Bunge Global SA (BG) 2011 Q3 法說會逐字稿

Welcome to the Q3 2011 Bunge Limited earnings conference call. My name is Monica, 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 Mark Haden. Mr. Haden, you may begin.

Thank you, Monica. Thank you everyone for joining us this morning. Welcome to Bunge Limited third 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 Investors section of our website at www.bunge.com under Investor Presentations. Reconciliations of nonGAAP measures disclosed verbally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the Investors section. I would 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 report on file with the SEC, concerning factors that could cause actual results to differ materially from those contained in the presentation. And encourages you to review these factors. Participating on the call this morning are Albert Weisser, Bunge's Chairman and Chief Executive Officer, and Drew Burke, Bunge's Chief Financial Officer. I will now turn the call over to Alberto, and he will begin with slide three.

Good morning everyone. It was a difficult quarter with lower results in all segments except fertilizer, with particular volatile period was marked by significant price movements, and a combination of external factors that resulted in markets moving at times differently than underlying fundamentals. Managing risks in our Agribusiness and Sugar and Bioenergy segments in this environment proved to be challenging. Lower than planned sugar milling volume, due to the impact of adverse weather conditions in each of the past two seasons on our sugarcane yield, also weighed on our results. However, looking forward we expect results to improve in the fourth quarter, and see optimistic signs for Bunge in 2012. While the global macro economic environment presents uncertainties, there are reasons to expect resilience in our businesses.

First, many of our products are basic staples needed to feed the world's growing population. USDA forecasts that the demand for global soybean meal and vegetable oil will increase by 5% and 4% respectively. In fact, global vegetable oil consumption has increased for 31 straight years. Second, global commodities stocks to use rations remain relative tight, particularly in feed grains and vegetables oils. Even in a scenario of lower economic growth, the world needs additional supplies of crops, so prices should remain at attractive levels, providing farmers with good economics. Growing demand should encourage increased planting, increased fertilizer use, and increased trade, which Bunge's global network is well equipped to handle. We also expect a much stronger performance in our Sugar and Bioenergy segment in 2012. Sugar and ethanol prices in Brazil should remain strong, due to the continued uncertainty about the development of the Brazilian Center-South cane crop, where approximately 90% of the country's sugarcane is grown.

And importantly the region needs to expand production to support global sugar trade and the growth in domestic ethanol demand. With those factors in mind, we are on track to have 50,000 hectares of newly planted sugarcane ready for the next harvest, which puts us near the top of the industry. This will provide needed raw material to operate our mills closer to capacity, and enable us to demonstrate the potential of this business. In Fertilizer, we are getting closer to our targets for the business. We are managing risk in the business well, volumes are picking up, and we are working on more opportunities to reduce costs. I am confident that next year this business will deliver on its potential. Now I will turn it over to Drew, who will discuss our third quarter financial results and outlook.

Thank you, Alberto. Let's turn to page four. Our net income in the quarter was $140 million versus $212 million in the strong prior year quarter. On a year-to-date basis our net income is $688 million versus $339 million in the prior year, adjusted for the $1.9 billion gain, on the sale of our fertilizer nutrients business and other notable items. Volume in the quarter increased from 34.6 million tons to 38 million tons, primarily due to higher processing and origination volumes in Brazil, and more exports out of the Black Sea.

Agribusiness reported results of $159 million versus $313 million in the strong 2010 quarter. On a year-to-date basis Agribusiness has earned $731 million versus $463 million in the prior year. Adjusting for notable items the comparison would be $694 million in 2011, versus $503 million in 2010. The decline in our Agribusiness EBIT compared to the 2010 quarter results primarily from our grain merchandising business. 2010 had strong margins resulting from the supply dislocation related to the Black Sea drought. While volumes improved in 2011 margins in risk management results were lower. Oilseed results were slightly above prior year, as better results in Brazil were offset by reductions in North America and Asia. Sugar and Bioenergy incurred a loss of $43 million in the quarter, due to our loss in our sugar merchandising business, and a $29 million charge related to foreign exchange impacts on forward sales of sugar. The foreign exchange related losses will reverse as the sales are executed.

Our industrial business was profitable in the quarter. The sugar crop in Brazil continues to come in below expectations for Bunge and the industry. This lower level of cane availability means that our business has not been able to realize its earning potential, despite strong demand and pricing for our products. The loss in our merchandising business occurred in the quarter, as we were unable to generate sufficient margins to cover high logistics costs in Brazil, due to poor congestion and/or operating expenses. The market to market loss of $29 million is related to foreign exchange hedges of forward sales of sugar. The mark-to-market impact will reverse and appear as profit as we execute the sales.

