for the customers when we saw the problems in Russia. So this you can't disassociate the two.

But -- and that's very helpful ,Alberto. That is exactly what I'm asking you. Just so I understand you did -- a bulk of the profit growth just came from providing the services that you provide, is that it?

Yes.

That's a good way to put it?

Yes.

Okay. And then just a follow up on some of the questions on Sugar the profit per ton, the $8 profit per ton, how much of that is tied to, well, maybe put it another way, your expectations for electricity generation? Has that changed at all because you're going to potentially process less volume?

No, in 2012 we expect to process about 21 million tons.

Okay.

So it would be the volume we projected, and I think Alberto stated it very well before we're got an aggressive planning program to get to 21 million tons for '12. And then we'll continue that aggressive planning program in the next year to build a buffer. So no, the other volumes will not be affected.

And on the electricity Bryan just remember because there is the (inaudible) that is left over so we always have that. So the electricity is a very important component of it. It's an important contribution in the country. It is the pricing structure is healthy. So for us this is a very, very important component.

And then just one final one. I guess to follow up on Christina McGlone's question earlier about that there's been some press reports about either changing -- trying to change -- affect mix of blending of ethanol.

I mean it just seems that there has been a public reaction and a government reaction to the price at the pump. Gasoline prices or fuel prices are too high. And if that's the case does that make it -- does it make it more difficult for the industry, the ethanol industry, to benefit from higher prices of ethanol? Is there some sort of cap in terms of the profitability?

We don't see that. I think all, you know, not everything you read in the newspaper is exactly the way we see it, and what we are getting is a huge support and pressure from the government to expand production. So that's what really Brazil needs. And as the country is growing and it needs both more gasoline and more ethanol. So at the moment what we're really seeing is pressure and support. So this is a win-win situation for government, for the society and for our industry.

So that is why everybody is trying to -- okay, because of the drought there is a little bit of a setback in terms of expansion. But probably in the next four or five years there's going to be pent-up demands. We have to ramp it up.

Okay. That's very helpful. Thank you.

Thank you.

Thank you. Our next question comes from Diane Geissler from CLSA.

Good morning.

Good morning, Diane.

Good morning.

I want to ask about your commentary on your outlook where you said you expect 2011 to be strong and 2012 to be even stronger. And I guess I think there's some concern that this volatility will die down and sort of the extra profits that you're earning because of the volatility will diminish and that the Sugar business isn't just big enough, or the profit potential within the Sugar business just isn't enough to make up for kind of the excess gains that'll you have this year.

Now, [Mark] and I have had this discussion about how long we think this volatility will last. And I'm of the opinion that we're tight a lot of different crops globally, and it's likely to last for some time.

But I guess, Alberto, if I could get some commentary from you about even if we have a big Brazilian crop and we have a who knows what the North American crop will be like, but say it's big, how long will this volatility last in your opinion? And I guess is there anything kind of embedded in your commentary about 2012 that includes sort of a continuation of the current trading patterns?

Look, this is our -- we had now five -- four very good years in Agribusiness at this high level, but you remember we can go back to 2004 was good. So this is a business that will, especially the way we structured our global network and the combination of the many pieces of it, grain, oilseed, geographies, continue expanding it. This is a business that will always, one way or the other, earn more returns above cost of capital.

And so there might be years where you have a little bit of the buyers in one direction. At the moment who is performing better is grain and underperforming is oilseed processing. But we have a very good feeling about oilseed processing next year. And so there are shifts around it and so the underlying dynamics of the business are very, very strong. Just think about how the meat industry is growing, how the demand is strong for meal, for corn, for all the feed grains. There is always a need for continued expansion. So that gives us a very good confidence.

Now, obviously these locations, we always talk about them being positive, but when you look at our performance in the Black Sea, when you look at our operation in the Black Sea, they are negative. So it is not always -- it's not only everything going in one direction. So what I want to say with this is that perhaps we have -- inside the Black Sea area, the region, we have some issues but we are able to compensate that in other areas. So probably net-net it's slightly positive.