In Food and Ingredients we earned $46 million, adjusted for the sale of the [Montreal] facility, versus $90 million on an adjusted basis excluding notables in the prior year. The main reason for the decline was our wheat milling business. In 2010 wheat milling benefited from an inventory gain, as we sold stocks that had been purchased prior to the significant increase in wheat prices. Volumes were also down as we emphasized margin management. The edible oils business in Brazil and Europe also experienced a decline, as competitive pressures resulted in reduced margins. The European business was also impacted by higher raw material costs, resulting from the small crop in the prior year. Our corn milling business continues to perform well. The Fertilizer business earned $23 million in the quarter, as both our Brazilian and Argentine businesses performed will. Brazil continues to progress on its transition, focus remains on increasing volumes while maintaining margins, we continue to look for opportunities to reduce costs.

Adjusted for notable items our fully diluted EPS was $0.86 per share in the 2011 quarter, versus $2.26 in the prior year. On a year-to-date basis our EPS is $4.15 versus $2.15 in the prior year. Let's turn to page 5 and our balance sheet highlights. Overall balance sheet levels are down, due to the devaluation of the Brazilian real, and the reduction in commodity prices. Our debt net of cash decreased by $300 million, as we generated significant cash from operations. In addition to reducing our net debt, cash from operations was also used for $705 million of capital expenditures, $145 million of dividends, and $120 million in our share buyback program. Our equity balance declined by $525 million, primarily due to currency translation adjustments related to the devaluation of the Brazilian real, offset by our net income. During the quarter we repurchased 1.9 million shares of stock for $120 million, we have now spent approximately $474 million of our $700 million stock repurchase program. So we have $226 million remaining on that program.

Turning to our cash flow statement, funds from operations were $1.3 billion, and it is primarily generated by our net income of $688 million, plus depreciation depletion and amortization of $398 million. Our CapEx year-to-date is $575 million, and that is in line with our targets for the year. If we turn to page seven, our liquidity position remains comfortable. At the end of the quarter we had $3.3 billion of committed credit facilities, of which $2.9 billion was unused and available at September 30th, 2011. If we turn to page eight, and discuss our outlook, we expect a good close to the year and a stronger 2012.

In Grains the significant dislocation of the prior year no longer exists, but the supply demand balance is still relatively tight, and there is need to move substantial quantities from origins to destinations. The large grain crops and open markets in both the Ukraine and Russia should provide good near-term opportunities. South America is expecting large crops in 2012. We take a look at our Oilseed processing business the outlook is mixed. In Europe we expect strong sunseed margins as they have had a large crop and demand is strong as the rapeseed crop has been smaller, and will be a little bit short. In the US margins are improving with the higher utilization, capacity utilization during harvest, but they do remain under pressure as there is over capacity in the market, and there is still supply available from South America. In Canada the canola cross margin should remain very good. There is a big crop and the demand for canola oil remains strong. In China margins have improved but are still at low levels, but the positive long-term trends remain in place. The USDA is forecastings 10% year-over-year growth in soybean and meal consumption in China. In South America we expect good margins as the new harvest is realized.

If we turn to Sugar and Bioenergy, we are reducing our full year sugarcane milling expectations to 14 million to 14.5 million tons, due to the impact of the adverse weather in both last year and this year on the development of the sugarcane crop. For 2012 we expect to mill 17 million to 19 million tons, as we are completing a strong planting program of 50,000 hectares. We will have another major planing program next year, and should be in a position to use our full crushing capacity of 21 million metric tons in 2013.

Pricing is expected to remain strong as demand for sugar continues to grow, as well as for Brazilian ethanol, and there continues to be some concerns about what the size of the Brazilian Center-South crop will be. We do still expect to continue to earn $8 to $10 per ton of EBIT in this business. If we look at Food and Ingredients the competitive environment in Brazil is easing a little bit, which should give us some opportunity for better margins, and Europe will benefit from the large sunseed crop, as there is much more oil available for processing, and should let us expand our margins a bit. Our milling businesses should continue to perform well.

In Fertilizer farm economics remain good, as Alberto said we still need large crops, and there should be large plantings, so our volumes have been improving, and we will expect they will continue to improve in the fourth quarter and throughout 2012. Our margins in Fertilizer remain solid. Overall, we expect a solid finish to the year and a stronger 2012. Agribusiness and Foods should continue to grow and earn solid profits. Fertilizer's transition should be near completion, and profit should hit our target levels, and with a much larger sugarcane crop, our Sugar business should be able to show its potential. I will now turn the call back to Monica, and we would be happy to take your questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Bryan Spillane's line of Bank of America.

Hey, guys. It is actually Ryan Oksenhendler in for Bryan.

Hi, Ryan.

I guess last quarters you gave kind of a profit outlook for sugar, slightly below I guess your $8 to $10 target. Can you update us what would be for this year?

The 8 to 10 we talked about is for next year, so the fourth quarter should be good.

Will it be in that range or slightly below?

You remember it starts, we are soon stopping to mill, and we are selling from our inventory, so we have to see what kind of volumes we also keep in inventory to sell in first quarter, so it is a little complicated. I prefer to talk it on an annual basis and more or less for next year, but it should be positive.

Okay. But you think even though you are below your capacity, full capacity next year, you can still get to that target in 2012?

Yes. That is exactly what we are saying, yes.

Okay. And then I guess just for the quarter, is there a way to break out, could you give us an idea of what the industrial profit was versus the merchandising profit, or how bad merchandising was? Because I think it would be interesting I mean this is one of the first quarters where it is a clean between you and what your capacity would be to the industry, I guess more on the industrial side, in terms of what your profitability is. Can you give us a breakdown of what that was?

We don't break those numbers out specifically, but let me try to help you a little bit. The loss in the quarter was $43 million, and we said the biggest piece of that loss is coming from the foreign exchange mark-to-market charge, which is really a timing difference between the charge being relating, occurring now on the mark-to-market and the foreign exchange derivative and the profit coming when we sell the product. So that will reverse as we go forward. If you take that out of the $43 million, that brings you down to I guess $14 million, and we said it was a small profit on industrial. So if you balance that all together, you can kind of get a feel for how it played out.

And you can think in terms of the merchandising business of Sugar and Bioenergy is normally the profitability is something between $3 and $5 per metric ton, and we originate and distribute around 5 million tons. So that gives you an idea that the trading and merchandising business is not a very large contributor on the profitability.

Okay. Thanks a lot, guys.

Thanks.

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

Good morning.

Good morning, Christina.

Alberto, when I look at Agribusiness, and I look at the gross profit per ton, it was a lot weaker than I expected, and I guess what I want to understand is if I this about merchandising prices are it seems like margins are more muted than they were last year and in the first half, and we still have overcapacity in North America. I just want to know, are there any pockets of strength globally, and what are they, and then what is the fundamental catalyst in the areas that are weak to change things, so that we can see this profitability improve?

I would say that the main reason in this quarter was really the high level of volatility, and there were prices moved fast all over the place, and therefore, we and also farmers and customers were much more spot, on a spot basis and there were less opportunities to earn higher margins, especially in the grain area, in oilseed processing it was a little bit better but it is still not at a very attractive level. So I think it was a little bit unique this quarter because of the volatility, and everybody taking risk off the table, but when I look forward the fourth quarter and I look next year, we continue seeing solid demand. The balance supply and demand of both oilseed and grain being tight, giving us good opportunities. So I think this was a little bit unique this quarter.

And Christina, just to add a little bit more to the catalysts going forward, I think there are going to be large export volumes out of the Black Sea region this year, as their harvests were much better and the markets are free. We added the Mykolayiv Port during the year, and that will be running at or near or at full capacity, or very near it in the fourth quarter, as those crops come through our Port, and Russia is doing well on that basis. So I think the whole Black Sea region near-term in the grain business is some real opportunity, and I think you saw in the first half of the year the grain business out of the South America has become a lot more attractive. It is not that active in the fourth quarter, but at next year's harvests come in, we think that area will again be very attractive, and those products will be demanded around the world. So I think the grain merchandising business overall has a solid future, it is just if you look at what the demand is, and you look at the amount of product that has to be moved from origin to destination, there is a lot of opportunity.

Okay. And then, thank you for that. Speaking of the ports can you give an update on Longview and when we will see that contribute?

Longview is nearly ready, so the construction is nearly ready, so we are starting to receive first shipments, so it is on the ramp up phase. So we should see some contribution next year. This year we should not see anything yet.

Okay. And, Alberto, I guess just more of a kind of bigger picture question. It seems like we have a seen a lot more on storage facilities built in the US, and so right now you are seeing farmers hold onto their grains more than usual, and I am wondering if that changes anything, in terms of origination profitability in North America, kind of like when silo bags became used in Argentina to a much bigger extent. Does that alter your profitability, and if you could comment on basis and what does that mean for the fourth quarter?

Yes. We don't expect that, Christina, because it is more a reaction of the additional demand, and grain needs to be, there needs to be more grain and exported into Asia, so we don't expect that to have a negative impact on margins.

Okay. And basis in the fourth quarter?

I would comment more on the margin side. We expect it to be solid, as we have a good crop, a large crop, that needs to be shipped, and there was less volume in the third quarter, as farmers and customers were all a little bit more shy because of the uncertainties in the market, and it now needs to be moved. We feel good about the fourth quarter.

And last question, Drew, on foreign exchange it seems that maybe you had hedged out the Brazilian currency, because it didn't seem to have as big of an impact on SG&A as I thought. I don't know if that is the case, but if it is, are you going to be able to benefit from the weaker real in the fourth quarter and in 2012?

Christine, a couple of things. First our business is a little bit less real dependent than you think of historically, because the fertilizer business was much more currency driven than the sugar business is. The sugar business is more of a real, and more of a domestic business. When you come back and look at agribusiness, certainly a devalued currency will provide some opportunity for us, and that should flow through our results.

You will have to remember that the average exchange rate last year I think was 174, and this year the average was 166. So we did not see as a benefit, the increase was more towards the end of the quarter.