But long-term this is a business that has its run rate. It moves around profitability. We have been emphasizing this. Sometimes it's more in origination, sometimes it's more in merchandizing, sometimes it's in freight, that's the dynamic of the business. It's a global integrated business. So when we think about next year we do consider movements. We do consider changes.

But what you have to remember that we have at the moment despite feeling very strong about 2011, and you see the run rate in the first quarter gives a little bit of a flavor, is Fertilizer is not there yet, sugar is not there yet, and oilseed processing is not there yet. So I think we will see -- we are very confident that Fertilizer and Sugar and Bioenergy in '12 will be there. As Drew said, it's running rates.

Okay. Thank you for that commentary. Can I just ask you, though, in your opinion how long do you think it will be before grain stocks will be replenished?

Well, that is one of the question that we have probably every hour on our mind in looking at the weather.

But you're in the business and you've got people on the group globally who are looking at this issue and rolling this information up to you centrally. So you must have -- certain that you have a better view of it than I do.

Oh, let me say, the key issues today is corn, and we think that the demand for corn is still a little bit stronger than the amount of inventories we have, so I mean the whole world, the global inventories.

So it is if we have any kind of weather problem in the Northern Hemisphere, we don't have enough corn by the end of -- before the end of the -- by the time of the crop. So it is clearly going to stay volatile all the way through the harvest. And it still might stay somewhat volatile into the South American harvest.

We do need good weather. We need to replenish our stocks. Sugar is slowly being replenished, soy bean is being replenished, wheat is being replenished, but corn not yet. So now it's all about weather. The prices are high enough the farmers are going to make all the efforts to expand as much as they can, but we now need good weather.

Okay. I appreciate your commentary.

Thank you. Our next question comes from David Driscoll from Citi Investments.

There was a long pause there so I'm not sure if you were getting ready to hit delete.

Hi, Dave. We are ready.

Hi, good morning.

Good morning.

Good morning.

So a couple questions, just start off with the -- an easy one here for Drew, hopefully it's easy. Can you give us some commentary around net interest expense for the year and the tax rate?

The tax rate, our guidance for the year was that it would be approximately 15%. That's where we came out in the fourth quarter. So I would think we would maintain that for the time being and see how the year develops in which tax jurisdictions the earnings are falling. But I think it is fine.

The interest expense is largely driven by commodity prices so it's a hard number for us to project. But I think our first quarter rate is probably indicative of what we'll see for the year. And then it's whatever you want to assume on crop prices. I think our working capital and et cetera will follow a normal pattern.

That's helpful. Alberto, this is going to touch on I think what a number of other people were asking. I want to just try it maybe a slightly different direction. The Agribusiness unit is just so much larger than the other units. When I listen to the comments about Sugar improving and Fertilizer improving that's good and we certainly -- I think the Company needs to do that given where the numbers have been.

However, in context of the Agribusiness segment, this is just such an enormous segment in terms of sales and profits and volumes that if this thing wiggles a bit all of the sudden it can overshadow the things that are going on with Sugar and Fertilizer in the back half of the year.

Maybe can you just talk about, do you expect on an aggregate basis the back half of the year to be flat out bigger in terms of profit generation than the front half of the year because of the commentary on Sugar and Fertilizer that you've made?

As a company as a whole it is we are more second half now, clearly second half, tilted and is less so on Agribusiness. It's a little bit less. The seasonality is not as strong in Agribusiness. But also obviously the Northern Hemisphere business, it includes US, Canada, Europe and China so we have also an Agribusiness slight tilt into the second half.

But let me say, Sugar and Bioenergy we have invested over $2 billion so just think about it. We hope that by next year we will start getting closer to the returns that we need. It's a new business so it takes a little bit longer. We have not yet depreciated assets so it takes a little bit of time but we expect Sugar and Bioenergy to become a major component, eventually as large as our Agribusiness is. And we also expect Food and Ingredients to continue growing significantly. Fertilizer will stay an important component.