Right. I just didn't see SG&A as high as I would have thought given that year-over-year strengthening?

Yes.

I think that the reason it didn't go as high as you would have expected, I think is a credit to our Brazilian team who has done a very good job of reducing G&A expenses, so the real base is lowered, and I think that is why with the strengthening you didn't see the increase we had taken, the necessary actions to offset that.

Got it. Thank you very much.

Thank you.

Our next question comes from David Driscoll of Citi.

Thanks. Good morning everyone.

Good morning, Dave.

First question just want to go back to volatility. So typically, Alberto, and I always think that volatility is good for your business, and that really your game is to be a good risk manager. You made comments in the press release and on the prepared script about risk management did not go favorably in the quarter. So really two questions here. The first one is, does risk management results in the third quarter, do they have implications in the fourth quarter, and then secondly, a million people are going to call and just simply ask, what actually did go wrong in risk management? Can you talk a little bit about that? I believe in one of your competitors' results they talked about ocean freight went heavily against them, while they had good corn trading/ So those kinds of comments I think are helpful.

There were a lot of complex uncertain external factors, is it weather, macro uncertainties, crop reports, just to name a few, which influenced the commodity crop markets during the quarter. Which made it more, much more challenging to navigate, and also prices were not necessarily reflecting underlying fundamentals. It makes positioning much more challenging, so we all operated more cautiously. And we walked away from some businesses that in a different environment we might have executed. We conducted much more back to back transactions, counter-party exposure becomes a concern, so as a result margins and merchandising were lower. So it was really very erratic movements, four or five times it went all over the place, so that you take risk off. You are more careful. Now for me, this is very real that it is so much like this, so you are naturally more careful. I don't think this has, you should not see this being repeated in the next quarters. I think the next quarter should be more normal. It is really that it happens like it happened in the third quarter.

On sugar, high sugar prices conceptually to me, given that you own farmland and are processing sugarcane they seem like they should be a good thing, but of course the past two years in the third quarter you keep reporting losses and problems here, just for a lot of people out there, can you just talk about this, and really address the issue here, that this I believe high sugar prices are good for you guys. This a risk management issue that is going on at the Company, that I believe you can correct, so first off, do you agree with my statements? Would you characterize it differently, and thus, is the confidence in 2012 very high?

Look, we feel very comfortable about the business. Last year at 13 million tons, we had a small loss in the industrial side. So this time, this year it is positive. So the trend is clearly in the right direction, because this business has a huge amount of fixed costs, so it is very dependent on volumes. So 14 million tons, 14.6, whatever, 14.5, is low for our capacity, so as we were able to significantly invest in planting and replanting this year, these 50,000 hectares was a good yield, because these are new fields, and makes us very confident about getting an ideal situation, in Asia we should be able to get to 19 million tons, but we are being a little bit careful and saying it might be a little bit less if there are some weather issues, and the impact is immediately to the bottom line because contribution margin is high, so I feel very good. All of the mills, all of the eight mills have been running well, the problems we had last year were fine. If we did not have this issue on the merchandising business and the foreign exchange, it would have been a very solid quarter already, but obviously we are not yet at full potential, because we need to get closer to our capacity. You have to remember our capacity is 21 million tons, and we have fixed costs related to 21 million tons. So all our efforts are increasing at the moment, both the agriculture side and increasing also cogeneration, which is a very good contributor of profits. So we feel very good about it, as we look at 2012 and 2013.

Just a statement then or question. So really boiling it down, volatility hit Bunge negatively in the third quarter, but the fourth quarter should improve, there is no carryover from that. 2012 grain tightness continues, and that is fundamentally positive for the business, crushing margins get better in the fourth quarter, and in 2012 because of the demand outlook. And then sugar simply put, this should get tremendously better in 2012, and even show improvement in the fourth quarter. So do you agree with those statements, and then does that all then simply say that earnings in 2012 are improved over 2011 directionally?

I would agree with that. I would add that fertilizer should also be delivering on its potential as we ramp up. I think we have the risk management part and the margin management is, we are very, very comfortable. We have now many, many months where we have, it gives us the confidence that we have this completely under control and managing well. Volumes are ramping up, and we are doing better on volumes, and we continue finding opportunities to reduce the cost in fertilizer, so I would add fertilizer should also contribute much better next year.

Thank you for the comments.

Thank you.

Our next question comes from Christine McCracken of Cleveland Research. Please go ahead.

Good morning.

Good morning, Christine.

First, just to follow-up on that fertilizer line of questioning. It seemed like volumes, obviously on an easy comparison were up pretty strongly, but was there any pull forward of sales in the quarter, that might actually drive softer results in the fourth quarter?

No. Not at all. Not at all. We are seeing a very, very normal pattern of the volumes.

Okay. And then just I think about how fertilizer prices have increased, I think you saw some benefit from an early buy of fertilizer this year. Wouldn't it make it more difficult next year on a relative basis?