But to your general comment about Agribusiness, I think not everybody appreciates the continuous expansion that we do in it geographically, by product lines. All the time we are investing to continue expanding it. Agribusiness has become -- when you look at the green business that we have done -- seven projects, large projects last year. We continue doing this year's in the grain area all over the world, ports and so on. So this is becoming a very, very large network of systems that becomes more and more resilient to changes.

So we are conscious about the fact that when we are studying it how we can improve obviously is a way to talk to you about this business. But it doesn't -- I look very excited about the future in the area of Agribusiness. When I think about the dynamics of our business, the fundamentals like the emerging markets growing, I feel very good about it. That's why our first investment is always in our core business.

So Alberto, the only kind of maybe follow up I'd make to your statements is that in 2009 the Agribusiness segment generated EBIT that was much stronger front half weighted than the back half. I'm totally in line with your comment that on a normal year this Company is back half loaded.

This year doesn't feel like a normal year because of how intensely volatile the crops have been closing off the end of last year and then continuing into this year. So I'm -- frankly I'm just concerned about how we model out the Agribusiness segment in the back half and if we set the expectations too high perhaps it's unrealistic just given coming off $380 million in the fourth quarter, $230 million this quarter in EBIT generation. So it's down sequentially, it's down year-on-year -- sorry, it's up year-on-year.

Yes, it's up year-on-year.

It's up year-on-year but it's down sequentially, my apologies. So it's very hard. It's just very hard to do that. The other pieces I think are clear, but Agribusiness is just so darn large that you make a mistake on this thing and you get your numbers off by quite a lot.

Yes, I think, David, we wrestle with the same issues and Agribusiness has been quite stable for us the last four years looked at annually. It is not as quite stable on a quarterly basis if you take a look. And it does reflect the opportunities that the market presents us in many cases. So I would say this is probably our best first quarter ever in Agribusiness if my memory's correct.

And we had very nice market conditions so whether these conditions may or may not persist throughout the year I think the message we're trying to give is overall we feel good about Agribusiness. We think it can perform as it's performed in the past and achieve some growth. I think I would be careful giving you any quarter-to-quarter guidance of where that growth's going to fall exactly and which quarters will be stronger or weaker because it is difficult in our business. I think we're stable year-to-year but quarter-to-quarter it moves on us.

And with the exception of the situation we talked about oilseed processing we feel Agribusiness in the second half will be very strong. We have no reason to give you some -- reason to give you concern and also not for '12. So I think we are at the running rate that could stay like this.

That's very helpful, thank you so much for the comments. Congratulations on a nice start.

Thank you.

Thank you.

Thank you. Our next question comes from Ken Zaslow from BMO Capital Markets.

Hey, good morning, everyone.

Good morning.

Good morning, Ken.

Just clarification on the tax rate for a second. This is a quarter where the Brazilian business is the smallest part but yet your tax rate was like 15.5 and you think the full year will be 15%. But I thought as the Brazilian business gets larger your tax rate gets higher?

I think, Ken, what I said is it'll be approximately 15%. So I don't want to be pinned down to an exact number because our tax rate can move. Generally larger profits in Brazil would generate a higher tax rate. That's correct. But there are a lot of factors that impact the tax rate in any quarter. I think Mark would be happy to talk to you about it a little bit and explain how our tax rate works.

But maybe for this call we leave it at the fact that we're not changing our estimate. And it had to do with some particular things in our tax calculation for the quarter that it didn't go higher. So I think we're comfortable with the original projection.

Let me just -- the real question I'm trying to get at even more than that is for 2012, when your profitability in Brazil starts to come back what is a reasonable, sustainable tax rate? Would it be like in the 18 to 20% rate? Is that a fair number to start with?

I think eventually it will get there. I would doubt it would get that high in 2012.

Is that a function of the return on the Brazilian business or a function that you can kind of maneuver the taxes for a little bit longer?

It's -- we had previously said it would take up to 20 - 18% to 20% over time. It just won't go up that quickly. We have strategies in place that we've projected out and we've got earnings projected out. It's nothing to do with how Brazil will perform. It's got to do with the mix of our tax attributes and where the earnings will be.

Okay, the other question -- I know you've talked about Brazilian crush margins improving. Still half of your business is in Argentina and South America. Can you talk about the Argentine year-over-year margins for the industry and kind of what you're seeing there as well?

Same thing, they are fine. Obviously we had some disruption in the beginning of the first half with the strikes and things like that so the plants did not run all that smoothly. But the margin structure is fine in Argentina as well.

So year-over-year it's actually higher on a country basis? That's interesting.

On Brazil, yes.

On Argentina.

Argentina, at the moment I don't know.

Okay.

Okay, at the moment I don't know.

Okay, and then my last question is just understand this merchandising business, I have the same thought process as David on this one is it seems to me that sequentially your profits have come down a little bit in the Agribusiness. If it's structurally higher, as you said, and it's more consistent would that imply that the crushing environment is what's sequentially come down for the last three quarters?

Because that would be surprising to me, I guess, just because I guess what I'm trying to get at is the merchandising opportunities seems to be somewhat smaller than they were two quarters ago and it seems like it's somewhat diminishing. I'm just trying to get some feel for that --

I think --

-- (inaudible) your answer.

There are two things that -- there is one thing that I think I should have said before. Sequentially the first quarter -- our first quarter is always the lowest one. So this one is a little bit higher because the green merchandising opportunities were very high because we have to continue delivering around the world the pieces that could not be covered by the Black Sea. So this is better than normal. But don't look at it sequentially. Look at the last 10 years. The first quarter is always lower than the fourth quarter.

Okay, all right, fair enough. And then just to understand the last issue that I have is 2012, even with a higher tax rate, a stronger real, you think that 2012 could be in line with your growth targets over the -- which is somewhere in that high single digit growth or low double digit growth is how you can go into 2012? It just seems like -- just if you can give some sort of growth --

Well, I think it should be a little bit more because Fertilizer and Sugar and Bioenergy should be running at full earnings potential next year. So there's some catch-up to be done there. But it's obviously too early to talk. We have not mapped out next year yet, but we feel for '12 having running Sugar and Bioenergy at 21 million tons and having all our Fertilizer plans executed we have two businesses that are expected to be good this year but not perfect. We should be probably more than the traditional growth rate next year.

Cool, thank you.

We're a little bit early obviously.

No, I appreciate it.

Okay.

Thank you. Our next question comes from Ian Horowitz from Rafferty Capital. Please go ahead.

Good morning, everyone.

Good morning.

Good morning.

Alberto, when you were talking about the North American crush business some of your competitors have discussed global meal demand basically getting to the point where the overcapacity that we're seeing here in North America would be absorbed within calendar '11. Is that against -- are you thinking it's going to take a bit longer to get to this capacity, full capacity utilization than --

I tend to agree that we see what is positive in North America is that obviously we are coming soon to an end with the substitution of additional DDGs. We also see that with the dollar where it is US meat industry has become more competitive in the export areas. Meat prices have been stronger so we do feel that meal demand, although soft at the moment, could pick up. And slowly but surely there is always some growth in U.S. And it could very well be.

It's a little bit early to say, but remember in Drew's comment, we see a pickup in margins already probably in the second half of the year. I would not be surprised if this excess capacity and some of these issues are digested this year.

And speaking on the crush margin side, can you give us just a little color and commentary on some of the other crushing margins that you guys see Europe, maybe canola, rapeseed, those kinds of products and how those have been trending?

Generally, the margins have been healthy in Europe, healthy in South America, so-so in North America, and not very -- and not good in China. So obviously there are pockets of because of the poor crop last year in sunseed in Eastern Europe, there's a little bit pressure there. But rapeseed has been okay. It has been good.