Look, this is now different for us because we don't have the mines any more. We are managing this very, very tightly. We are trying to keep the minimum in terms of inventory, so all of our focus is much more on really earning the spread. So it is positive and negative. So if prices go up we will benefit less, but when prices go down we will also be harmed less. So our focus is much more like we are doing on the grain and other seed business, it is much more on the margin.

Good to hear. And then just on the outlook for demand on your crushing business, as I this think about global livestock liquidation in several areas, with the exception of the expansion in China, can you talk about what your assumptions are around how that demand might look for next year? It sounds like you are relatively optimistic that the demand in fact will continue at kind of historical growth rates, but there are some reasons to think that maybe it will be a little slower next year?

Look, we share the view of the USDA that meat demand should grow 2.5% next year, and meal 5%, so we share that view. We think that is in line.

Okay. And you are not seeing any quality issues in the US meal supply, that might affect kind of overall demand?

At the moment you are probably talking about lower protein content. Look, you might see something like that but we don't think this is going to have any impact on margins or earnings.

Okay. Thank you.

Thank you.

Our next question comes from Diane Geissler of CLSA.

Good morning.

Good morning, Diane.

I have a question for sugar next year what is your production estimate?

It is ideally 19 million tons, but we are giving a range from 17 million to 19 million tons of sugarcane.

Okay. And sort of given the ongoing or lingering impact, and kind of really won't know until March, can you give us an idea in terms of the root stock, the health of the root stock, et cetera?

We.

Probability there that you are going to hit the low end versus the high end?

We have seen it this year, so we have to be careful, but this year we really, whatever needed to be done and replanted from the damage of last year we did it, so that is why the 15,000 hectares is a combination of something like half and half of replanting and new area, and we feel quite good about the quality of the fields, and we have seen that also on relative terms we have been probably one of the ones who have invested the most in replanting in the industry. So we are feeling quite confident about next year.

Okay. And then just moving over to the merchandising side of the business, the port situation there is sort of always problematic. Is there any reason to think that merchandising will get any easier next year, or am I missing something?

No. I think it will improve. I think what you had is a little bit higher costs than usual in the Brazilian situation on the one hand. And secondly, with all the volatility, et cetera, we didn't earn typically the size margins we would expect to earn at a gross profit level. So you had lower gross profits than you would expect on the transactions in elevated costs on the logistics at the same time. I would certainly expect the margins to come back to historical levels next year.

Okay. And then I have sort of a broader question that I get from investors quite a bit, the biggest complaint about Bunge is, we capital predict the earnings. And I guess when I look at your business, and I think about sort of the other companies that compete in your space, and it is a fairly consolidated space, in terms of companies that have asset networks that are as large as yours. I know feedstock, et cetera, ships from company to company, but my general question is, why is it given the consolidation in this industry, and your critical place on the chain between the farmer and kind of the users of the what the farmer is growing, why can't we see better margins even on an operating basis? So I know it is sort of subject to the whims of global demand on soybean meal, or whatever, pick your feedstock. But you would think that if there are only three global crushers, you would be able to get a better margin. I think that is kind of another sort of source of frustration with investors in addition to the earnings. Can you just maybe comment on that, like why in a consolidated industry we are not seeing sort of richer margins?

I would say two comments to this regard. First of all, I would say there is much less volatility when you look at the earnings on a yearly basis. Just look at the last five years on the agribusiness, on food and ingredients. It is true, profitability moves sometimes from one quarter to the other, so on a quarterly basis it's problematic, but look on a yearly basis. It is pretty stable. It is obviously there is, it is more volatile than some other industries, but we feel that on a yearly basis that we have a relatively good visibility. Obviously, there are some variations there, but they are not as large as they are on a quarterly basis. We feel good about that. And if there is some disruption, it is often very, very clear, like in the case of sugarcane it is the production. Now in terms of margin structure, people tend to forget that there are a lot of smaller players also all over the place. There are 2.5 billion tons of grains worldwide. So when you take the top five largest players, if you take the whole crops worldwide, it is fragmented. People tend to think that it is much more consolidated than it really is. I hate to admit it is so.

So you are just saying the small players kind of exist to--

They do make a difference.

To keep the big players honest?

Yes. They do make a difference.

Monopolize, is that it?

Yes. They do make a difference.

Okay. Alright. I appreciate your commentary.

Thank you.

Our next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Thanks and good morning everyone.

Good morning.

I have got two questions. One on the US Justice grains report, and then another on sort of what is happening with the CFTC. Alberto you kind of commented on this yourself in some of the discussion about agribusiness in the quarter, but there is a lot of controversy over the, particularly the most recent grains stock report, and there has been about other ones, particularly this year. That report sort of said that there was an incremental 200 million bushels of corn, relative to what people thought. Is that consistent with what you see in your inventory, or what you were seeing coming in, or what have you, or how did you view that report? It obviously had an impact on how you marketed things at the end of the quarter?

I think the whole industry was a little bit surprised, but obviously we were, everybody was a little bit surprised here on that there was so much stock there.

And just sort of as a follow-up to it, people have always argued that 5% stocks use of corn is sort of the bare minimum level. Do you think that level might actually be higher now that the ethanol industry has grown and so forth, I mean 5% was the floor number that was hit back in the 1990s, but do you think make its closer to 6% or 7%, which is where the USDA thinks we are now?

Could be Vincent, I think the reflection on the prices indicates that it is too tight. Despite all this, the fact that we found more inventories, but the commodity prices are where they are, it is an indication it is a little bit too tight.

Yes. I guess what I was getting at was they said we had more inventory, and presumably that should have meant that your sales with some of your competitors should have looked and said, oh we have more corn than we thought. That doesn't sounds like that was the case. I am just wondering from you are perspective because those types of reports can be disruptive to your business, if you're communicating at all with the Agency in terms of how that type of information should be gathered and reported going forward?

The only thing we never liked is that the report comes out at the end of the quarter, if it would be one day later, it would be much easier, because everybody becomes very careful at the end of the quarter. So, but okay. It is what it is, so.

Okay. And then my next question is just on the CFTC the initial legislation that has come out, can you help us understand how that might change assuming that it goes through as is, how that might impact your ability to run the agribusiness segment if at all?

I think, Vincent, we would rather wait and see the final regulations issued before we comment on what the exact impacts have been. As you would expect we have been very active with our industry groups, and with the regulators, and trying to make sure the regulations are written the way that accomplishes the Agency's objectives, and are fair to the industry and lets us operate as appropriate, and we are hopeful that when we see the final regulations that they will reflect that.

An maybe Drew, could you just begins us a broad brush highlight of what the existing restrictions are on your business in terms of hedging, and things like that, if there are any?

We under the current regulations we have hedge exemptions, which I expect will be in the new regulations, so as far as our ability to hedge I think we will be fine.

Okay. Thanks very much. I will pass it along.

Thanks.

Our next question comes from Ken Zaslow of BMO Capital Markets. Please go ahead.

Hi. Good morning everyone.

Good morning Ken.

What is your interpretation of what is going to happen with the CWB, and how do you think it is going to affect your positioning in Canada?

It is very difficult to assess, Ken. If it will go away or not because farmers voted that they want to keep it, but like it happened in other parts of the world, I think over time companies like us and others would be part of the process. But it is very early to say, so these processes take time.

Would you be an active consolidator in that industry?

I think we will continue participating. We have already an operation in eastern Canada with six silos, a terminal, and we have one silo in western Canada. I think we would expand. We have a nice important origination of canola, so it would be very natural that we would also do some origination of grains.

Great. In terms of we are definitely a firm believer of what happens in a quarter stays in a quarter, but there was some commentary that kind of leads me a little bit away from that for a second. One is, why have merchandising margins come down? Is this more of a secular, I know we addressed this in the first quarter of the year. We had a discussion on that. My fear, or my caution here is, is there less opportunity in terms of the dislocation, which is now reverting back to more of a normalized merchandising margin, and I know we can't track it, but can you give us some commentary on that?

I would say it is more, it is clearly a situation of the quarter. When you look at the price charts, it is really very erratic all over the place, and everybody in the chain becomes cautious. The farmer, the customer, we, everybody. So that really gives you less opportunities, and obviously I would say that is the main reason. When I think about when I look forward in terms of, I am share you are commenting more on the grain side than on the oilseed. We see strong demand, increased demand from Asia and more volumes, and we will need to expand and more assets, and that all means that we have to have higher margins to process all of this grain. So we feel comfortable about the future.

When you say that higher demand, which parts of the world are you seeing exports, and what grains are you seeing exports growing year-over-year, because we are not exactly seeing that structure exactly the way you are laying it out. I am just trying foreign exchange figure out, even in Brazil year-over-year it seems to be a little bit lighter, or kind of at par. Where do you see the growth year-over-year on the export demand?

Look, just think about the way the population is growing, and income is growing, you have when you think about, let me take the very big picture. If you take the estimates of the FAO, by 2050 we will need 1.7 billion tons of additional grain, and this is going to be, this is 70% more than the world produces today. Now because there will be more production in certain areas, and the demand is in different areas, there will be more than 100% increase in trade, northern Africa, Middle East, they all will need more wheat from the Black Sea region. Asia will need more corn from the US, from South America. So it will, you will see an increase in trade. That is why we built Mykolayiv, that is why we bought Mykolayiv. That is why we built Longview in the Pacific Northwest. That is why we built [Harmage] in Argentina, so you will see South America, North America, and you also will see Eastern Europe are the main areas of expansion in grains, and North America is not land, it is technology.