On the merchandising and handling business you guys have made some, like you said, some significant project investments over the last couple of years. Can you just give us an update on some of those more prominent ones that you've done where the West Coast facility stands, s it still on schedule, the port to launch? We haven't talked about Vietnam in a while. That was one of the other big projects and just give us an update on how these things are going?

Yes. The Pacific Northwest terminal is on track, on budget to be ready for the new harvest. We obviously have some other fixed projects inside US with terminals, silos, internal elevators, facilities, investments, also now a marine area, so this is going -- it's an aggressive program. It is going well. Vietnam is basically ready, should be operating in June. Our plant in China is also ready, the fourth plant. So we also have (inaudible), our port project, port acquisition in Ukraine. So of all these projects are on schedule. Is anyone I'm missing?

And they should all be kind of coming on line here within kind of the calendar year basically, correct?

Yes, they all come on line this year.

Okay, okay. And then one last --

But you also probably might have seen that we are building the biodiesel plant in Brazil to improve our -- the whole integration in the Mato Grosso area.

Right, right. One last question.

One, just -- as Mark is reminding me, all Altona the expansion of canola in Canada will be only ready next year.

Okay, no, I was more referring to the agribusiness side. Just one last question, have you see any kind of impact from the events in Japan? And if so, are they short term or do you expect any longer term deviations due to the situation?

No, we have not seen any impact there, and we also don't expect any major change in the future.

So products and volumes are moving as scheduled into those markets?

Yes.

All right, great, thank you.

Thank you.

Thank you. Our next question comes from Horst Hueniken from Stifel Nicolaus. Please go ahead.

Good morning, and thank you for taking my question.

Good morning.

Alberto, in your formal remarks you stated that the US farmer will plant a record number of acres, weather permitting. Are you able to shed light on what kind of weather we need to see in order for those acres to be planted? Or, asked a different way, how late can the spring planting season be without risking volumes for Bunge?

Look, I would say that so far everything is fine. Nothing is always perfect, there might be a little bit too much freeze here, too much snow there, a little bit flooding here, a little bit drought here. There's some talk about dryness in France and Germany, but this is -- this is always more or less included when the USDA does its estimate. Never things are completely considered perfect.

But very important is now, I think we are -- I would say everything is as expected at the moment, so I would not say I can't tell you the details about how late it can be planted, but from what we follow, everything is more or less on track. Obviously, the three critical moments are going to be really now in the spring how rain and so on, and then also in July-August. But that is when it really becomes -- when we know it's the more critical time.

Okay, that's helpful. If you permit me, one other question. You acquired the Moema Group last year, as well as its five sugar mills. Those needed to be integrated in with your existing assets. How far along are you with this integration? Would you say now it's done, or is there more to go?

Okay, I would say it's done. We are quite happy with how it worked, and I think we have a very good visibility now the team. Obviously we made some adjustments during the year and I feel very, very good about it. I feel very good about locations. I feel very good about the team. I feel very good about how everything is working together.

We still have a way to go on the one in Brazil. Remember that we separated when we sold nutrients, a large piece of Fertilizer left, we brought in Moema, and there is obviously a program with IT systems and so on. These go all the way to 2013. So we can only say that all our efforts are completely integrated in two more years, but the Moema integration, I think it is done. Drew, do you agree?

That's helpful.

I agree with that, yes.

Thank you very much.

Thank you.

Thank you. Our next question comes from Christina McGlone from Deutsche Bank. Please go ahead.

Thanks for the follow-up. Alberto, I just -- a lot of people have asked this but I can't understand, in North America, how crush margins do get better in the US, because it seems like meat processes are getting even more creative with including DDGS, and it looks like we will have a big canola crop in Canada so we will see some more meal imports and maybe even get a chicken production cut.