My last question is just to understand, when you give the view that things will improve from the current, are you talking about from the operating level I think 3Q in the third quarter, or are you talking about from 2010? I mean because improving from $0.86 is probably not something, I mean I don't think anybody would disagree that from $0.86 you would. So what level do you kind of use to say, hey look we are going be improving from the current level, and I know you don't want to give guidance, but can you give us I mean improving from $0.86 is a lot different than improving from the quarter before of $1.80, or $1.78, just trying to figure out what you are actually implying?

I think, Ken, I want to avoid giving guidance a little bit, but if you look at what we see going forward, certainly the food business was weak in the third quarter, because you had very tight supplies in Europe. We have had a new harvest in Europe so the food business should have a significantly better quarter than this one. Our sugar business we certainly don't expect a loss again. We would expect be solidly profitable in the fourth quarter and next year, at least profitable in the fourth quarter. Fertilizer should be fine, and agribusiness we think there is room and improvement both in the fourth quarter and this year. I mean oilseed processing the third quarter has not been that strong either year in the fourth quarter has been strong, and that trend seems to be the case again, because we get the northern harvest, sunseed should be very good.

North America should be improved due to the harvest season, I wouldn't call it very good, but improved from where we have seen it. And it seems like China is coming around for the fourth quarter and into next year, depending on a couple of factors but the demand is certainly there in China, it is with the macros go ahead and do. On the grain business I know everybody would like us to give a standard profit per ton, and say it is regular and comes all of the time, but the grain margins do shift based on the opportunities, which are in large part due to what happens with crops, and unfortunately, we can't accurately predict crop to crop what the weather is going, and what has happened. So you do see some periods of higher margin when there has been a lot of dislocation and our global network is more valuable, and sometimes lesser margin with less dislocation, but over time the average margins produce pretty strong results, and I think that is why Alberto is referring you to an annual number, versus a quarterly number, because it kind of tends to average all of that stuff out, and gets you back to more of what a baseline would be.

Thank you.

And when we think about next year, it is significant when you think about the contribution from sugar is very little this year, and it should be significant last year, and there should be also an important improvement in fertilizer, so we feel very good about 2012.

Great. I appreciate it. Thank you.

Thank you.

Our next question comes from Jeff Farmer of Jefferies and Company. Please go ahead.

Great. Just following up on those last two comments, fertilizer first, in terms of your efforts to increase market share. What type of visibility do you have on that going into 2012?

We have dramatically changed it, so we are going very carefully. This year we should accomplish some of it, and next year more, and we have reduced significantly the amount of customers we work with, so in order to have the right balance between risk and rewards. But with the plants that we refurbished and rebuilt, so we feel quite comfortable that we will increase, I will not say how much, that we will increase our market share next year.

But it is safe to assume that market share number has been moving steadily higher over the last couple of quarters, as you have reworked the business?

Very, very slowly. But we are giving clear preference, it is risk/reward, so we are not doing volume at any cost.

Okay. Then just following up on sugar to beat the dead horse here, so that 17 million to 19 million ton number, the outlook for 2012, just to really make this simple, how much of that outlook is based on sort of the Brazilian sugarcane world getting better in general, versus your Company specific efforts? So how much of your destiny is in your own hands in 2012, as it relates it that number jumping back up to, or jumping to 17 million to 19 million tons?

Look our estimate is clearly 19 million tons if weather is normal, and you have to consider a couple of disruptions here sometimes a little bit too much rain, a little drought here and there, so that is already included. So when we say 17 million to 19 million, it includes also a downside scenario. But I would say this is pretty much based on all of what we are doing, so it doesn't, a significant portion of that is from our own cane, and around two-thirds, more or less two-thirds is what we planted or we can control. So weather we obviously can't control, but we feel relatively good about this number.

Okay. That is what I wanted to hear, thank you.

Thank you.

Our last question comes from Rob Moskow of Credit Suisse. Please go ahead.

Alright. Thank you.

Good morning, Rob.

Good morning. I wanted to ask about dry distiller grains. Maybe this has been asked months in the past, but I saw an interesting report that said that the supply of DDGs should continue, and that there is a structural threat to soybean meal, as livestock producers keep shifting the mix, and it is not just a one year thing, but it could have a multi-year effect on soybean meal. And then the other element is you kind of touched on it, that South America should have a strong year, but if South America has a strong year and there is more soybean meal out of Argentina, they are the low-cost producer so they can serve the world demand for meal at a lower cost than North America can. So given all of that, what is your view about how attractive North American soybean meal is in the global market, and is there anything structural we should be concerned about?

I don't think so, Rob, that we should be concerned because there is no meal that has the kind of quality and protein as soybean meal, and you have to see DDG is a cheap alternative. It is more a question of price, and as over time the crops increase and soybean meal prices come to a more normal level, they will be, it is clearly the preferred alternative from a nutritional point of view. DDGs are making their way into the rations more, because of the question of price, and the protein content is much, much lower in DDGs. Now people obviously find ways to include them, but especially on poultry and hogs, you always are going to have something with high protein content, and there is no substitute for soybean meal. Now it is a fact, it is available because of the ethanol demand, but also we are getting closer to the mandate level, and we should not see an expansion in ethanol from corn production, so we should then not see any more increase in DDGs.

And, Rob, just to highlight one part of your question, doesn't impact us too much. We have very strong positions in Argentina and Brazil, so if meal production shifts to Argentina and Brazil, we benefit there even though we may find it a little more difficult in the US, and I think your premise is right. The US in the near-term would be a little bit pressured on soy meal exports, but from our perspective we will just shift it to a different Bunge location, and do the business from there.

And you have to remember also how people don't remember how small the contribution of soybean crushing in North America is part of the total mix, so you all of the time adjust yourself, look how much we have expanded canola, rapeseed, sunseed, so you all of the time you are adjusting your business model. So the contribution of soybean crushing in North America is very small in the overall picture.

Okay. I get it. And as I listen to your comments today, a lot of it is similar to last quarter where you said that while the Black Sea is coming back, and as a result your volume will be up in your Russian business, it sounds like something similar might be happening here in Argentina, but if you think about the last 12 months, the margins were so good, and it was specifically related to the dislocation that happened in those markets. I guess that is what people kind of struggle with, is that on one hand it is good to see the volume coming back, but on the other hands, it comes at the expense of dislocation and probably causes lower margins. When you think about planning for 2012 is that kind of like the puts and takes that you are thinking through as well?

Perhaps a little like that, or obviously a little bit more complex, and the way we look at the history, these businesses earn their cost of capital. So if they don't earn their cost of capital, people exit, and you get the right capacity utilization in the industry. So you might have had in the past perhaps a little bit more margin in grain, and less in oilseed, but before it was the other way around. So what we expect is that probably by the second half of next year, that we should have a much better capacity utilization in oilseed processing, as demand continues growing at 5% in meal and 4% in oil, and less capacity is added, we will get a better balance there and margins will improve in oilseed processing. So you might have a little bit less margin in grain, but overall the agribusiness we think will be in line to always cover their cost of capital. Now these locations when you go back you have all of the time. All of the time there is something. Remember it was in Australia, then it was in Argentina, then it was southeast Europe, then it was Russia. You always have that, and that is exactly the advantage of a company, of the large companies with a large network, where you take advantage of that, and source fast, and provide the customer with the needs. Obviously, it also allows to have an expansion in the margins. We expect agribusiness to be covering cost of capital plus 1 or 2 percentage points all of the time, and we will be one or the other year where it might be less, but we feel good about next years.

Very good. Thank you for the questions.

Thank you.

We do have a follow-up question in queue from Bryan Spillane of Bank of America.

Hey, guys. Drew, can you just give us a tax rate for the fourth quarter and for 2012, or an expectation?

I think we are looking at an annual tax rate now below the 10% that we had previously forecast, as we have seen what the earnings mix is going to look like for the year. We are earning a little bit less in some of the higher tax rate jurisdictions, so it will drop our rate a little bit. For next year it may be 9% to 12%. I hate to get too specific, because as you have seen it can jump a couple percent pretty quickly based on a shift in our earnings mix, but that range I think would be about right.

Okay. Thanks. And then, Alberto, could just also remind us of your appetite for acquisitions, and the criteria you would go through in terms of size, accretion, geography, segments?

We continue always looking at opportunities, and our first priority is to strengthen our core businesses where we are in, and so you will see from time to time in our grain and oilseed processing, edible oils, milling and so on, but we also look at some adjacent business where we can use our capabilities, and one of the reasons you have not perhaps seen so much activity is obviously we are also very careful in this environment, and our hurdle rates are steep. So if the price is not right, we don't move. But we think we have a very strong balance sheet, and we are ready to move whenever it is necessary. So we are all the time looking at opportunities. But I have to say in this environment, this volatile environment, we feel quite good that we have this strong balance sheet.

Alright. I will leave it there. Thanks a lot, guys.

Thank you.

Thank you.

We also have another follow-up question from Christina McGlone of Deutsche Bank. Please go ahead.

Thanks for taking not up. Alberto, I had wanted to ask about the South American crush margins in general seem strong, I mean seasonally maybe they are a bit weak, but they seem much better than say in North America. And ADM is putting on this facility Paraguay in the middle of next year, and then they are also dramatically increasing their biodiesel capacity, and I am just wondering if the market can bear those two new facilities?

Yes. There is no question the domestic meat demand in Brazil has been very strong, and also because US exported less meal, there was more room for Brazil to export. I think there is room for it. The biodiesel demand in Brazil and in Argentina has done gone up, like in the US as well, so we are not worried about excess capacity there.

Okay. Thank you.

Thank you.

We have no further questions in queue. I would now turn the conference call back over to Mr. Haden for any closing remarks.

Great. Thank you, Monica, and thank you everyone else. If anyone experienced any technical difficulties with the slide show today, I apologize, we had some issues with the service. Thank you.

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