So without capacity closing, I don't see how it gets better. And I do know that the last three mills closed were Bunge mills, and other people have expanded, so it's not an attacking question. I just want to understand it better.

Look, you might be -- you are right in terms of their creativity of the meat industry, but you do need the amino acids from the protein of soybean meal. And we do see a little bit of softness now, but we are very confident that this will -- the inclusion of meal will have to happen again.

And you have, how should I explain this, I think in the last three years things have been -- all the time things have been against us in the meal area. Before there was oil, too much oil. Now the oil lag is working well, so we don't -- the oil demand is solid. And the inclusion of DDGS will come down. There is a natural growth of the meat industry in America. There is more exports. So when we look at all our supply and demand models, the question is when it really will turn around? It could be we've had the courage to say we think it could be in the fourth quarter.

Yes, and I think the key thing is we're saying it'll get better in the first quarter.

Fourth.

We're not saying it'll be historically strong fourth quarter. We're not saying it'll be historically strong across margins. We just said I think it'll be a better situation than it is today. It'll take a while to get back to historically strong crush margins.

Got you, thank you.

Thank you. Our final question comes from Ken Zaslow from BMO Capital Markets.

Hey, guys.

Hi, Ken.

A real easy question. How much merchandising capacity have you increased over the last two years?

Oh, I don't know. It's a good question, but we have added terminals, silos, logistics, rail cars, barges. We have increased a lot, okay.

Like order of --

When you say an easy question it's never an easy question. We have to come back.

I think, Ken --

The reason I'm trying to get --

It's a matter of --

-- I'm still puzzled by this merchandising opportunity that will last indefinitely, and I'm just trying to figure out how -- the thing about it, if it's not -- if I don't believe the margins are going to stay there, then it's got to be the volume side of it. So I'm just trying to figure out what the volume sustainability is. And if you grew the volumes over the last two years by 40% or 30% it makes a more viable case. That's all I'm just trying to figure out.

Look, I think -- let's assume, if I'm not mistaken, our merchandising just in grains is around 40 million tons, and Mark will confirm this later. Let's say -- this can easily be expanded, Ken. And with prices coming down, all these expansions and selling into Asia, there will be more opportunities. Remember that we believe that -- we believe that this growth is going to be in terms of volumes, what it is at 5% to 7%. We think the volume will be growing 5% to 7%.

There is -- we are well located in North America, South America and Eastern Europe, and the world needs these additional grains and the merchandising will be there. You are absolutely right. The margin will be more normal, but that is where also we think in order to show the profitability, we will have also recuperation on the oilseed processing.

Yes, I think the big thing to look at is the PNW, because that will come on a stream for this harvest, and that's 8 million tons, which we own 50% of, so it's another 4 million tons. So you're going to get significant growth there. And the Nikolaev port on the Black Sea is significant growth. Neither of those are -- were participating in the first quarter. Nikolaev maybe a little bit, but not in a significant way.

So we've added a lot of port capacity, but as Alberto said, Ken, measuring what our capacity is is difficult. We're not constrained with capacity all the time, but the PNW is a new flow for us, so that is clearly incremental capacity that we couldn't have done, and we weren't doing through others.

And if that flow comes through, why would that not be like any other capacity expansion where it would deplete the margin structure globally, right? Because it's just more capacity coming online. Why wouldn't that be the case as well?

Well, I think for our point of view on PNW there are two factors. One, we believe it's going to be the most efficient port in the Pacific Northwest by a pretty wide margin. It's state-of-the-art, newly built, and we think it's going to have a competitive advantage on cost.

Secondly, and it'll take a little bit of time, but volumes going to Asia are increasing on a pretty steady basis, and that's where a large part of the pull comes from. So yes, it has to be absorbed, but it'll take some time, and as I said, if we're the low cost producer, we think there will be room for us to have adequate margins.

Cool, thank you.

At this time we have no further questions. I'll now turn the conference back to Mr. Haden.

Great, thank you Kim, and thank you everyone for joining us today. Bye.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.